Synthetix's sUSD Stablecoin Drops 30% Amid Protocol Changes

Synthetix’s native stablecoin, sUSD, has experienced significant instability, falling to as low as $0.70, a 30% deviation from its intended $1 peg. This decline began in mid-March 2025 and has worsened over the past month, with the stablecoin reaching an all-time low of $0.66 before recovering slightly. The market capitalization of sUSD has also decreased from $30 million to approximately $24.5 million.

The primary cause of sUSD’s instability is linked to recent protocol changes, specifically the implementation of Synthetix Improvement Proposal 420 (SIP-420). This proposal aimed to enhance capital efficiency by introducing a new staking pool called the “420 Pool” and reducing the collateralization ratio from 500% to 200%. However, these changes have led to an oversupply of sUSD, outpacing market demand and contributing to the current volatility. The proposal also shifts debt risk from stakers to the protocol, removing the primary driver of sUSD buying and further exacerbating the issue.

Kain Warwick, founder of Synthetix, acknowledged the volatility, attributing it to transitions in the protocol’s mechanisms. He stated that new mechanisms are being introduced, but during this transition, there will be some volatility. The situation has been particularly evident in Curve pools, where sUSD now accounts for over 90% of the total supply, further contributing to its depreciation. Additionally, Synthetix’s divestment of 90% of its ETH position while increasing its SNX holdings may be affecting investor perception of sUSD’s stability.

Despite sUSD’s troubles, the SNX token has shown resilience, even gaining 7.5% in a 24-hour period. The Synthetix team has acknowledged the challenges and outlined a three-tiered approach to address the situation. In the short term, they will continue supporting liquidity for sUSD through Curve pools and deposit campaigns on their derivatives platform, Infinex. For the medium term, Synthetix has introduced “simple debt-free” SNX staking to encourage individual debt repayment. Long-term plans include making capital efficiency changes through the 420 Pool, taking over protocol-level management of sUSD supply, and introducing new “adoption-focused mechanisms” across Synthetix products.

Warwick emphasized that sUSD is a pure crypto-collateralized stablecoin, and while the peg can drift, there are mechanisms in place to push it back in line. The future of sUSD and the broader Synthetix ecosystem will depend on how effectively these measures can restore stability to the stablecoin. Users and investors are advised to monitor the situation closely as the protocol navigates this challenging transition period.