Synthetix’s stablecoin, sUSD, has dipped yet again—this time by 4.6%—in just the last 24 hours, and is now sitting at a value of $0.916. With this new significant drop, sUSD is now pegged over 8% off where it should be.
With this new serious stability issue that sUSD is dealing with, many Twitter Communities and Discord Groups across Web3 are speculating about the future of that ecosystem.
While many people are asking whether this is the start of a “death spiral” for sUSD, or whether it will eventually recapture its peg, it is much more powerful to frame the problem conditionally, using “if” and “when” statements.
If sUSD is in a death spiral, then its pegged stablecoin mechanism is definitely failing, and we need to understand how and why that failure is occurring. What are the basic mechanics of sUSD? What have been the basic changes to those mechanics that SIP 420 has introduced?
To completely understand the effects of the sUSD depeg, we must first examine the very foundation of Synthetix. Founded in 2018, Synthetix has for a long time been a leading player in the decentralized finance (DeFi) sector. It’s one of the very first projects that has managed to stay relevant through three distinct market cycles. At its core, Synthetix allows for the creation of “Synths”—synthetic assets that track the value of real-world assets like Bitcoin, Ethereum, and, of course, the US Dollar (represented by sUSD).
For a long time, sUSD was the main stablecoin used on the Synthetix platform, and it was, in many ways, a synthetic stablecoin. Unlike a normal stablecoin, which is usually backed by some sort of collateral to remain pegged to 1 USD, sUSD was minted on Synthetix, and the only way to mint it was to stake Synthetix’s native token, SNX. And for every $1 of sUSD that was minted, there was a necessary backing of at least $7.50 worth of SNX, a massive collateralization ratio of 750%.
The current problems with sUSD primarily stem from SIP 420, a proposal that was introduced and passed in early 2025.
SIP 420 was designed to simplify the minting of sUSD, create a better value proposition for SNX stakers, and improve the capital efficiency of the protocol.
In hindsight, it’s clear that these changes aren’t favorable for the system overall.
SIP 420 changed the way sUSD was minted. Instead of individual stakers minting sUSD, now it was a collective pool of stakers. And instead of the earners in that pool acting as collateral to mint the sUSD (which was a pretty inefficient way to do it), the collective pool as a whole, whose stake was now a fraction of the SNX tokens locked up in the protocol, minted the sUSD. And, not only that, but SIP 420 also lowered the collateralization requirement for sUSD from 750% to just 200%—and this was meant to be a so-called “capital efficient” design.
Although SIP 420 guaranteed amelioration in many respects, in it found a significant challenge to the price stability of sUSD. Before SIP 420, if sUSD was at risk of being unpegged, there was a stabilizing mechanism that nicely took care of the situation. That mechanism incentivized stakers with sUSD debt to buy up the unpegged sUSD at a discount, as those stakers were better off with the sUSD at a price around $1 than having it float around in the wild. We spent a whole lot of time a couple of months back discussing why having unpegged sUSD was a bad thing.
The mechanics that kept sUSD’s price relatively close to its peg are no longer functioning as they did before the implementation of SIP 420. The stabilizing debt repayment mechanism that was part and parcel of the earlier Synthetix protocol is no more. And with that mechanism gone, the protocol and the assets it underpins are in some sense in freefall. So while the market seeks to understand what a Synthetix asset has become and what it might be worth, we are witnessing significant price moves in sUSD.
Things are getting worse due to the trading of sUSD on platforms like Curve. On Curve’s DAI-USDC-USDT-sUSD pool, sUSD accounts for 75.21% of the assets in the pool, which means that users are actively swapping sUSD for more stable coins like USDC and USDT. This suggests that users lack confidence in sUSD’s stability, and it appears to be in quite a bit of trouble at the moment.
Some observers have concluded that sUSD is on the brink of a death spiral. A death spiral in a stablecoin context refers to a condition that stablecoins sometimes reach when, having fallen too far from their peg, they set in motion a series of events that not only ensure they stay far from their peg but also make it increasingly likely that they’ll reach a condition more commonly recognized as a runaway collapse.
Yet there is a silver lining for sUSD. The token is experiencing some significant challenges, but remember this: Synthetix has survived all kinds of market cycles and shown a remarkable resilience over the years. SIP 420, although disruptive in the short term, can potentially bring about some necessary stabilization that recalibrates the system and refocuses it toward the missing peg that sUSD has so far been unable to latch on to.
The protocol is in a transitional phase, and while it faces challenges, it could be that once the 12-month period for SIP 420 is complete and the debt forgiveness process concludes, sUSD will have a better chance of stabilizing and regaining its peg. Until then, the performance of sUSD and the effectiveness of SIP 420 in addressing its current issues will need to be monitored closely.
Synthetix’s sUSD is finding itself in a still challenging situation and is presently experiencing a difficult transition associated with policy improvement number 420, or SIP 420. This policy, which affects the stablecoin, is in transition and is now being implemented.
Stablecoins, which are supposed to maintain a stable price—in this case, one USD—are undergoing periods of intense scrutiny. sUSD is one of those stablecoins. Its capacity to maintain that stable price in the critical next period will be of great moment to everyone concerned.
Disclosure: This is not trading or investment advice. Always do your research before buying any cryptocurrency or investing in any services.
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