Synthetix's sUSD Hits 5-Year Low at $0.83 Amid Market Instability

Synthetix USD (sUSD), the native stablecoin of the Synthetix protocol, has experienced significant instability, reaching its lowest value in five years. The asset's struggle to maintain its $1 peg began at the start of 2025, with prices dropping to $0.96 on January 1 and only rebounding to $0.99 in early February. Prices continued to fluctuate through February before stabilizing in March. However, on April 10, sUSD fell to a five-year low of $0.83, according to data from CoinGecko.

SUSD is a crypto-collateralized stablecoin, meaning users lock up SNX tokens to mint sUSD. This design makes its stability highly dependent on the market value of SNX. The recent drop in sUSD's value has raised concerns about a potential "death spiral" scenario, similar to the collapse of Terra's TerraUSD (UST) stablecoin in 2022. Rob Schmitt, the co-founder of the risk tokenization platform Cork Protocol, explained that if the value of SNX drops sufficiently, sUSD may no longer be fully backed. This could trigger users to redeem sUSD for SNX and sell it, creating further downwards pressure on SNX and a cascading deleveraging event.

Despite these concerns, Schmitt emphasized that such a collapse is unlikely due to Synthetix’s $30 million treasury, which holds about half of the outstanding sUSD debt. This reserve could be deployed against a spiral scenario. Synthetix founder Kain Warwick also addressed the dips, stating that while he had feared a death spiral during the last seven years, he is now more confident. He explained that the dips happened because the primary driver of sUSD buying had been removed, and new mechanisms are being introduced to stabilize the peg. Warwick noted that since sUSD is a pure crypto-collateralized stablecoin, the peg can drift, but there are mechanisms to push it back in line if it goes above or below its peg.

In addition to sUSD, another stablecoin, Synnax Stablecoin (syUSD), also recently strayed from its dollar peg. On April 7, syUSD dropped to $0.94 due to concentrated sell activities, causing a "slight deviation" from its dollar peg. The project is working on implementing a fully open redemption system to address this issue.

The instability of sUSD and syUSD highlights the challenges faced by crypto-collateralized stablecoins in maintaining their pegs during market downturns. The recent drops in their values underscore the importance of robust collateralization and effective risk management mechanisms to prevent potential death spirals. As the crypto market continues to evolve, stablecoin projects will need to adapt and innovate to ensure the stability and reliability of their assets.