Synthetix’s sUSD Depegging Explained: A Governance Upgrade’s Unintended Outcome
A new report from parsec, an on-chain analytics firm, sheds light on the recent depegging of Synthetix’s stablecoin, sUSD. Contrary to initial fears, the issue isn’t due to bad debt or protocol failure. Instead, it’s linked to a recent governance upgrade called SIP-420.
sUSD, designed to stay at $1, is now trading around $0.90. Parsec’s analysis shows this drop started after SIP-420 was implemented. This upgrade aimed to simplify staking and boost capital efficiency for the Synthetix (SNX) protocol.
SIP-420 introduced a shared staking pool, replacing the old system where individual SNX holders managed their own debt.This change lowered the collateralization ratio from 500% to 200%, making it easier for users. Though, it also removed the incentive for stakers to defend the peg.
- Stakers no longer have personal stakes in sUSD’s price.
- There’s no motivation to buy sUSD when it’s cheap.
Parsec notes that over $80 million in SNX entered the shared pool, partly due to a campaign by Infinex.This influx increased sUSD’s supply, overwhelming Curve pools that now contain over 90% sUSD. Without enough demand, the price has slipped.
The Synthetix team views this as a “transition period” and is working on solutions. They plan to integrate with Aave and Ethena to create new demand and boost Curve incentives. Despite these efforts, the report highlights a tradeoff: while SIP-420 improved scalability, it weakened a key stabilizer for sUSD.
