Synthetix's decentralized stablecoin, sUSD, has experienced a significant price drop, falling below its intended $1 peg to the US dollar. This occurred due to increased selling pressure on decentralized exchanges, leading to a temporary depegging. The stablecoin, which has a market capitalization of over $50 million, aims to maintain a 1:1 ratio with the US dollar through overcollateralization with crypto assets.

On Thursday, sUSD's price dipped to a low of $0.92 before partially recovering to $0.96. According to Chaos Labs, a risk management firm, the depegging was triggered by a major liquidity provider withdrawing from the sBTC/wBTC liquidity pool on the Curve decentralized exchange. This withdrawal led to a significant sale of sUSD, causing the price to drop.

Synthetix had implemented a change, known as SIP-2059, at the end of April, which deprecated non-sUSD spot synths on the Ethereum mainnet. As a result, users were forced to exchange their synths for sUSD, leading to increased selling pressure. A single user, who had accumulated a large amount of sBTC, exchanged it for sUSD and continued selling, contributing to the further decline of the stablecoin.

In response to the ongoing depeg and market volatility, Chaos Labs has recommended that the Aave community temporarily freeze sUSD reserves on Aave V3 on Optimism to mitigate further market impact. The firm is also assessing other metrics as precautionary measures to ensure market stability.