Synthetix stablecoin sUSD has experienced another de-pegging, dropping below the $0.90 mark.
The asset-backed token saw a low of approximately $0.83, marking its second deviation from its dollar peg in the past month.
Repeated De-pegs raise stability concerns
sUSD has now de-pegged three times in just one month, with the most recent event adding to a history of volatility. Despite a five-year track record, the stablecoin has dropped to as low as $0.40. With a current circulating supply of around 30.3 million, sUSD is issued on a limited scale and is considered one of the riskier stablecoin options. The asset maintained relative stability during the 2023 bear market, but recent volatility has revived concerns about its price fluctuations.
Supply surge and collateral model impact peg
The current de-peg followed a rapid doubling of sUSD supply within a month. Synthetix encouraged the staking of its SNX token, leading to a quick expansion. Previously, users minted sUSD by locking SNX at a 750% collateral ratio. The newer 420 Pool changes this by using pooled deposits to mint sUSD to reduce the collateral ratio to 200%. The new minting approach may increase the risk of future de-pegs due to the lack of fast recovery mechanisms. The supply of sUSD is only 10% of its 2021 peak when it exceeded 294 million tokens. Earlier de-pegs saw the asset drop to the $0.91 to $0.92 range, prompting the team to respond with reassurance that volatility may persist during a transition period.
Staking incentives and debt forgiveness shape user behavior
The 420 Pool Synthetix enables SNX token holders to place deposits for passive earnings. The debt forgiveness program for participants spans one year while penalties occur when users withdraw early. Stakers receive this model because it preserves their commitment and stops them from exiting without warning when prices become unstable. Currently, SNX deposits mint sUSD with a 500% over-collateralization.
Although implementation efforts have been made, the project has recovered only $74 million of total value locked, which is still significantly lower than the $2 billion peak in 2021 during the bull run. The de-pegged event caused SNX to fall to $0.63, its lowest point in three months.
The Real World Assets trend does not include Synthetix, although the protocol maintains its position as an active DeFi project. The Synthetix DAO supports the project through assets that exceed $32 million, including stablecoins, SNX, and the PEPE meme token.