Synthetix’s sUSD Stablecoin Loses Its Dollar Peg amid Heavy Sell-Off
The post Synthetix’s sUSD Stablecoin Loses Its Dollar Peg amid Heavy Sell-Off appeared on BitcoinEthereumNews.com.
Coinspeaker Synthetix’s sUSD Stablecoin Loses Its Dollar Peg amid Heavy Sell-Off Synthetix’s decentralized stablecoin sUSD has seen an unexpected turn of events after it slipped below its intended $1 peg. The stablecoin, issued through the Synthetix DeFi protocol, fell to as low as $0.92 on Thursday before making a partial recovery to $0.96. sUSD Depeg Caused by Liquidity Issues The incident was initially identified by Chaos Labs, a risk manager for the Aave lending protocol. According to their analysis, the depeg was triggered when a major liquidity provider withdrew from the sBTC/wBTC liquidity pool on the Curve decentralized exchange. This provider redeemed sUSD via Synthetix’s spot synth redemption and subsequently sold it on Curve, causing a sudden drop in sUSD’s value. Synthetix, a platform enabling the creation of synthetic assets or Synths, mints sUSD as a loan overcollateralized with various crypto assets to maintain a 1:1 peg with the US dollar. However, the recent activity has exposed weaknesses in this mechanism. The implementation of SIP-2059 at the end of April was responsible for deprecating non-sUSD spot synths on the Ethereum mainnet. As that ended atomic exchanges for other synths like sETH and sBTC, users were forced to convert the synths into sUSD, increasing the selling pressure on the stablecoin. Meanwhile, this is not the first time a stablecoin will be experiencing a depeg that stems from liquidity issues. Last October, real estate-backed stablecoin USDR fell to $0.53 per coin, albeit in a similar manner. At the time, the team explained that a redemption rush drained liquid assets such as DAI from its treasury. Company statement about the USDR depeg reads in part: “Combined with the lack of DAI for redemptions, panic selling ensued, causing a depeg.” Stablecoins Not ‘Stable’ For stablecoins to retain the meaning of their names, they are…
Filed under: News - @ May 18, 2024 12:10 am