The Synthetix protocol’s inherent stablecoin, Synthetix USD (sUSD), has plummeted to its lowest level in five years, prolonging a prolonged difficulty in upholding its $1 peg.
This asset has been experiencing ongoing volatility since the beginning of 2025. On Jan. 1, sUSD fell to $0.96 and only recovered to $0.99 in early February. Prices continued to vary throughout February before stabilizing in March.
On April 10, sUSD hit a five-year low, dropping to $0.83, according to statistics from CoinGecko.
SUSD is a crypto-backed stablecoin. Users deposit SNX tokens to generate sUSD, resulting in its stability heavily relying on the market price of SNX.
1-month price chart of Synthetix USD stablecoin. Source: CoinGecko
Risks of Synthetix USD’s “death spiral”
When the sUSD token dipped to $0.91 on April 1, Rob Schmitt, the co-founder of the risk tokenization platform Cork Protocol, elucidated the possible “death spiral scenario” of the stablecoin.
Schmitt mentioned that the design of the stablecoin shares parallels with Terra’s TerraUSD (UST) stablecoin, which collapsed in 2022. Although he highlighted significant differences in collateralization and debt management, Schmitt maintained that the core risk endures:
“The death spiral scenario remains unchanged; if SNX’s value declines significantly, sUSD is no longer completely backed. If the worry about sUSD being unbacked compels users to redeem sUSD for SNX and liquidate it, it generates further downward pressure on SNX, triggering a cascading deleveraging event.”
Despite the apprehension, Schmitt underscored that such a collapse is improbable owing to Synthetix’s $30 million treasury, which covers around half of the outstanding sUSD debt. He stated that this reserve could be utilized to counter a spiral situation.
“The primary reason why sUSD won’t undergo a death spiral is due to the Synthetix treasury holding around $30 million of sUSD, which is about half of the outstanding debt. To prevent a death spiral, this sUSD can be unwound,” Schmitt articulated.
Synthetix founder Kain Warwick had previously responded to the declines, stating that although he had feared a death spiral over the past seven years, he sleeps “very well” these days.
He clarified that the declines occurred because the primary factor for sUSD purchases had been removed. “New mechanisms are being introduced, but during this transition, some volatility will occur,” Warwick wrote.
The Synthetix founder emphasized that since sUSD is a purely crypto-backed stablecoin, the peg can deviate. However, he stated that there are systems in place to correct it if it strays above or below its peg. “These mechanisms are currently undergoing transition, which is causing the drift,” Warwick added.
Cointelegraph reached out to Warwick for additional remarks but had not received a response by the time of publication.
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Stablecoin loses dollar peg amid market downturn
Besides sUSD, another stablecoin has also recently drifted from its dollar peg as the cryptocurrency market has experienced declines. On April 7, Synnax Stablecoin (syUSD) fell to $0.94. The project indicated that concentrated sell-offs temporarily caused a “slight deviation” from its dollar peg. The project reported that it is working on establishing a fully open redemption system.
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