- Synthetix’s 420 Pool incentivizes users to lock sUSD for 12 months in return for a share of 5 million SNX tokens.
- SIP-420 triggered the peg crisis by lowering minting requirements, resulting in rapid sUSD oversupply without matching demand.
- Kain Warwick warned that enforcement measures may follow if voluntary staking participation does not increase in the coming days.
Synthetix founder Kain Warwick has urged SNX stakers to take immediate steps to restore the stability of sUSD, which continues to trade significantly below its $1 peg. The stablecoin is currently priced at $0.7714, reflecting a prolonged depeg that has now stretched for weeks.
To help stabilize sUSD, the protocol introduced a new incentive mechanism called the 420 Pool. This initiative encourages SNX holders to lock their sUSD for 12 months in exchange for a portion of 5 million SNX tokens. Warwick emphasized that the current mechanism requires users to send sUSD directly to a smart contract, which he acknowledged is inconvenient. However, he expects participation to improve once a user interface is released.
Protocol Update Linked to Depeg Pressure
The root of the issue can be traced to SIP-420, a recent protocol change aimed at improving capital efficiency. The update reduced the collateralization ratio for minting sUSD from 500 percent to 200 percent. It also transitioned the staking mechanism to a shared pool model. While the change made minting easier, it led to an oversupply of sUSD that has not been matched by demand, increasing downward pressure on the peg.
Warwick signaled that while the current approach relies on voluntary action, a shift to more forceful measures is possible if stakers do not respond. He suggested that the incentives may soon give way to enforcement mechanisms to ensure peg stability. Warwick emphasized that there is sufficient capital in the ecosystem to address the problem if properly mobilized.
Previous Stablecoin Depegs Add Context
sUSD’s situation reflects a broader trend of algorithmic stablecoins struggling to maintain dollar parity. Similar incidents have occurred with USDC and TUSD during times of market disruption. Unlike fiat-backed stablecoins, sUSD depends on SNX collateral and price feeds from Chainlink oracles, making it more reactive to internal changes.
