Synthetix’s sUSD Stablecoin Loses Its Dollar Peg amid Heavy Sell-Off

As an analyst with a background in DeFi and stablecoins, I’m deeply concerned about the recent depeg event of Synthetix’s sUSD stablecoin. The sudden drop below its intended $1 peg, caused by liquidity issues, is a stark reminder of the vulnerabilities within decentralized finance (DeFi) systems and the potential risks associated with stablecoins.


The decentralized stablecoin sUSD from Synthetix deviated unexpectedly from its intended value of $1. On Thursday, the token dipped as low as $0.92 but subsequently partially rebounded to reach $0.96.

sUSD Depeg Caused by Liquidity Issues

The initial identification of the incident was made by Chaos Labs, who serves as the risk manager for Aave’s lending protocol. In their assessment, a significant liquidity provider’s withdrawal from the Curve decentralized exchange’s sBTC/wBTC pool led to the depeg. This provider exchanged their sUSD for the underlying asset via Synthetix’s spot synth redemption and subsequently sold it on Curve, resulting in a sudden drop in sUSD’s value.

Synthetix is a platform that lets users generate synthetic assets or Synths, one of which is sUSD. This sUSD is issued as a loan collateralized with different cryptocurrencies, aiming to keep its value equivalent to the US dollar. However, recent actions have highlighted vulnerabilities within this system.

At the close of April, the introduction of SIP-2059 led to the retirement of non-sUSD spot synthetics on Ethereum‘s mainnet. Consequently, atomic swaps for other synths such as sETH and sBTC ceased to function. As a result, users were compelled to convert these synths into sUSD, thereby intensifying the demand to sell the stablecoin.

As an analyst, I’ve observed that stablecoins going through depegs due to liquidity issues isn’t an unprecedented event. Last October, for instance, USDR – a real estate-backed stablecoin – saw its value drop to $0.53 per coin. The cause of the depeg was quite similar to what we’re seeing now: a sudden surge in redemptions that drained liquid assets like DAI from its treasury. According to their statement, the USDR team acknowledged this situation and explained how the unexpected rush for redemption had led to the depletion of their liquid reserves.

“Combined with the lack of DAI for redemptions, panic selling ensued, causing a depeg.”

Stablecoins Not ‘Stable’

As a researcher studying stablecoins, I would explain that these digital currencies aim to maintain a consistent value equivalent to one US dollar. Nevertheless, in specific market situations, they can momentarily deviate from this parity.

Circle’s USD Coin (USDC), one of the world’s largest cryptocurrencies by market cap, briefly fell to $0.885 per coin on March 11, 2023. That was around the period that several banks in the US went bankrupt. Although USDC regained its peg three days later, Terra’s UST was not so lucky. UST lost its peg in May 2022 and never recovered. It is valued at $0.02219 per coin as of publication.

The latest instability of Synthetix’s sUSD has underscored the risks and repercussions inherent in Decentralized Finance (DeFi) systems, specifically concerning liquidity fluctuations. In response, Chaos Labs has advised the Aave community to momentarily halt sUSD deposits on Aave V3 running on Optimism’s network. By doing so, they believe this measure could help minimize the market disruption.

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2024-05-17 16:48