For a period of several weeks a premium on sUSD is observed. There are initiatives such as lowering the c-ratio that may reduce the premium by increasing the supply of sUSD minted by stakers.
There is a root cause however from which the premium is originating. First we must look at where there is the most sUSD liquidity: the Curve pool.
There are more USDC and USDT than sUSD in the dedicated sUSD Curve Pool, frequently by a significant multiple. Presently sUSD comprises less than 10% of the sUSD pool.
The sUSD pool on Curve is imbalanced as a result and leading to a premium for sUSD relative to its peer stablecoins.
Unless changes are made to Curve that limit the size of any subtotal in the pool, there is little reason to believe the sUSD premium will subside.
In the absence of a change to Curve itself, mStable presents a viable alternative as the primary pool with the deepest sUSD liquidity. mStable is a ready-to-go, off-the-shelf solution that is tailor made for the present situation where an imbalanced sUSD pool persists.
“mStable employs a straight line bonding curve between bASSETS, meaning that anyone can trade these underlying stablecoins at a 1:1 ratio,” the docs for mStable state.
Unlike Curve, mStable enables transactions from USDC to sUSD and vice versa at a 1:1 ratio. This is achieved by setting maximum weights for each base asset in the mStable pool.
The underweightage of sUSD relative to other stablecoins in the Curve pool is the source of the premium. Migrating to mStable as the deepest pool of liquidity for the sUSD solves this problem.
One corollary to this solution is reducing Curve Pool incentives for sUSD liquidity providers to 0 as soon as possible. Another corollary is introducing incentives to provide liquidity to the mStable sUSD pool on a trial basis for 4 weeks and potentially extending such an incentive program further.