Synthetix's main stablecoin, sUSD, has been trading significantly below its $1 peg for over a month after the implementation of the SIP-420 protocol upgrade. In an act of manual intervention within a decentralized system, the project’s founder has urged users to take action and help restore the peg
Synthetix's stablecoin, sUSD, was initially launched as nUSD on June 11, 2018, under the Havven project. Later that year, the project rebranded to Synthetix, and nUSD was renamed sUSD.
In 2020, Synthetix emerged as one of the key players in the decentralized finance (DeFi) boom. Built on Ethereum, it offered synthetic assets (“Synths”) that allowed users to gain exposure to various real-world assets without needing to hold the underlying asset. sUSD, its native stablecoin, played a central role in this system, serving as the primary means of settlement. At the time, Synthetix relied heavily on SNX stakers to mint sUSD by locking SNX as collateral, maintaining a high collateralization ratio (initially around 750%) to ensure stability and peg adherence.
The collapse of Terra’s UST stablecoin in May 2022 had a ripple effect throughout the DeFi space, and sUSD was not immune. The failure of UST highlighted the risks associated with algorithmic stablecoins and undermined confidence in similar models. While sUSD was not algorithmic in the same sense as UST, it still depended heavily on SNX collateral and market incentives, which began to draw scrutiny. Investor sentiment became more cautious, and the overall appetite for synthetic stable assets waned. In response, Synthetix began exploring protocol reforms to strengthen its peg mechanisms and reduce systemic risk.
In early 2025, the implementation of SIP-420 marked a major turning point. This update shifted debt risk from individual stakers to the protocol itself, drastically reducing the collateralization ratio to 200% and removing some incentives that had previously encouraged users to mint and burn sUSD in a way that helped maintain its peg. The result was an oversupply of sUSD, insufficient demand, and ultimately a depegging event in April 2025, where sUSD dropped as low as $0.68.
Importantly, this depeg isn’t the result of bad debt or a broken mechanism. Instead, it is a side effect of Synthetix’s recent architectural overhaul following the implementation of Synthetix Improvement Proposal 420 (SIP-420).
sUSD is an overcollateralized stablecoin, meaning users deposit SNX tokens as collateral to mint sUSD. Previously, each staker managed their own individual debt, following a traditional collateralized debt position (CDP) model. However, this changed with the introduction of SIP-420, which shifted the system to a protocol-managed staking pool known as the 420 Pool. Now, instead of minting and managing their own sUSD, SNX holders delegate into this shared pool.
The new design was meant to eliminate liquidations, remove individual debt responsibility, lower the collateral ratio from 700% to 200%, and simplify the user experience. It also meant each SNX stake could mint 2.5 times more sUSD.
However, by pooling debt, stakers lost their individual incentive to defend the peg. In the old model, if sUSD fell below $1, stakers could buy it cheap, burn it to pay down their debt, and effectively arbitrage the discount, since the protocol always valued sUSD at $1. This reflexive mechanism helped keep the peg stable. With SIP-420, that arbitrage incentive vanished. Debt is now shared, and stakers don’t feel the direct impact of a depegged sUSD. This collective responsibility diluted the motivation to stabilize the system.
On April 21, 2025 the founder of Synthetix issued a stern warning to SNX stakers, urging them to help resolve the ongoing sUSD depegging crisis or face consequences. sUSD, the primary stablecoin in the Synthetix ecosystem, has been significantly off its $1 peg since March of this year. It is currently trading at around $0.87, after dropping below $0.70 just last week.
To fix the issue and increase demand for sUSD, founder Kain Warwick has rolled out several new initiatives. A new sUSD 420 Pool now allows SNX stakers to deposit sUSD and earn a share of 5 million SNX over 12 months, equivalent to 13,698.6 SNX per day. There are also two new stablecoin pools that accept USDC and sUSD deposits in exchange for yield. Warwick also plans to introduce penalties for idle SNX stakers to encourage more active participation in defending the peg.
As Warwick put it:
“The collective net worth of SNX stakers is like multiple billions. The money to solve this is there—we just need to dial in the incentives. We’ll start slow and iterate, but I’m confident we’ll resolve this and get back to building perps on L1.”
While these new measures appear to be gaining traction, the sUSD peg has not yet been fully restored.
Currently, SNX is trading at a $246 million market cap, down 97% from its all-time high, while sUSD has a market cap of $29 million.