Key Notes
- Cork Protocol co-founder Rob Schmitt warned of a potential “death spiral scenario” for sUSD, drawing parallels to TerraUSD’s 2022 collapse.
- Schmitt emphasized differences in Synthetix’s $30 million treasury reserves, which could mitigate risks during a deleveraging event.
- Synthetix founder Kain Warwick acknowledged the instability, citing the removal of a key driver behind sUSD demand.
Synthetix USD (sUSD), the native stablecoin of the Synthetix protocol has lost its USD-peg, dropping to a five-year low of $0.83 and leaving investors worried about what’s happening next. Since the beginning of 2025, the asset has seen huge instability and some market analysts believe that this could see a collapse like Terra UST.
On January 1, sUSD experienced a dip to $0.96, recovering only slightly to $0.99 by early February. Throughout February, prices remained volatile before achieving stability in March. However, on April 10, sUSD plunged to a five-year low of $0.83, marking a significant decline.
As we know, sUSD is a crypto-collateralized stablecoin wherein users lock Synthetix (SNX) tokens to mint sUSD, while making its stability highly dependent on the SNX market value.
Risks of Synthetix Stablecoin (sUSD) Death Spiral Increases
On April 1, when the sUSD token dropped to $0.91, Rob Schmitt, co-founder of the risk tokenization platform Cork Protocol, outlined the potential risks of a “death spiral scenario” for the stablecoin.
Schmitt also pointed out that sUSD’s design shares notable similarities with Terra’s TerraUSD (UST), which faced a brutal collapse back in 2022. Although he acknowledged key differences in collateralization and debt management, Schmitt cautioned that the fundamental risks underlying such a model remain.
sUSD, the algorithmic stablecoin underpinning the @synthetix_io markets, backed by SNX, is experiencing a significant and sustained depeg. Why did it depeg and is this the start of a death spiral or will it repeg? Let’s dive in!
What is sUSD?
To understand sUSD, we must first… pic.twitter.com/Gq4Q7SX904— Robdog 🍾 (@robdogeth) April 1, 2025
However, despite his concern, Schmitt stated that a Terra-like collapse is a bit unlikely due to the massive $30 million treasury of Synthetix, which holds nearly half of the outstanding sUSD debt. In the case of an unwinding scenario, these reserves can come into the picture. Note that this isn’t the first time sUSD has depegged, as it fell to $0.92 in 2024.
Synthetix founder Kain Warwick previously addressed the dips, attributing them to the removal of the primary driver behind sUSD buying. “New mechanisms are being introduced but in this transition there will be some volatility,” Warwick wrote.
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Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.
