The sUSD, an EOS-based synthetic asset, has tumbled to $0.77, raising eyebrows among investors. This depeg occurs after new changes were made to the Synthetix protocol, aiming to enhance capital efficiency. The recent decline in the price of sUSD has called into question the credibility of decentralized financial systems.
At the start of April, sUSD had a market capitalization of $30 million. As of press time, it had reduced to $24.5 million. This depeg has sparked significant concern in the market, as several investors have adjusted their positions due to the depeg.
SIP-420 and sUSD Issues
sUSD is an anchored stablecoin that is collateralized by a synthetic asset, specifically the SNX token, which backs the Synthetix protocol. It is implemented to track the value of the U.S dollar within the cryptocurrency ecosystem via Chainlink oracles.
However, the stability of the stablecoin has been disrupted by recent changes to the protocol. The troubles began in March and escalated after the adoption of Synthetix Improvement Proposal 420 (SIP-420). This proposal was intended to improve capital efficiency, but has had the opposite effect.
SIP-420 introduced a new staking pool called the “420 Pool,” where users can delegate their stakes and earn rewards for supporting the network. The proposal reduced the collateralization ratio from 500% to 200%.
However, the increased supply of sUSD, resulting from the lowered collateralization ratio, outpaced demand, leading to a decline in its price.
This has been especially true for Curve pools, with sUSD now accounting for over 90% of the total supply. This has further led to depreciation of the sUSD as it continues to lag in value as compared to other cryptocurrencies. The Synthetix team has addressed the problem in the past but described it as a ‘transition phase.’
The depegging of sUSD has raised some crucial questions about the stability of synthetic assets. This situation has made investors apprehensive, and the Synthetix team has yet to fully address the problem. The future of sUSD would therefore depend on how the team addresses the issue of oversupply and builds confidence in the stablecoin.
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