Synthetix’s sUSD stablecoin fell below the dollar peg due to selling, hitting $0.96.
Synthetix’s decentralized stablecoin, known as sUSD, fell below the $1 peg as sales increased on decentralized exchanges.
Stablecoins are issued through Synthetix, a DeFi protocol that enables the creation of synthetic assets or synths. It aims to maintain a 1:1 peg to the US dollar, be issued as a loan, and be overcollateralized with crypto assets.
The market capitalization of the stablecoin is over $50 million. On Thursday, sUSD fell as low as $0.92 before recovering to $0.96 at the time of this writing, data shows.
Chaos Labs, the risk manager for the Aave lending protocol, confirmed that the depeg was triggered by a major liquidity provider withdrawing from the sBTC/wBTC liquidity pool on the Curve decentralized exchange. These LPs received sUSD earned through spot synth redemptions from Synthetix and sold them in the corresponding Curve liquidity pool.
Synthetix implemented ‘SIP-2059’ in late April. This led to the deprecation of non-sUSD spot synths on the Ethereum mainnet, effectively ending atomic exchanges for synths like sETH and sBTC, according to Chaos Labs. As a result, users will have to exchange these synths for sUSD, he added.
sUSD price chart | the block
“Relatively dormant address 7 deposited 87 BTC into the sBTC/WBTC curve pool over several months in 2023. The liquidity in this pool is heavily concentrated and there were three accounts providing most of the liquidity, including this early user. .,” Chaos Labs said. .
Following the liquidity withdrawal, the sBTC token was temporarily pegged between 0.93 and 0.94 against WBTC, but has since adjusted back to 0.96. The user then exchanged sBTC for sUSD, raising a total of 4.48 million sUSD. Users then continued to sell sUSD from the sUSD curve pool while exchanging other assets to maintain BTC exposure, causing sUSD to fall further to $0.93.
In response to the ongoing depeg and market volume, Chaos Labs has recommended the Aave community to temporarily freeze Optimism’s sUSD reserves on Aave V3 to mitigate further market impact and is evaluating other indicators as a precautionary measure.
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