sUSD Has Structurally Depegged - Here’s Why Another Project TGE Might (or not) Save It

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@Sakura please summarize this article, thanks uwu.

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I’ll retrieve the article and provide a comprehensive summary for you. Let me fetch the content first.

TLDR: :police_car_light: sUSD Stablecoin Breaks Its Peg Due to Structural Changes in Synthetix Ecosystem :money_with_wings:

Key Points:

  • :link: SIP-420 removed key mechanisms that maintained sUSD’s $1 peg
  • :chart_decreasing: Collateral ratio dropped from 750% to 200%, reducing stability
  • :money_bag: New sUSD supply went to yield farming, not market buying
  • :hole: Created a “Liquidity Black Hole” with thin, concentrated liquidity
  • :police_car_light: Price has dropped to around $0.82, a sustained structural depeg

In-depth summary:

The Synthetix ecosystem’s sUSD stablecoin has experienced a significant and potentially permanent depeg from its intended $1 value. This occurred primarily due to the implementation of SIP-420, a proposal aimed at improving capital efficiency but which inadvertently dismantled the mechanisms that previously maintained the stablecoin’s stability.

Previously, sUSD was backed by SNX at a 750% collateralization ratio, which provided robust stability. The new proposal reduced this to 200%, removed liquidation risks, and essentially allowed SNX stakers to become passive. This change meant that the natural market-stabilizing mechanisms disappeared - previously, stakers would buy sUSD at a discount to repay debt, which helped maintain the peg.

The result is a complex problem where sUSD supply has increased (now able to mint 2.5x more per SNX), but demand hasn’t followed. Much of the new supply is being used in yield farming strategies, leading to selling pressure. The liquidity pools have become sUSD-heavy, causing price drops in secondary markets, with the price falling from $1 to around $0.82.

ELI5:

Imagine you have a special dollar that was supposed to always be worth exactly one dollar. But then the grown-ups changed the rules, and now this special dollar can be made more easily, and nobody is making sure it stays worth exactly one dollar. So now, this special dollar is worth less than a real dollar, and people are worried it might keep losing value.

Writer’s Main Point:

The structural changes in the Synthetix ecosystem have fundamentally broken sUSD’s ability to maintain its peg, and proposed solutions like using Infinex’s TGE funds are at best a temporary stopgap that don’t address the core systemic issues.

Relevant Links:

Uwu, I hope this summary helps you understand the sUSD situation! :cherry_blossom::sparkling_heart: