Synthetix protocol’s sUSD stablecoin fell to a new low of $0.66 this week, over 30% below its intended $1 peg, extending a month-long depegging trend that has raised concerns about the protocol’s stability.

“It is worth pointing out that sUSD is not an algo stable, it is a pure crypto collateralised stable,” Synthetix founder Kain Warwick wrote in an April 2 tweet thread. “The peg can and does drift but there are mechanisms to push it back in line... These mechanisms are being transitioned right now, hence the drift.”

In the same thread, Warwick tried to contextualize the situation by comparing sUSD’s volatility to other stablecoins like Tether’s USDT and MakerDAO’s DAI. “Here is sUSD, definitely much more volatile than both Tether and DAI, especially when you factor in the scale of the chart,” he said.

The volatility follows the implementation of the SIP-420 upgrade on March 7, a major update that restructured how debt is handled in the protocol.

The change moved from individual SNX stakers backing sUSD to a shared debt pool, slashing the collateralization ratio from 750% to 200%, a move that weakened key peg-support incentives.

On March 20, sUSD dropped to around $0.98, dropping to lows of $0.91 at the end of the month before continuing its downward trend through April, per data from CoinGecko.

“This new design improves capital efficiency but it broke an important stabilization mechanism,” Mrinal Thakur, modular blockchain Okto’s head of ecosystem, tweeted. “There is no longer a strong incentive for stakers to buy cheap sUSD and repay debts.”

“If enough fear builds, users rush to exit, creating more SNX sell pressure and feeding a cascading loop,” Thakur warned last week.

Thakur noted how the “liquidity is thin,” AMM pools are “heavily sUSD-weighted,” and “small moves cause outsized price swings.”

Meanwhile, Warwick said sUSD’s current instability is temporary, claiming that, “I’m actually not worried about Synthetix for the first time in years, which is why I have been buying SNX this year.”

Despite his optimism, he warned holders, “It would be horrible to get shaken out here. I’m not saying this is the bottom—it very likely will get worse before it gets better.”

Decrypt has reached out to Kain Warwick and will update this article should he respond.

sUSD’s instability

The sUSD stablecoin’s recent depegging follows persistent instability since the start of the year. It first dropped to $0.96 in January, struggled through February, and only briefly stabilized in March before diving again in April.

Following its crash to $0.66, the price of sUSD recovered to $0.83 on Friday, per CoinGecko data—but volatility remains high.

In the short term, Synthetix is bolstering liquidity through Curve pools and deposit incentives on its derivatives platform Infinex.

Medium-term fixes include “debt-free” staking to encourage individual debt repayment. Long-term, it plans to manage sUSD supply directly and add new adoption incentives across its product suite.

While the Synthetix treasury reportedly holds $30 million in sUSD and other reserve assets like USDC and OP, Thakur cautioned that the situation is “fragile.”