What is sUSD, and how does it work? sUSD is a crypto-collateralized stablecoin that operates on the Ethereum blockchain, designed to offer stability in a highly volatile crypto market. Unlike fiat-backed stablecoins such as USDC (USDC) or Tether’s USDt (USDT), which are pegged to the US dollar through reserves held in banks, sUSD is backed by a cryptocurrency — specifically, SNX, the native token of the Synthetix protocol.
Minting sUSD:The process for minting sUSD involves staking SNX tokens into the protocol. In return, users receive sUSD tokens, which can be used within the Synthetix ecosystem or traded on the open market. To ensure that the sUSD token maintains its value, it is over-collateralized, meaning users must stake more SNX than the value of the sUSD minted. Historical collateralization ratio (C-Ratio):Historically, the collateralization ratio has been set around 750%, meaning that for every $1 of sUSD minted, users need to stake $7.50 worth of SNX tokens.
The high collateralization ratio ensures a buffer against the price volatility of SNX, which is critical for the system’s stability. In an effort to improve capital efficiency, Synthetix introduced SIP-420, which brought significant changes:The required C-Ratio was lowered from 750% to 200%, allowing users to mint more sUSD with less SNX.
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