Synthetix’s algorithm, Stablecoin SUSD, continues to drift from the $1 PEG, currently trading at $0.90.
The boredom began in March, with SUSD temporarily slipping below $1, but things got worse after the SIP-420 implementation. This is a governance proposal aimed at improving capital efficiency and simplifying the user experience within the Synthetix (SNX) ecosystem. Parsec’s research revealed that the implementation of SIP-420 has significantly increased the supply of SUSD, causing the current DEPEG.
Source: CoinMarketCap
Specifically, SIP-420 introduced a protocol-owned staking pool, allowing SNX holders to delegate staking to a shared pool, rather than managing their debts and minting SUSD. According to Parsec, the new setup has reduced the collateral ratio from 500% to 200%, making it easier to cast more SUSD with ease. This removed the stabilization mechanism for Stablecoin. This removed the incentive for individual stakers to buy SUSD at a discount and pay off their debts when the price falls below the peg.
Currently, with debt pooling, stakers essentially have no skin in the game. The pegs are recovering. Coupled with the fact that 420 pools own more than $80 million on SNX, SUSD supply has expanded significantly, with some curved liquidity pools containing more than 90% SUSD. SUSD prices continue to fall due to no immediate demand to balance this increase in supply.
Source: Parsec Research
Worse, Infinex began encouraging Infinex wallets to hold SUSD just before the defendant began. However, these incentives increase the liquidity of the system without corresponding demand. As one user of Infinex’s Discord Channel wrote, “We are responsible for promoting SUSD through our campaign.”
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The Synthetix team has reassured users that this is a “transition period.” They are working to create new demand sinks such as Aave (Aave) and Ethena (ENA) integration to offset the excess supply of SUSD. Furthermore, they have pledged to strengthen the incentives of fluidity pools, particularly on the curve, to restore stability.
In summary, the SIP-420 upgrade brought capital efficiency and simple UX to Synthetix, but removed the organic reflective PEG stabilizer and removed SUSD DEPEG as a side effect. By moving to a protocol-owned staking pool and lowering the collateral ratio, SIP-420 increased the supply of SUSD without sufficient demand to offset it. This will make Stablecoin Depeg, with the current price being around $0.90. This means that SUSD holders have a choice left. Finish now or hold and wait for it to fully recover.
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