The Synthetix stablecoin, sUSD, has experienced a 6% drop in the past 24 hours, dropping to a value of $0.8597 as it continues to stray from its $1 target.
In the same period, the trading volume has surged nearly 487%, exceeding $2.1 million, according to CoinGecko data. This spike indicates increasing market activity amid rising concerns. Synthetix (SNX) operates as a decentralized finance protocol that enables the creation and exchange of synthetic assets, which track the value of real-world assets on the blockchain.
By utilizing oracle data, sUSD aims to reflect the price of the US dollar and is supported by the platform’s native token, SNX. The recent decline in sUSD’s value follows the rollout of SIP-420, which introduced the new “420 Pool.”
This pool enables SNX holders to mint additional sUSD with reduced collateral, decreasing the requirement from 500% to 200%. Analysts suggest that the primary driver behind the stablecoin’s deviation from its peg is the significant increase in sUSD supply resulting from the lowered collateral threshold.
A DeFi analyst known as Panterafi pointed out in an April 2 post on X that the surplus supply and yield farming strategies that involve selling sUSD are exerting downward pressure on its price. While sUSD remains over-collateralized, its stability now relies more on market factors rather than direct arbitrage or traditional debt repayment strategies.
Synthetix developers have characterized this situation as a “transitionary period.” In their Discord channel, the team mentioned plans to enhance liquidity pool incentives and broaden the utility of sUSD through initiatives like Snaxchain.
“During this transition there is excess sUSD in the market causing pressure on the price of sUSD (which is still healthily over-collateralised). We will continue to work on managing (increasing in the short term) incentives for curve pools, supporting the Infinex deposit campaign (will extend) and creating additional sinks for sUSD that will provide long-term price support (snaxchain coming)”
— Statement from Discord
This isn’t the first instance of sUSD dropping below its peg. Key contributors have assured users of ongoing efforts to achieve stability following similar experiences in March and May 2024.
While some believe the issue can be rectified, others, like DeFi analyst Eldar, warn that the current model may struggle to maintain the peg long-term without a clearer material value underpinning SNX.
Nevertheless, Kain Warwick, the founder of Synthetix, remains optimistic. He recently increased his holdings in SNX and expressed that the current depeg is merely a short-term phenomenon associated with the implementation of SIP-420.