Synthetix's stablecoin sUSD has recently attracted market attention due to prolonged depegging.
Since showing signs of depegging on March 20, the sUSD depegging has continued to expand, once falling below $0.7, and currently reporting at $0.78 at the time of writing. As Synthetix continues to roll out various error fixes, sUSD seems to have shown some stabilization at the low point, but whether it can re-peg remains a rather complex issue.
Brief Analysis of Depegging Reasons
The sUSD depegging needs to be explained starting from Synthetix's positioning shift and protocol changes.
Synthetix's original positioning was a synthetic assets (Synths) protocol, allowing users to mint synthetic assets tracking different asset performances (such as BTC, ETH) through over-collateralization, with sUSD being the only remaining synthetic asset with broad utility, as Synthetix has gradually abandoned its original synthetic asset model and shifted towards a perpetual contract DEX.
Previously, Synthetix users needed to pledge SNX with a 750% collateralization ratio - meaning for every $7.5 of SNX pledged, 1 sUSD could be minted. The minting mechanism of synthetic assets was similar to a lending market, where collateral would be locked, and synthetic assets became loans generating debt. sUSD debt was denominated in USD, while synthetic assets like Bitcoin were denominated in Bitcoin, fluctuating with token prices. SNX pledgers needed to bear the corresponding proportion of global debt in the system, requiring Synthetix to design complex hedging strategies to avoid risks from price fluctuations. This hedging demand, extremely high collateralization ratio, and system complexity made SNX pledgers lose interest, so Synthetix recently introduced a new model through the SIP-420 proposal.
At the beginning of 2025, SIP-420, aimed at simplifying the sUSD minting process and improving minting efficiency, was passed by governance. SIP-420 introduced a shared debt pool mechanism, planning to gradually transition sUSD minting from individual collateral mode to a collective fund pool mode over 12 months. SNX stakers no longer need to mint sUSD and bear individual debt, but can entrust funds to a public pool, achieving a structure without liquidation and individual debt. Meanwhile, SIP-420 also reduced the sUSD collateralization ratio from 750% to 200% to significantly improve system capital efficiency.
However, with the exemption of individual debt, when sUSD price deviates from its anchor value, SNX stakers no longer have the motivation to repurchase sUSD at a low price to repay debt (previously, individual pledgers could buy sUSD at a discount to repay debt and stabilize the price). The protocol's original self-anchoring adjustment mechanism has failed. This is the fundamental reason for sUSD's depegging.
The gradually worsening depegging is because sUSD liquidity is not as abundant as imagined. Taking the largest pool on Curve (sUSD/USDC/DAI/USDT) as an example, out of the total liquidity of about $11.51 million, sUSD pool share is about 81.7% - meaning the actual exit liquidity has been largely consumed during the depegging process.
Synthetix's Response Plan
On April 2, Synthetix founder Kain first responded to sUSD's depegging. Kain mentioned that the depegging occurred because the main driving factor for purchasing sUSD (debt management) has been eliminated, and the new mechanism is in transition, thus causing a temporary depegging.
As mentioned earlier, SIP-420 hopes to complete the mechanism transition in 12 months, but the community obviously cannot wait with a depegged stablecoin for 12 months. Therefore, Synthetix has recently launched multiple additional measures to try to repair sUSD's price. The key word for these measures is "incentive".
The first measure is to provide liquidity incentives for sUSD, with the latest incentive measure showing up to 49.18% yield for staking sUSD/sUSDe LP on Convex;
The second measure is to provide incentives for sUSD deposits through another project developed by the same team, Infinex, with incentives lasting six weeks, distributing 16,000 OP rewards per week to users depositing over 1000 sUSD;
The third measure is the latest proposal, allowing users to stake sUSD in the 420 pool, with a one-year lock-up period, but providing 5 million SNX as an incentive.
Obviously, these three measures are aimed at solving the "insufficient sUSD purchase demand" mentioned by Kain. By providing additional incentives for some lock-up behaviors, Synthetix hopes to stimulate sUSD purchase demand and limit potential selling pressure, thereby gradually pushing the stablecoin's price back to its peg.
Especially for the third measure with stricter conditions and greater incentive intensity, Kain also mentioned his expectations yesterday and emphasized that the problem can be completely solved, and the team will gradually solve the depegging issue by optimizing the incentive mechanism.
It's worth mentioning that Kain also suggested that if SNX stakers do not adopt the newly launched staking mechanism to help solve the sUSD depegging issue, they will face a "big stick" - possibly implying that after multiple incentive measures, they will put pressure on users who do not "cooperate" with the repair action through punishment conditions.
Since Synthetix has not yet provided a user interface for sUSD staking, staking operations currently require manual processing by the team, so it is temporarily impossible to know how many users will participate in sUSD staking under the incentives, which will largely affect the repair effect.
Based on the current situation, it is difficult to determine whether Synthetix can stabilize the situation. Although there are already some voices to buy the dips, it is not recommended to "fish in troubled waters" at present. If unable to resist the discount temptation, one needs to closely monitor SNX's price performance to prevent a potential "price drop, insufficient collateral, discount amplification, panic selling" death spiral.
Alternative Arbitrage Opportunity
Compared to betting on re-pegging, the market seems to be exploring another arbitrage opportunity - the prediction market.
The prediction market Truemarket has launched a prediction pool about whether sUSD can re-peg before July, with the current Yes share priced at $0.55 and No share priced at $0.45.
Since sUSD is currently priced at $0.78, and will be restored to $1 after re-pegging, each Yes share can also increase from $0.55 to $1, providing some arbitrage space.
However, the depth of the prediction pool on Truemarket is relatively small and cannot handle large-scale transactions, so the actual operational space for this strategy is limited. It is recommended to follow up on whether other more mainstream prediction markets like Polymarket will open similar prediction pools and look for potential arbitrage opportunities.
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