Synthetix’s algorithmic stablecoin, sUSD, has dropped to around $0.90—well below its intended $1 peg—following recent changes introduced by SIP-420, a governance proposal aimed at improving capital efficiency and streamlining the Synthetix user experience.
The trouble began in March when sUSD briefly dipped below $1. But the situation took a sharp turn after SIP-420 was implemented. According to data from Parsec, the upgrade inadvertently triggered a major spike in sUSD supply, accelerating the depegging.
SIP-420 introduced a protocol-owned staking pool that allows SNX holders to delegate their staking instead of individually managing debt and minting sUSD. This move also slashed the collateralization ratio from 500% to 200%, making it 2.5x easier to mint sUSD. However, it also eliminated a key stabilizing mechanism: individual incentives to purchase and burn sUSD when its price fell below $1.
With stakers no longer directly accountable, and over $80 million in SNX now pooled in the 420 Pool, sUSD supply surged. Some Curve liquidity pools now consist of more than 90% sUSD—creating a severe imbalance with demand, which remains weak.
Compounding the problem, Infinex started incentivizing sUSD holdings just before the depeg began. While the campaign boosted liquidity, it failed to create real market demand, as echoed by frustrated users in Infinex’s Discord: “You guys promote sUSD through campaigns, you take responsibility.”
The Synthetix team has responded by calling this a “transition period.” They’re actively working on new integrations—such as with Aave (AAVE) and Ethena (ENA)—to generate fresh demand for sUSD. They also plan to strengthen incentives for liquidity providers, especially on Curve, to help stabilize the token.
In essence, while SIP-420 succeeded in simplifying staking and increasing capital efficiency, it unintentionally removed the organic peg-restoring mechanism. The result? A ballooning supply of sUSD and a significant deviation from the $1 target.
Now, sUSD holders face a difficult decision: exit at a loss or hold on and hope Synthetix’s recovery measures succeed in restoring the peg.
