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Synthetix’s algorithmic stablecoin, sUSD, is continuing to drift away from its intended $1 peg—trading as low as $0.8597 on Friday, a 6% drop in just 24 hours. While this isn’t the first time the DeFi-native asset has slipped, the recent move is raising fresh concerns, especially given its growing trading volume, which spiked nearly 487% to over $2.1 million, according to CoinGecko.
At the heart of the issue is SIP-420, a new protocol proposal that significantly altered the way sUSD is minted. The so-called “420 Pool” now allows SNX holders to mint sUSD with a collateralization ratio as low as 200%, down from the prior 500% requirement. This change has rapidly increased the circulating supply of sUSD—and, in turn, applied downward pressure on its value.
DeFi analyst Panterafi flagged this in a recent post, pointing to an influx of sUSD in the market and its usage in various yield strategies, many of which involve offloading the stablecoin for other assets. Though sUSD remains overcollateralized on paper, its peg is now far more reliant on market demand and liquidity incentives than traditional mechanisms like arbitrage or debt repayment.
Synthetix developers have called this a temporary adjustment phase. In a recent Discord update, the team acknowledged the oversupply but emphasized that they’re working to counteract the pressure with stronger incentives for Curve liquidity pools, the Infinex deposit campaign, and new utility initiatives like Snaxchain—an upcoming platform aimed at expanding sUSD’s use cases.
“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, and creating additional sinks for sUSD…” — Synthetix team via Discord
This isn’t the first time sUSD has lost its peg—similar incidents occurred in March and May 2024. But this latest move has sparked deeper debate about the underlying model. While some analysts remain optimistic, others, like DeFi researcher Eldar, warn that the peg may be difficult to maintain long-term without a clearer foundation of intrinsic value supporting SNX.
Still, Synthetix founder Kain Warwick remains confident. He recently increased his SNX holdings and described the current volatility as a short-term side effect of the SIP-420 implementation—one that will ease as the ecosystem adapts.
For now, though, the market is watching closely to see whether these corrective efforts will be enough to bring sUSD back to its $1 peg—or if the protocol will need to make further changes to avoid losing trust in one of DeFi’s more established stablecoins.
