The sUSD stablecoin, integral to the Synthetix protocol and designed to hold a $1 peg, has crashed to $0.68 as of April 18, 2025. This dramatic depegging event has shaken the DeFi community, raising questions about the stability of decentralized stablecoins.
sUSD Value Collapses to $0.68
Unlike fiat-backed stablecoins, sUSD relies on $SNX staking and debt pools, making it vulnerable to protocol changes. The recent price drop, which began around March 20, 2025, marks one of the most severe disruptions in sUSD’s history. The stablecoin’s value fell to $0.83 by April 10 and continued its significant decrease, hitting $0.68 today.
Source: CoinGecko
Why Did sUSD Depeg?
The depegging stems primarily from the SIP-420 protocol update, which changed the Synthetix ecosystem’s debt management and sUSD issuance processes. Before SIP-420, $SNX stakers minted sUSD individually and managed their debt, incentivizing them to buy sUSD at a discount to repay obligations and maintain the peg.
The update introduced a protocol-owned staking pool – “420 Pool”, where stakers deposit funds collectively, eliminating the stabilization mechanism in which the individual has an incentive to purchase discounted sUSD. This shift weakened the mechanism that historically restored the peg during price deviations.
The update also led to a surge in sUSD supply. The collateralization ratio for minting sUSD by $SNX has come down to the current 200%, making it easier to mint sUSD. Meanwhile, according to Parsec Research, over 80 million USD worth of $SNX has flowed into the “420 Pool.” Combined with Infinex campaign-driven holdings, there has been an expansion in sUSD supply, resulting in oversupply and insufficient buying incentives that have driven the price down.
Additionally, if the value of $SNX drops sufficiently, sUSD is no longer fully backed. Fears of under-collateralization might prompt users to exchange sUSD for $SNX and sell it. Such an action would lead to additional downward pressure on $SNX, triggering a deleveraging cycle. Declines in $SNX’s price since March have likely contributed to the sUSD depeg event recently. However, despite the dramatic price decrease of sUSD, $SNX still has positive growth today, reflecting mixed market sentiment.
Source: CoinGecko
Responding to the depegging event, there has been a 30% drop in Synthetix’s Total Value Locked (TVL) from $100 million to $70 million between March 29 and April 17, 2025.
The decrease coincided with a 70% reduction in Perps Active Accounts and Perp Volume since April 9, reflecting reduced engagement due to sUSD’s instability, as reported on Synthetix Stats.
Source: DeFiLlama
Source: Synthetix
Synthetix’s Response Plan
The Synthetix team has acknowledged the depegging as a result of “mechanism transition pains” and is actively addressing the issue. The team is enhancing liquidity incentives, particularly within Curve pools, to attract buyers and restore market balance.
More collaborations are also underway to create new demand channels for sUSD, potentially integrating it into lending markets or other DeFi applications.
Moreover, the Synthetix founder revealed through a post on X that he now holds 35 million $SNX and is the largest holder. He explained that he funded the purchases by selling as much as 90% of his $ETH holdings since 2020 to support Synthetix operations.
For the DeFi ecosystem, this crisis underscores the importance of robust fallback mechanisms during protocol upgrades. As Synthetix works to restore sUSD’s peg, the success of its efforts will shape confidence in algorithmic stablecoins and influence future DeFi designs. Stakeholders should closely monitor developments, as the outcome will determine whether sUSD can regain its stability or face ongoing challenges in a competitive DeFi market.
