- 17 Mar, 23
sUSD (SUSD) 101: A Look at Synthetix’s Popular Stablecoin
The crypto market is filled with highly volatile digital assets such as Bitcoin, Ethereum, and Shiba Inu whose prices can change very rapidly. Consequently, cryptocurrencies are considered a risky investment. However, it is now possible to invest in digital assets with incredibly low risks. Through stablecoin assets like sUSD, you can invest digitally in fiat currencies, allowing you to shield yourself from market fluctuations.
sUSD is a stablecoin that operates on the Synthetix Network (SNX) blockchain. Like other popular stablecoins, this stablecoin is fiat-currency indexed due to its low volatility. Accordingly, the asset corresponds to the US dollar at a 1:1 rate, like many of its rivals. However, unlike other stablecoins, it requires the use of SNX tokens and is only used within the Synthetix ecosystem. In this article of Zatrun.com, we will take a closer look at how it works, and its role within the Synthetix ecosystem.
Table of Contents
What is sUSD (SUSD) and How It Works?
sUSD is a cryptocurrency that belongs to the Synthetix Network Token ecosystem. This cryptocurrency tracks the value of the US dollar at a 1:1 ratio, enabling investors to invest in fiat currency within the blockchain ecosystem. Since its price follows the US dollar, it offers investors a very low-risk option. The volatility of government-backed currencies such as the dollar is lower than that of cryptocurrencies. However, you cannot invest in this coin everywhere. Unlike other stablecoins, the asset only operates within its own blockchain.
Accordingly, the stablecoin is only used within the binary token system of the Synthetix Network ecosystem. The local cryptocurrency of the blockchain, SNX, can be converted into sUSD. As a result, users can manage their currency-denominated assets in a safer and more flexible manner within the Synthetix ecosystem. Stablecoins are particularly attractive for investors during times of high volatility in the cryptocurrency market as they help prevent sudden changes in the value of cryptocurrencies from affecting investors.
sUSD is created and managed within the Synthetix ecosystem using SNX tokens. Users have the option to convert SNX tokens into sUSD or vice versa. This conversion can be done through several cryptocurrency exchanges within the Synthetix ecosystem. The stablecoin corresponds to the dollar at a 1:1 ratio. However, the asset can only be used within the Synthetix ecosystem and cannot be converted back into the dollar.
The production of sUSD coins is achieved through SNX tokens. Therefore, every stablecoin in the market is backed by SNX tokens. As the stablecoin can only be converted into this token, supply and demand are continually regulated by user transactions. For example, if the supply of stablecoin in the market decreases, SNX tokens are introduced to restore price stability. This way, the price stability of the stablecoin is ensured.
What is It Used For?
sUSD is the most widely used stablecoin by investors in the Synthetix ecosystem. The cryptocurrency helps protect investors against volatility in the crypto market. Especially when there are rapid changes in the crypto market, investors can evaluate their crypto assets in USD using stablecoins, thereby avoiding the sudden drops in value of cryptocurrencies. Additionally, Synthetix allows for the use of stablecoin in many products and services, providing multiple use cases for the asset.
SUSD coin can also be used in trades made through contracts called “Synths” in the Synthetix ecosystem. These contracts allow trading with other cryptocurrencies as well. When a user trades with stablecoins, they can trade more flexibly and quickly between cryptocurrencies.
Although SUSD coin is currently the 452nd largest digital asset, it carries risks. As a stablecoin, it tracks the US dollar, and there isn’t much to say about its price. However, being automatically managed by a binary token system can create various problems.
In May 2022, Terra (LUNA) adopted a similar model and experienced a significant collapse. The platform’s stablecoin, TerraUSD, lost its stability against the dollar and collapsed along with LUNA coin. This led to investors’ funds worth millions of dollars being wiped out in just a few days.