Chaos Labs analysis of current Synthetix $sUSD depegging

Chaos Labs published a risk analysis for Aave on 16 May 2024 after Synthetix’s sUSD stablecoin depegged on Optimism, trading as low as about $0.915 against USDC in Curve pools. The report traces the immediate trigger to a large liquidity provider in the sBTC/wBTC Curve pool who withdrew liquidity and effectively swapped a substantial amount of sBTC for wBTC, causing sBTC itself to depeg and then be arbitraged back toward parity via another pool. Because Synthetix had fully deprecated non‑sUSD spot synths on Ethereum mainnet on 29 April 2024 under SIP‑2059, users were required to redeem sBTC and other spot synths into sUSD, concentrating exit liquidity and downstream effects in sUSD markets. The address in question used Synthetix’s spot synth redemption to obtain sUSD and then repeatedly sold it into the sUSD Curve pool for USDC/USDT, pushing sUSD off its $1 peg to roughly $0.93 and leaving the user still holding about 1.76 million sUSD that could be sold later. Chaos Labs notes that, within Synthetix, sUSD remains hard‑coded as a $1 liability, meaning the depeg creates an economic incentive for SNX stakers and debtors to buy discounted sUSD to repay debt, but this reflexive peg‑defense behavior had not materialized at the time of the report. On Aave v3 Optimism, sUSD usage had already been deleveraging since early May, with more sUSD being repaid and withdrawn than newly borrowed, and liquidations related to the depeg remained minimal, totaling only about 2,398 sUSD. Still, given the ongoing discount and the size of the sUSD market on Aave, Chaos Labs recommended that the Aave Guardian temporarily freeze the sUSD reserve on Aave v3 Optimism as a precaution to halt further growth and leverage in the asset while they prepare follow‑up recommendations on risk parameters such as loan‑to‑value, liquidation thresholds, supply/borrow caps, and stablecoin E‑Mode settings. The episode highlights how liquidity concentration, protocol upgrades (like SIP‑2059), and cross‑asset redemption paths can transmit shocks from synthetic asset pools into stablecoin pegs, with direct risk management implications for lending protocols integrated with those assets.

✨ AI-generated background, compiled from web sources — not editorial content.

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