Decentralised synthetic assets

An Old Dictator Appears

An Old Dictator Appears

Earlier this year the Synthetix community implemented a critical change on the path to decentralised governance SIP-111, ceding protocol change decisions to the Spartan Council. To prepare for this transition the Council needed to have the space to establish itself and gain community support as the legitimate governing body within the protocol. This was the primary reason the community suggested (read: demanded) I not run for the initial Council. I agreed it was important to start distancing myself from governance decisions, so I began to take a more passive role while continuing to support both Core Contributors and council members. I still wrote SIPs where they were necessary, the main ones being SIP-124 which legitimised the protocolDAO, and SIP-130 which adjusted the SIP workflow to accommodate the introduction of the Council. The Spartan Council has been an incredible success and I have been humbled by how effectively it has been incorporated into the protocol. If you dispute my claim that the Spartan Council is the most effective decentralised governing body in crypto I will see you in Dubai. Despite this success, such a large shift in governance inevitably led to some inefficiencies. This post will discuss what they are and how I believe we should solve them. You may have noticed that I did not add my usual disclaimer to this post, that is because to drive the changes I believe are needed, I have decided to run for the Spartan Council during this epoch. I’m confident the Council has sufficient independence and legitimacy at this point that my participation will not undermine its independence if I am elected. What is clear though is that if I am to enact these changes I must do it from a position of legitimacy within the council.

The primary impact to the ascendance of the Council has been coordination within the Core Contributors. This may seem odd as the Council was never intended to be directly in control of the Core Contributors, but rather to create a legitimate mechanism for token holders to control the direction of the protocol. This was the source of the disruption to the functioning of the Core Contributors. Historically it was my role to manage the CCs as part of the legacy of the Synthetix foundation. As I stepped back from managing and coordinating the project at a protocol level and handed power to the council I began to lose context on many of the initiatives in motion. This meant that there was functionally no one in charge of the Core Contributors. This led to significant coordination issues within a critical component of protocol governance, because while the CC’s are not mandated to drive protocol change they must still be a coordinated force for implementing the will of token holders. This breakdown in coordination was driven by a few things, a major one was that we had expanded the Core Contributors significantly and for the first time the majority were not in Sydney. This created challenges for maintaining context across the entire project. Previously I used brute force to maintain this context, working long hours and waking up in the middle of the night most nights to check in with everyone. In a way, the success of the council lulled me into a false sense of security. I began to also step back and was no longer directly coordinating the Core Contributors. It felt to me that the Council was doing a good job of prioritising protocol changes, however, I think this was an illusion created by the fact that the plan laid out in early 2021 was still mainly intact and that the Council and Core Contributors were continuing to work towards this shared vision. As we got deeper into the year the Council did a great job of responding to specific issues, such as debt pool skew and Synth liquidity, but it was challenging for them to perform major course corrections. Another issue is minor project issues tend to accumulate in the low-level SIP implementation details owned by the Core Contributors, and I’m not sure we have clear processes to ensure these issues surface to the Council promptly.

As I continued to detach from day to day decisions and leave governance to the Council I also began to lose touch with the Core Contributors, I no longer had all of the context to help them navigate issues in their efforts to implement protocol changes. This process created a negative feedback loop where I progressively lost more critical context. However, it was not yet clear this was a problem. That said I did notice by early May that strategic issues were beginning to emerge. This was what caused me to sync up with the Council and Core Contributors to devise a plan to address these issues. You can find that plan here.

Unfortunately a week after publishing that post I went on vacation for two weeks. This was where the systemic issues in the Core Contributors became increasingly apparent. As I had progressively lost context I had not realised that there was significant thrashing within the engineers. Priorities were unclear and frustration was growing. The root cause of this is that while I had previously been leading the Core Contributors now they were effectively leaderless, the Council was not mandated to run the Core Contributors and no contributor was in a position to take over my former role. The fundamental problem is I had conflated the role of project leader with that of core contributor leader. There is no legitimate way for a decentralised project to have a “leader”, this is the exact issue that the Spartan Council was designed to resolve. However, there is an absolute and critical necessity for the Core Contributors to have a leader. The problem was exacerbated further by the fact that as the former leader of the Core Contributors I had deliberately created an extremely flat structure to avoid the Core Contributors acquiring too much power within Synthetix and destabilizing our nascent decentralised governance. This worked well when I was able to retain and synthesize all context and ensure the Core Contributors were coordinated and priorities were clear. It rapidly deteriorated once this condition was no longer met. I do not want to imply that my absence was the sole cause of every issue, the reality is that a DeFi project encounters constant issues every day and they accumulate rapidly if not dealt with. It doesn’t really matter who is mandated to own these issues as long as someone is. The issue is that even with the expansion in the Core Contributors there is still a severe constraint on bandwidth and it is almost impossible for anyone to do their actual work and also step in to address these kinds of problems. In reality, the Core Contributors continued to execute well on their core priorities and many people stepped up to attempt to address issues, but there was no clear process to facilitate this and to ensure that resources were properly allocated to solve them. Historically it was my role to coordinate this and I had not handed that role to anyone else.

If I may, I will inject a brief interlude here as to why I missed this issue. Firstly, I was looking in the wrong direction as mentioned above, I was very happy with the progress of the SC and missed the issues in the Core Contributors. In the past, I would like to believe I would have realised this faster and addressed it. In reality, I was burned out. The “Tired Kain” meme turned out to be more true than we realised at the time. I don’t know if I had even realised just how far things had progressed. For a long time, I had neglected anything in my life outside of Synthetix and as I started to get time back, this became increasingly obvious. I started to focus energy away from the project towards correcting years of neglect of the non-Synthetix aspects of my life. I was still spending a lot of time involved on the project but it was not with the singularity focus I had previously. I was also distracted by several things including supporting some of the teams I had invested in, which while incredibly satisfying, was a major drain on my time. I also tried to get control of my personal finances, I had an insane number of addresses and it was impossible to track what was where and make sure I was even coming close to managing my risk, optimising yield and capital allocation. The final thing was probably bull market fatigue. There was so much noise and so many demands on my attention it was hard to focus. Remember, the SNX bull market actually started in mid-2019 and we have had two mini-cycles while this macrocycle played out. It was no surprise to me when so many of the Synthetix OGs burned out or retired. Yet, I failed to recognise the signs in myself. There have been accusations that I abandoned the project, but while I could have managed the situation more effectively, I genuinely believed that stepping back was the right thing for the project long term. But now that this has been pretty unequivocally invalidated, I am here and ready to correct my mistakes and make sure the project is optimally structured and ensure the Hopium Plan is implemented. I remain to the best of my knowledge the largest token holder in the project outside the sDAO and I am extremely incentivised to ensure Synthetix is successful, and I’m confident I know how to add value within this new governance structure. My life is much better structured and many of the areas I neglected have been attended to. I’m healthy and well-rested and excited to have an opportunity to make an impact on the project again, assuming I’m voted into the council.

But back to the CC problem. Since the early days, Synthetix has operated with a very flat organisational structure. Basically, it was me the benevolent dictator, coordinating strategy while everyone else worked on their specific functions in a very self-directed manner. There was almost no hierarchy. I deferred constantly to the much smarter and better-informed people in the team when it came to critical decisions in their area of expertise. We were a small group of fewer than ten people so coordination overhead was low and collaboration was high. However, one area where I did exert my influence was in the coordination of all of our efforts towards a single vision. When shit hit the fan, it was my job to manage the crisis. When I laid out the Hopium Plan I assumed that if it were well received the Core Contributors and the SC would coordinate to implement it. However, when I returned from my two weeks off the grid I found only minimal progress had been made, and most of that had been by the teams working to spin out of the protocol like Thales and Kwenta. This lack of progress should have been obvious because again when bandwidth is constrained everyone will simply continue to execute on the immediate issues that are within their area of responsibility. I also had many conversations with Core Contributors who were frustrated with the status quo which was what precipitated my decision to run for the council and to help coordinate the implementation of the roadmap for the rest of 2021. Because I typically have no direct responsibilities it is much easier for me to coordinate these kinds of strategic changes.

One benefit of having several months of inefficiency to pore over is that patterns have become very obvious quite quickly. I’m confident with the help of Core Contributors and the Council I can step in to ensure we all correct these issues. A number of them had already been identified, such as the deprecation of the synthetixDAO to be replaced by a treasury council. But there were other smaller issues like lack of progress in the rollout of shorting and the decommissioning of iSynths. We also have a need to establish a clearer organisational structure and leadership team within the Core Contributors. I am also planning to propose a risk committee composed of members of the Council, Core Contributors and external stakeholders who will help ensure that risk management is embedded into all aspects of the protocol.

I have been working for the last week to gather all of the context required to write this post and to start to plan for how I will approach my tenure on the Council if I am elected. I also don’t want to overstate these issues, the majority of the 2021 plan has been progressing well, but it is time to start to make some adjustments to the reality on the ground and we need a clear plan to do so. One of the first things I will do if I am elected will be to implement a split within the engineering team to ensure that V2x and V3 are both being worked on in parallel. This is the most important component of the hopium plan as it will ensure that both short term and long term priorities are being progressed. It is obviously critical that the changes I am planning to implement do not undermine the progress we have made in decentralising Synthetix governance, particularly ensuring that the censorship resistance of the protocol remains in place. This is where the oversight of the Council is so critical, all of the changes proposed above will require a SIP and therefore are under the control of the Council ensuring that ultimately token holders remain in control of all changes to Synthetix. I have some further thoughts about the dividing line between the Council and this proposed Treasury Committee, while the Council is in control of the protocol the treasury committee will be responsible for changes that require resources and investment. Some of these decisions will be clearly in the remit of either governing body but some will inevitably overlap between both and we will need to find a way for them to work together and with the Core Contributors to ensure that the next phase of Synthetix governance is a success.

While there are undoubtedly some issues to address here, there are many incredibly exciting things happening within the project right now, we simply need to optimise their delivery. As just one example, Clem yesterday took an ignominious place in Synthetix history as the first person to be liquidated by Synthetic futures, running on a local instance of OΞ. Thales, Lyra and Kwenta are all getting close to launch or spin-off respectively. We are adding several new Core Contributors in the coming weeks, and the Core Contributors we have added over the last few months are exceptional people, so while we remain bandwidth-constrained we have an incredible group of Core Contributors on the project right now. Most critically we are getting very close to finalising the integration of Synthetix, Chainlink and OΞ. We all know that this process has been significantly more challenging than anyone expected and the delays have been frustrating to all stakeholders. However, one thing that I can assure the community of is that all parties involved in this integration have taken an approach of uncompromising security so while it is possible we could have delivered this faster it would have been at the expense of security which was a trade-off no one was willing to make. What is clear is that DeFi gen two is coming and it will be happening on Optimism. Yes, the wait has been longer than we hoped, but it will be more than worth it.

A final note, I hadn’t read this thread until after I finished this post, but there is a lot to consider within it around how DAOs set strategic objectives. One promising aspect of Synthetix is that we have collectively always been open to change and experimentation, so I am confident as we iterate on our existing governance framework we will find a balance between resistance to capture and ensuring members of the community can set long term strategic goals.

Kain Warwick

Kain Warwick

Kain is the founder of Synthetix.