Synthetix's sUSD Tanks to $0.90 Amid Chaos from SIP-420 Upgrade

The Downward Spiral

Hang onto your hats, folks! Synthetix's sUSD is nosediving away from its $1 peg, and it's now chilling at a dismal $0.90. The trouble kicked off back in March when sUSD first dipped below the dollar, but things have gone from bad to worse since they rolled out SIP-420. This governance proposal was meant to juice up capital efficiency and make life easier for users, but it's turned into a total supply nightmare. Parsec's research team is pointing fingers at SIP-420 for pumping out too much sUSD, sending the peg into a tailspin.

The Culprit: SIP-420

Let's break down this mess. SIP-420 tossed in a protocol-owned staking pool, letting SNX holders throw their stakes into a communal pot instead of juggling their own debts and minting sUSD. Sounds cool, right? Not so much. They slashed the collateralization ratio from a beefy 500% down to a skinny 200%, making it a breeze to mint heaps more sUSD—about 2.5 times more, according to Parsec. But here's the kicker: this new setup totally yanked the rug from under the old stabilizing mechanism. No more incentives for stakers to snap up sUSD at a discount to settle their debts when the price dips below the peg.

The Fallout

With debts now pooled, stakers couldn't care less about fixing the peg—they've got no skin in the game. And guess what? The 420 Pool's now sitting on over $80 million in SNX, and sUSD's supply is ballooning out of control. Some Curve liquidity pools are drowning in over 90% sUSD. No demand to soak up this flood, and the price just keeps on plummeting.

Infinex Adds Fuel to the Fire

Just when you thought it couldn't get any worse, Infinex started dishing out rewards for holding sUSD in their wallet right before the depegging kicked off. Big mistake. It's thrown more liquidity into the mix without any demand to match it. A user on Infinex's Discord channel hit the nail on the head: "You guys promote sUSD through campaigns, you take responsibility."

Hope on the Horizon?

The Synthetix crew isn't throwing in the towel yet. They're calling this a "transition period" and scrambling to create new demand sinks. They're eyeing integrations with Aave and Ethena to soak up that excess sUSD. Plus, they're promising to crank up the incentives for liquidity pools, especially on Curve, to get things back on track.

The Bottom Line

So, SIP-420 was supposed to make Synthetix slicker and simpler, but it's ripped out the heart of the peg's natural stabilizer. The switch to a protocol-owned staking pool and the lowered collateralization ratio have sent sUSD supply skyrocketing without enough demand to balance it out. Now, sUSD's hanging out at $0.90, and holders are stuck between a rock and a hard place: bail out now or ride it out and hope for a full recovery.