Decentralized finance (DeFi) protocol Synthetix is taking decisive action to address stability concerns surrounding its native stablecoin, sUSD. The Synthetix sUSD stablecoin has recently traded significantly below its target $1 peg, prompting the launch of a new liquidity incentive program called the “sUSD 420 Pool.”
Announced by Synthetix founder Kain Warwick, this initiative aims to counteract the persistent de-pegging of sUSD. The protocol plans to distribute 5 million SNX tokens as rewards to participants over the next 12 months, providing a strong incentive to help stabilize the algorithmic stablecoin.
Market data aggregators showed sUSD recovering slightly to $0.8224 on April 18, marking a modest gain after previously sinking to lows near $0.63. The stablecoin’s struggles appear linked to recent governance changes under Synthetix Improvement Proposal 420.
This proposal included the introduction of a protocol-owned staking pool and notably reduced the collateralization ratio required for minting sUSD from 500% down to 200%. While potentially capital-efficient, this adjustment led to a surge in sUSD supply that outstripped current demand.
The resulting imbalance has skewed liquidity pools on decentralized exchanges like Curve, with sUSD reportedly dominating some pairs by over 90%, exacerbating the peg deviation and highlighting the inherent [challenges facing algorithmic stablecoins]([Link to relevant article from Google Sheet]).
Synthetix communicated key details about the new pool:
🔔 The sUSD 420 Pool is launching with rewards starting in 36 hours 🔔 SNX stakers in the 420 Pool can deposit sUSD to earn a share of 5m SNX over 12 months – or 13,698.6 SNX daily
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Participation in the 420 Pool requires SNX stakers to lock their sUSD deposits for a full year to qualify for the daily SNX rewards. Furthermore, these earned SNX tokens will be locked and subject to a three-month vesting period after the 12-month campaign concludes. More [details on SNX staking]([Link to relevant article from Google Sheet]) can clarify the risks and rewards involved.
Although the official user interface for the pool is scheduled for release next week, Synthetix is offering early participation access through its community Discord channel.
The protocol views this period as transitional, signaling ongoing commitment to bolstering sUSD through further incentives and exploring new applications, such as the forthcoming Snaxchain initiative, to restore and maintain its dollar peg.