Parameter Changes for Synthetix Loans

Synthetix -

Introduction

Following the adoption of SCCP-2081, Synthetix is set to increase interest rates and issuance fees on existing sUSD and sETH borrowing.

For nearly a year, the platform has disabled new loans, marking a period of gradual decline. Despite this, a significant amount of sUSD and sETH debt backed by ETH collateral remains outstanding. Given that this debt has benefited from low interest rates—substantially below market levels—Synthetix plans to increase interest fees starting March 1st to align with market rates. Additionally, issuance fees for existing borrowing will increase immediately.

Below is an analysis of the adjustments to Synthetix Loans and what they entail for current borrowers. Please note that none of this is pertinent for stakers (aka LPs), and is only impactful for sUSD & sETH borrowers using ETH collateral.

Key Parameter Adjustments

There are a few significant modifications to Synthetix loans that users borrowing should be aware of:

  • Issue Fee Rate - Immediate Increase: The fee for drawing sUSD and sETH on existing is proposed to be raised to 1% from ~0%.
    • Example 1: When a user issues 100,000 sUSD against ETH collateral, an issue fee of 1,000 sUSD is applied at drawdown.
  • Borrow Rate - Increase on March 1st: The annual interest rate on existing loans is set to increase to 30% from the current one basis point on Ethereum and 25 bps on Optimism on March 1st - giving users ample time to close their loans before interest is changed.
    • Example 2: A user with an existing loan of 100,000 sUSD will incur 30,000 sUSD in interest fees over a year.

Motivations

Despite disabling new loans over a year ago, Synthetix has observed that many users have yet to repay their existing loans. With approximately $1.7 million in sUSD and 2,697 in sETH still outstanding, these parameter changes are crucial for:

  • Encouraging Loan Repayment: The increased costs associated with borrowing aim to motivate users to repay their outstanding loans.
  • Stabilizing the Peg: Synthetix seeks to alleviate pressure on the peg by discouraging new loans, ensuring stability for sUSD.
  • Preparing for Synthetix Loans in V3: This transition is part of a broader strategy to directly incorporate a more efficient and integrated CDP loan system within the core Synthetix V3 architecture.

Any Questions?

If you have any questions or concerns, please join the Synthetix Discord.