Interview: The Past, Present & Future of Synthetix with the SNX Professor and Kain
We're excited to share with you all an interview between community member @nocturnalsheet, a.k.a. The SNX Professor from Discord/Twitter, and Kain, Synthetix founder.
You can listen to the full interview here, or read through it further below.
Thanks to Synthetix Guardian @CryptoToit for writing up the interview.
Guide:
- (0:00 - 1:25) introduction
- (1:25 - 10:10) early days + pivoting from Havven
- (10:10 - 17:56) OTC + liquidity
- (17:56 - 28:24) dealing with the issues of having a live system
- 28:24 - 34:30) meeting Framework Ventures
- (34:30 - 44:30) The SNX community
- (44:30 - 51:30) on-chain analysis
- (51:30 - 57:20) community governance
- (57:20 - 1:02:16) upcoming features + conclusion
Noc: Alright, this is the Professor here @nocturnalsheet, some of you might know me as the SNX Professor. We are right here at the heart of the SNX office (Sydney, Australia) where all the magic happens. Firstly, I want to thank Kain for taking the time off to do this and secondly to thank my sponsor whale to fund my flight into Sydney, thank you to everyone who helped made this happen.
So let’s get started and I’ll just give a quick intro about me, as everyone knows who Kain is. I want to take the time to introduce myself. So, I consider myself as a SNX OG and through 2019 I rose to the title as Professor with my in-depth knowledge of the whole SNX ecosystem. So, I guess that that’s a little bit more about me and I will continue to interact on Discord where you will find me. We are not going to stop. Let’s get right into what we are going to talk about today. We are going to talk about the Past, Present and Future of Synthetix and lastly the review of the journey that we have been through so far.
So firstly, some of you will know and remember the period we had in the middle of the all-time low bear market period of around December 2018 into January 2019. So Kain, during this period how did you feel and was your thoughts at the time?
Kain: Yeah I think it was a tough time and people talk a lot about the impact of having a liquid listed token or asset, whether it’s someone with shares trading on the stock exchange or a token, there is constantly a price. And sometimes the price does not reflect the effort that has been put in and I think the entire team has put in so much effort to get through 2018 and the pivot (from Havven, a decentralized stablecoin project) and we had a whole bunch of things we were working on. It just did not matter what we did as the price just kept going lower and lower, and I think it can create a sense of frustration and a sense of despondency in the team, no matter what we did. There is that meme, if you remember, where from all our announcements then the price will just dump straight away. We’ve seen it like 20 times through 2018, every time we would announce a cool new feature we are working on and the market would dump and the price would get blown away. It caused a sense of frustration in the team, but we took some time off at the end of 2018 and go back to the office at the start of January 2019 we were really ready to push through and make the changes that we knew we needed to make and we have seen the impact that it’s had. So, even at the absolute bottom as bad as it got, there was still a core group of people that believed in the project and believe in what we could do. It’s something I think that made us all a bit tougher and stronger together.
Noc: Yes, that was a crazy period and I think this is a very good example Kain is sharing for new investors in crypto, you know that the market prices things differently and the whole market might be telling you that you are wrong. But if you believe in a team and in the project leader and they are building ‘value’ then you have a good investment. This is how I survived the SNX bear market; I believed in the project, the team and the value Kain brought to the project.
So let’s move on. At one point in time global Collateralisation-Ratio was actually close to dropping below 150%. Do you think there was a possibility that sUSD would be worth more than the collateral of SNX backing it?
Kain: I don’t think it would have gotten that bad. We knew that the foundation’s C-Ratio and we allowed it to drop significantly. One of the reasons for that was that we wanted to see what the impact would be psychologically in the market if the C-Ratio got very close to being undercollateralised. Given how much of the debt pool was represented by the foundation we could fix it pretty easily and raised the C-Ratio significantly. But we were worried that we would wash out the signal for what the smaller players was doing. So we let it play out and got to a point where people started to respond and they started to burn debt and created a bit of a positive feedback loop and only then did the foundation step in Feb/March and burned a bunch of debt which increased the c-ratio to 300-400% and I think then we were back on a positive trajectory at that point.
Noc: That is great insight as people who were not around then would not have known about this little piece of SNX history.
Also during this period there was a huge buy order sitting on Kucoin, for around 7 million SNX. How important do you think this ‘buy-order’ support was and how different would it have been without this signal buy support?
Kain: Yeah, so it’s funny, because I know who this person is now and I didn’t at the time. I don’t want to dox the person. We were sitting there ourselves sort of questioning where this was coming from. If I remember correctly it was a 2000 ETH buy order for around 7 million SNX. Having talked to that person afterwards, they were genuinely prepared to soak up that much SNX and I think their view was that there actually wasn’t that much out there — more small sellers who already capitulated and their view was that they were willing to make a stand, I guess right, and this is where I am going to draw a line in the sand. It certainly helps the confidence to have a such a large buy order there and that it was the turning point where everyone realised that everyone who was going to sell has sold. It was a major turning point which kind of started to turn the momentum in price action and sentiment.
Noc: Definitely, 2000 ETH today is a lot less than what is was back in Jan 2018! Then it was still significant in value in US dollar value. So we talk about ‘buy’ pressure, but let’s talk about sell pressure as there was large sell orders as well. So I want to talk about one of the large SNX holders, Youbi Capital that was trying to sell 2 million SNX on the open market to exit at that particular time. What do you think was their intentions at the time and why did they want to exit at that particular time?
Kain: Look we’ve seen somewhere between 5 and 10 events like this where a large holder, holding from the original token sale decided to exit. As a trader myself I question why they were doing that and I think most of the time the sequence of events is it appeared that they saw a potential exit, they’ve been holding a token for a long time. With a little price appreciation, they were valuing the liquidity far higher than the potential upside. And I think that something that is underestimated, if there is no liquidity at all oftentimes a little bit of price appreciation creates liquidity and that it immediately attract sellers. They have been waiting for liquidity for a long time and we have seen it play out on a number times. But I think now most of the people who did not understand the project or did not believe in what we were doing have exited. And most of people now holding and staking (~80%+) has created at least I guess a more positive sentiment. But when I see those people who waited so long and then exit on the first chance, it is a bit frustrating. But people can make their own decisions, as that is part of the game.
Noc: Youbi Capital intended to sell 2 million SNX with about 1 million cleared on the open market. When this movement was done on-chain, there was an investigation by myself to find out who they and the team were alerted about their identity. What most people don’t know about is that about 1 million SNX was cleared via OTC to SNX community members. So my question here is, do you think there will be another possible “death-spiral” if the remaining 1 million SNX was not cleared in the OTC market?
Kain: I don’t think so, I think that there was at that time enough momentum that it would have been absorbed. There were not that many people left who did not believe in the project. If you had held all the way through 2018 and the beginning of 2019 you were pretty bought in and busy staking. My sense is that, it would have been absorbed, but you never know. I think it was prudent for some of the community members to step up to indicate that they will take this supply OTC. Because there was also not really that much supply available either, that was the flip side. That is why it was kind of a silly thing to do, I think in hindsight, because there was definitely people interested in buying OTC and there was no need to sell in the open market as there was a 20% slippage.
Noc: So this was the first OTC cleared in SNX history. Before this there was a lot of time where there was not enough supply to buy on the market. As you know I am currently an OTC broker for SNX with many deals already done and for me this was the start of the SNX OTC market. My question to Kain is, were you surprised that the community was able to absorb all this sell pressure? And we saw a big growth from this point forward in the SNX OTC market.
Kain: Yeah, I think there is probably just an assumption that for a low cap coin there is not going to be an OTC market and not a strong demand, but we saw that that assumption was proven incorrect. One of the project I really like, and pivoted a bit away from this is REN. When REN was working on ‘Dark Pools’ I believed that was going to be a powerful solution because you know there are definite people who want supply of token sometimes and the lack of liquidity can prevent them from getting in. And for small cap tokens, there’s not going to be enough value for OTC brokers to pop up and I think that with that one deal it attracted some interest from OTC brokers. That was when you and others stepped in and started to create an OTC market which was definitely a positive event for the overall liquidity of the SNX token.
Noc: So far this term ‘’liquidity’’ popped up a lot in this discussion and famous OG like G (@DegenSpartan) always says: live and die by liquidity. So for any large holder in any project, liquidity has always been very important. So, let’s jump into the next point of liquidity, the start of the sETH / ETH Uniswap pool. So I would say that the hardest thing is always to take the first step, so when the sETH / ETH pool was first started, what was your expectations on it?
Kain: I mean, remember, I was someone who said It can’t work right. My immediate response was when Bojan (@bojan#7961) first brought it up, was to say it was a dumb idea. I didn’t think people would participate in it and did not think it would make much sense. And this was even before we created it or came up with the incentive structure. We had sUSD / ETH in there and the foundation was basically providing the liquidity and splitting the liquidity just did not seem like a good idea. My immediate response to the sETH pool was that it was not going to work, but as it evolved over time and the community pushed for it saying it is a good idea and put good evidence forward and was able to convince everyone that this is a good idea and now it’s exceeded everybody’s expectations. I think G was probably one of the bullish people on the potential for this, once we started incentivising it and he was talking ~10k-15k ETH and now it is 35k+, so it’s definitely far exceeded everyone’s expectations.
I think the most critical thing to understand is that we now have something we never had before, which is a very liquid on/off ramp into the Synthetix.Exchange and when next year, we really start pushing for people to start trading and bring organic trading activity, that is going to be invaluable. It’s just so powerful for someone to know they can come in or out with $50k+ (synths) with less than 1% slippage, which is amazing. So you know it is something I think it will make our job much easier to onboard new traders next year (2020). And it’s something I really are looking forward seeing growing further.
Noc: So the initial vision by G that the sETH / ETH pool would grow to ~10k ETH in size, has it ever occurred to you that the pool would grow so big? I need to check again, but this pool is now larger than the MKR and DAI pools combined together.
Kain: I mean it’s getting close to being the largest pool, bigger than everything else combined and it is actually not very far off from that. There is something like ~$22 million total liquidity in Uniswap right now, and our pool is $8 million, it’s not far of being larger than everything else combined. I think with the launch of Uniswap V2, people have discussed and the community is exploring to have a DAI / sUSD pair and so that could divert more liquidity into a stablecoin pair. Obviously we need to see Uniswap V2 look like and the trade-offs are (if any) but it is something that I think when it’s ready I believe the community will probably support.
Noc: Great, so let’s jump back in time to when the sETH / ETH pool was first started as there was an infamous occasion where the sETH peg was wrecked by 50% by a single SNX whale. What did you think about it when you saw it happen?
Kain: Look, that was one of my concerns that if you put this big target there, what happens if people attacked it? There is a lot of overhang synths out there in the market and it’s gonna be a soft target if it grows quickly and someone can hammer it. And it’s really funny because if you go back and find my messages around the time, but I basically said “this is proven that we have to have nondiscretionary issuance”. And that something that goes way back to the original Havven white paper. And the idea was that rather than minting into your own wallet you mint into a pool and then you could only buy from that pool you couldn’t have access directly to the debt with you have minted. And the purpose for that was to prevent exactly those sort of attacks. So for me it was a very frustrating day as it felt like it had proven that we cannot have nice things. Thankfully the market responded and arb it back up as there was a lot of buy pressure from people who wanted to get in the pool and it fixed itself fairly quickly. I was very worried for a little while but it turned out to be a good thing and demonstrated that the pool was fairly robust. So, overall it was a positive thing, but at the time I was really pissed off.
Noc: I remember I was having my dinner at that time. I more surprised that the SNX community are always strong and buy SNX back up when needed, and I can say that there was a lot of buy support. Anyone can dox one of my old wallets I did manage to get some of that cheap sETH at that point and to me it was oh free money man!
We definitely need to talk about the next major point in SNX history where there was a huge wreck which caused a large price drop. I call it the famous “sKRW night”. If you have lived through that night, it is an experience you will never forget. Can you share how you felt and your thoughts during that night?
Kain: So the first 4-5 hours of that issue I was not even awake. I have very bad sleeping habits as any of you who DM me will know. I wake up at 2-3am in the morning and I am messaging people and we have an office in New York and have people from all around the world talking to me regularly, so I have a bad habit of waking up almost every single night. And I had kind of decided that I was going to put my phone away for the night and was the first night I decided I need to actually sleep through the night. And unfortunately I pick the wrong night, I went to bed around 1 am and it happened around 2-3 am and they were not able to get in touch with me. Justin was in Madagascar at the time, with like really crappy 2G Internet trying to find out what was going on and Jordan was in New York. They finally got in touch with me around 7am and Jordan called me saying that we got a big issue. One challenge with a complex system is that there are a lot of surface areas, right, so my mind immediately went like 1,000 different things that this could’ve been. And you know, to be honest, I was really shocked that the oracle, particularly the forex feeds had failed. It was something that we really didn’t expect would fail and thought the system was robust enough.
But I guess that the lesson that we learn from that was that you need multiple failsafes in place with real world scenario testing and war-gaming, which we have now implemented. And we now have a lot stronger system in place than was back then. I think the stuff after that with “OnyxRogue” after that was even more interesting because it was not just a technical issue, it became this exploit and then negotiation it was basically a hostage negotiation and so it was a very stressful situation for everyone in the team. But it’s one of those things that made us stronger as a team and as a community, having gone through that, it brought us all together and confident to weather a storm like that in the future. Probably as bad as it was, it was a positive thing but yeah it was not fun at the time.
Noc: Like Kain, I was asleep during the sKRW night, but some of the other SNX OGs were awake at the time like G and Arthur. I can’t image how they felt at the time, but I got a message from G telling me “don’t freak out…” so I was like, holy shit, what is going on! There was a crazy moment! And then for me is just a realisation that everything in crypto there is still is a huge risk, your SNX can just worthless one day in a blink of an eye. So don’t take your crypto riches too seriously. But I’ll just keep hustling and will be in Discord until we reach where we want to be.
So you mentioned the role of “OnyxRogue” in this. I always wonder what would have happened if he did not agree to roll back his transactions?
Kain: I mean, there was always going to be a price to get him to agree, incentives are important, right. So I think it was just a question of what the price is going to be, right. There was no way for him to cash out, the system has already been shut-down. So it was really either going to the community to say we need to roll back the system and fork it and have our own Ethereum Classic moment. Or, we need to pay this guy something to get him to coordinate with us. We ended up paying him about $40k worth of ETH which in the grand scheme of things back then was a lot but not nearly as much as it could have been. We got away fairly lightly there compared to having to fork, redeploy contracts, change the state etc. and deal with the reputation loss. The drama afterwards was a bit frustrating but overall it was a good result for the project.
Noc: Definitely agree, If we had to do a fork the sentiment would have been quite negative. In the ETH community people have strong opinions and it would have given people another opportunity to attack us. People who lived through that night, I think some still suffer from PTSD!
What about you, what happened, what was different for you from after that sKRW night?
Kain: Look scarily enough no, I’ve be running startups for a very long time and it’s not the first crazy “outage” I’ve had, but it was the most money on the line. I have lived through many crazy outages, where systems went down while you in the middle of a huge sale and everything falls apart. So I think when you live in those high stakes environments that you do become a little bit immune to those issues, but I think you still need to be wary and maintain a sense of concern and caution for that sort of thing. It has not really fundamentally changed my view, just that we need to make the system as robust as possible in the future. It is something we started to hand over the oracle which had the highest risk, single point of failure area in the system to Chainlink. Hopefully we would have moved away completely from our own centralised oracle and the system will be in a much better place than what it is right now.
Noc: That’s great, that’s great. So I’ll like to talk about the 'Framework bros' as I call them, who have invested quite a lot of money into SNX. Can you share with us the origin story of the night in ETHBerlin? Give us some insights into the first meeting between you and the Framework bros.
Kain: So funnily enough, Vance (Spencer) was not even there and it was just Michael (Anderson), but serendipity in crypto is a very powerful thing. We have been talking to a number of large funds, since May, since Consensus New York, and we had I think three funds that were going to be in Berlin and they all said “we are going to be there, any change you guys can come and meet us”. And we said yes as we have been to ETHBerlin last 2 years. I was talking to my wife who was pregnant at the time, saying I really need to go to ETH Berlin as there are a bunch of funds that wants to talk to us.
So we turned up and talked to the funds and there were good conversations but nothing finalised in terms of what we want to do, with the sale we were contemplating at the time. And then on the last night of ETHBerlin, the Chainlink team invited us to a small gathering for Korean BBQ supper. And we sat down, Jordan and I were there, and we were talking to Caleb (Sheridan) from Blocklytics about a bunch of analytical stuff and I sat next to Sergey (this was even before we finalised our arrangement with them) as we were working in the background with them and was one of the reasons of going to ETHBerlin.
Anyway, so there’s this guy sitting next to me, Michael who is from San Jose and because I lived in the Bay Area for a while it was just a friendly conversation about Synthetix and stuff and nothing too detailed. The next day he reached out saying he’s got some ideas around synthetic assets and set up a call, where I met Vance for the first time. And we just walk through the potential of synthetic assets and I said let’s keep in touch and then they reached out again to talk about investing. I knew they ran a fund but it was not even front of mind given how short the conversation was to be honest. But I think that one of the things about those guys are that they are very convicted. So when they see a project or team they like they are very fast to move. And they were able to move faster than all the other funds. I think they got in around $0.30 - $0.40, so their timing was good and they made a good call at the time as the price did not yet move too much yet. They were telling us the different ways they are going to help us, like most funds do. But they have backed it up which is a big different. They supported us in the sETH pool, SIPs, they help out with Governance, help out in Discord — they’re just all over the project and I don’t think it could have played out any better. From one lucky meeting sitting next to someone at a dinner so that’s crypto, just how it goes.
Noc: There you have it, the origin story and how the course of SNX history was changed. Personally I definitely agree with Kain that Framework has added huge value and am honoured to have brokered an OTC deal for them. Unfortunately it was not my largest OTC deal, I did another deal that was much larger. From that meeting with Michael and then after with Vance, what was your first impression of them? Did you realised or sense that they were 'chads,' as I would call them?
Kain: Look, I mean I knew they were early in LINK, anyone early in LINK is obviously doing something right. But, to be honest we were just chatting having a friendly conversation as we were all drained as you get towards the end of a conference as there are a lot of stuff going on. We were just going to chill as the Chainlink team got together a small group of people they are obviously close to and so it just felt like a really friendly conversation and we didn't even get into much crypto stuff to be honest, so I was really surprised when they reached out wanting to move forward quickly. It worked out very well.
Noc: Great. So let’s move on as there are a lot of history we could talk about but I just wanted to touch on the important points in the history of SNX.
Let’s jump into the present here. One of the big parts here is the SNX Discord and the growth of it. For me the growth of the SNX Discord is actually quite important. What is your thoughts on it?
Kain: So just to step back to the history for a second right, people who were not part of the token sale might not actually realise this but we had the largest Telegram community in crypto for a period of about a month. A hundred thousand people in the main Telegram channel and another fifty thousand in an overflow channel. Tons of noise, tons of bullshit and very little substance. It was a constant frustration for the team because there was no way to keep up with it, no way to answer anything in a structured, detailed way on how anything worked. We hired a team to help us manage Telegram and they did a pretty good job, but at some point in 2018 we came to the realisation that Telegram was not the right medium for a project that was complicated.
We made a call, which was another critical call, to move away from Telegram and move to Discord. And basically the moment we did that we filtered out a lot of the noise. Think we had initially 300 or 400 people move from Telegram to Discord and that started the initial conversations and allowed people to really go deep into the protocol, understand it and more importantly to engage. And I think now the driving force in Discord with 5k+ people is how engaged everyone is and how comfortable they feel suggesting improvements and driving things forward. There is a sense of ownership that I think not a lot of projects have. The obvious question is “can we maintain that?" as that is hard. The Guardians are doing a great job in keeping everyone in line and I try to spend as much time in there as possible as most of the good things that came out in 2019 came from community members in my opinion.
Noc: Yeah I definitely agree that the SNX community on Discord is an important part of the growth of SNX. So, on the topic of more intelligent people joining in, with many OGs being involved, who do you think can be the future rising stars of the SNX Discord?
Kain: So we just promoted 6 or 7 new Guardians, and are in my opinion were the top most engaged people in the community. Obviously we're looking at some additional people to increase the Guardians again, I don’t have any specific names but Garth and myself are watching it very closely and we are talking to the Guardians a lot about who they think is contributing and who can help. I think the big thing will be as the community grows there will be a need for specialisation, as currently Guardians are currently all over the place. We will get to the point where we will need specialists in Mintr or sX or whatever, that really knows how it works and understands it in-depth. It is getting harder to know every single aspect about Synthetix. That is what I am looking for where specific people can take ownership of a specific area, in Discord.
Noc: It is my first time hearing about this angle and it goes to show that if you engage with the community, prove yourself worthy and get good knowledge in one area and you can rise to the top and your contributions will be rewarded/recognised.
So the next thing that I want to talk about is also from one of my tweets in the past, where I state that you should come challenge your IQ in the SNX Discord. I am in a few other crypto Discords and there is no other Discord like the SNX one, there is a lot of high quality and high IQ people in here. So my question to Kain is, will there be someone in Discord someday that will be smarter than you?
Kain: {laughing} I mean look, there is already a ton of people smarter than me in Discord. The one advantage that I have maybe, where I appear to be smarter than I am, is that I have been thinking about this very specific problem for a very long time and I know more about the project than anyone else right now. Already we are getting to a point where there are areas of the project that I’m just not aware of, where certain members of the team are owning it and I just can’t keep up with every single aspect of it. I think there is are some very smart people, like Deltatiger, who definitely understands implications of the inflationary policy better than I do. He designed the models and AndrewK is also someone who has put a lot of effort into that. So I think there’s a lot of very smart people who understand certain aspects of the project much better than I do. It might take a while before someone knows everything about the project better that I do, just because it is my job and what I do all day, but I think we will get there.
Noc: Alright great, I look forward to the day and maybe I’ll have a new leader to serve, but let’s see. But let’s move on to something that’s more fun. Recently we’ve had this proliferation of SNX memes. What do you think about the current quality of the SNX memes?
Kain: Look I think they are good and as crypto memes go, most of them get a chuckle out of you which is what you want. There is definitely been a small group, 5-10 different memes that really resonates with me and it is pretty incredible to see something that you helped build generate crypto memes. I think that is one of the best compliments you can get is if people are meme-ing you. It is one way of distilling down aspects of the system in how a meme can tell a story very quickly. So I think that as the project grows and the memes get better it will become a valuable way to hone in on certain aspects of the system. I really think the meme competition has been great and the number of people who participated was amazing.
Noc: Definitely agree. I feel “Soonthetix” is a good meme, why is “Soonthetix” not memed harder?
Kain: I think “Soonthetix” was started by Arthur or yourself, one of you guys started it and my first reaction to it was: it was very much focused on the things that we’ve said will be coming soon right but did not turn up. So there is a little bit of like a negative connotation to it. But I think it is a teasing sort of thing, because the project does deliver a lot quickly. So if something that we promised did not get delivered, it means we did something else instead, right? So we should be supporting “Soonthetix” a bit more as I don’t think it has been picked up by the wider community yet.
Noc: Yeah I think I’ll give the credit to Arthur for starting the “Soonthetix” meme. And shout out to the Synthetix community to take up this meme.
So, we’ve covered memes but I want to talk about something I personally feel a lot stronger about, and it is on-chain work. In the past a lot of on-chain work has been done by myself has been very manual work. But today there are many tools available and on-chain analysis for SNX. So how do you feel about this progress and this growth?
Kain: I think at a high level, which I mentioned on Discord and wanted to tweet about it, there is a thesis or multiple theses that could be written about the price discovery in Synthetix. It is one of the few tokens I think that has seen this repricing event occurred with almost all the data happening on-chain. Most of the time when you see significant repricing events in an asset, it is very opaque what’s going on. Because all the data is stuck in centralised exchanges, you can’t see the data. You can look at the orderbooks but it does not have the same level of depth and you can’t see who is interacting etc. The vast amount of data that we have with what’s happened over the last year, if it is analysed in the future, will really illuminate some interesting patterns. So this is really exciting for me.
There are some amazing tools, which people like Jaaq in the community has built a dashboard. Our dashboard has gotten a lot better. There is things like pools.fyi, uniswap.info, the Kyber scanner, there is a ton of great stuff. But I think there will be even more stuff next year (2020) that will allow people to see, in much more detail, what some of the larger accounts are doing; their C-Ratio’s, impact they have on global debt and trading activity. And I think one of the big things we need to build into the Synthetix.Exchange, is much better tracking of individual positions. So the ability for someone to see what their entry point was in a position, exit points, cost average price and a whole bunch of things. That level of detail we can provide will be a huge differentiator versus say a centralised exchange, where it is much harder to get that data.
Noc: Some of you out there might be interested to build something for on-chain analysis. So Kain what would be on top of your wishlist for on-chain analysis?
Kain: I think I’ve got a couple of hackathon projects I’ve posted as issues. But the one thing that I would love to see would be an “Etherscan”, but for Synthetix. A “Synthscan” type of thing which would allow you to put in an address and allow you pull up all the on-chain transactions that happened via the Synthetix ecosystem. What’s touched the depot or the exchange, all the major contracts tagged, you can see the depot transactions and you can see Uniswap transactions with the Uniswap pools and others. I think something like that would make the on-chain analysis much easier and transparent. It will be a bit of work but will be an amazing tool. I would definitely throw some SNX at it for sure.
Noc: Alright so there you have it. So for all you coders and SNX community members out there, if you guys are interested in this: “Synthscan” will be the next big thing.
So talking about on-chain analysis, there was an incident (which most people do not know about) there was a mispricing of SNX on KyberSwap for a short moment. Can you share more about that?
Kain: Yeah. So we run one of the Kyber Reserves. It is cool, but it’s pretty new and the documentation is maybe not as detailed and accurate as we might like. So I think, Clinton and I are working on updating the reserve and making some changes to it. And we made a bad assumption based on something that we’ve done previously where we assume that we can modify the ETH balance in the reserve without it repricing the token. I think we pulled out, luckily not too much, I think it was about 150-200 ETH, and when we did that the token repriced and the arb bots went nuts. So this is one of the things I think where on-chain analysis will be super interesting to watch. You could see through Uniswap, Kucoin, Bittrex the arb dots just came in and ripped it apart, in seconds really. So I think that was 2 lessons learned. The one is to be very careful when you’re playing with something that is not well documented and then to do test transactions first. We did a bigger transaction then we should have. The second thing is that the arb bots in DeFi these days are incredibly efficient and aggressive. And if you mis-price something it will be seconds before it’s arb-ed out. So that’s a good thing and a bad thing as it will lead to a much more efficient market but also it will not leave any room for error.
Noc: Yes, that great sharing because what I want to talk about is I think most people might not know about it. If you look back in history it is all verifiable on-chain and it is going be hard to dig this history up. But I do agree Kyber bots are amazing. I ran my own arb bot before we listed on Kyberswap and after SNX was listed on Kyber, there was not a chance for a lousy bot maker like myself. I am out of that game. And do you think that mispricing like this will always be captured exclusively by automated bots?
Kain: Absolutely, I think we have long passed the period in DeFi where the manual arb was workable. And there are probably some aspects where it is possible, but the vast majority of opportunities for arbitrage is captured by bots. That is just our reality now.
Noc: So the lesson learned here is that if you want to make free money you have to create better arb bots. It is crazy that we survive another issue as you could get up to 50% off if you were fast enough.
So let’s talk a bit about the future. Looking at governance, how confident can you be in participation of key community members and token holders?
Kain: You know, I mean governance participation is probably one of the hardest part to governance to solve. And it’s easy for us to look at our current community and say well they are very active, they understand what’s happening, they are engaged; Governance will work. The question is does that hold true over a longer time horizons. That is great now, 6 – 12 months. But what happens in 5 years’ time, right? And while I do believe that eventually governance does crystallise with less change required to the system and the status quo is fixed, making changes gets harder and governance becomes less important.
I don’t think we are there yet, so one of the advantages we have over other projects is: you’re forced to engage with Synthetix at least once or twice a week to fix your C-Ratio, use Mintr etc. So we are looking to put that governance process (when we get there) inside of Mintr. Maybe there is a mechanism where you can’t claim fees before you participate in governance. Now forcing people to vote is debatable if that is a good or bad idea as some people say that you are going to get people just pressing random buttons. But I think the reality is that we can find a balance there and we can engage the community.
But I am still a firm believer that ‘rough consensus’ in the early stages of a project is the best approach. And really I think that the DAO model is something that will allow us to push forward with rough consensus, but with some checks in place. So that all token holders can feel comfortable that the system cannot be modified unilaterally that rough consensus will be adhered to. And we don’t have one or two people deciding to implement something against rough consensus. So for me the most important thing is that the community has the confidence that whoever is participating in the DAO will work in the community’s best interests and will support the rough consensus process and the decisions made there.
Noc: So in your blogpost you wrote about the representative democracy. There will be some team members and some community members that will make up the committee. How many committee members do you expect to earn a seat at the table?
Kain: Well this is one of the interesting things we are still trying to figure out with DAO’s: what’s the ideal number to participate in a DAO? We have data on corporate boards, you don’t want 85 people on a corporate board, right? So it I think that there will be ‘some’ number that will be supported. And I hope that we have probably at least 50% of the people in the DAO (for the governance process) from the community. That is something we should be aiming for. One of the things that has been implemented recently is where DAO members voted in new members, which makes it difficult to capture governance.
I also think that some kind of mechanism to allow token holders to signal for a particular person to participate in governance. I can imagine a scenario where you can put your hand up to indicate that you want to participate in governance and there might be a threshold of say 500k tokens required to signal that person to get a seat on the DAO. If all those people signalled for you and you start participating, all of your position and your votes that you take will be public. And if half of the people who signalled for you start to dislike the decisions you have made they can remove that signalling and remove you from your seat on the DAO. So that is something that if we can implement that is fairly resistant to capture then it could be something that is quite powerful.
But this is very experimental and we are going to take small steps in this direction, and one of them is the GrantsDAO. So building a small DAO that maybe manages 300k-400k SNX managing grants and putting a few people in charge of that DAO and see how that process plays out. It’s a small experiment that is low risk where we can get some data from.
Noc: Yes that is definitely something new and exciting for the future to explore. And just a shout out for myself, I do plan to earn myself a seat at the table. If you guys like me, signal to support me in future.
So, let’s talk about the next future topic. In sX (Synthetix.Exchange) the fees are fixed and is currently sitting (at the time of interview) at 0.5%. There are discussions on having different features on different synth pairs, depending on liquidity etc. What are your thought on this ‘dynamic fee’ function?
Kain: In principle I’m against it. But have learned my lesson somewhat of being against things automatically, often the things I am most against end up happening. My sense is that if we can implement the fee reclamation SIP that Justin and myself have been working on, which basically kills off front running bots, then I think that it’s not necessary to implement this. If the fee reclamation doesn’t work or is not as effective as we think it may get to the point where we have to implement this. Let’s be honest, this has really been designed to prevent people from exploiting the system. So I think if we have differential fees based on the liquidity of the underlining asset, that it’s fine, it’s maybe something that has to happen. But it is a worse UX as you will need to know which assets have which fees. That’s it, maybe we get to a point where illiquid assets is 1% to trade and Bitcoin 0.1%. That tradeoff might well be ok as most of the stuff happens on items that is 10 or 20 basis points. So, it is something I am fundamentally open to, but not a huge fan of it until we’ve solved front running directly. And if we can’t solve front running directly I think we should look at it.
Noc: How feasible will it be to implement something like this dynamic fee idea on-chain?
Kain: I mean if it needs to be implemented via an oracle, obviously. So one of the things we as a community need to be aware of is, early next year (2020) if we want an oracle we have to go to Chainlink and they need to be able to provide it for us. We need to go to the Chainlink node operators and say we need an oracle with these specifications and you need to provide it. And if they say, we can’t or we won’t or it is too expensive, then we need to come up with a different solution. So that’s one of the new constraints that we have, is a trade-off that we can’t just sit here and come up and magically come up with a new oracle for the community. The Chainlink node operators need to do that.
Noc: There is a lot more we could talk about the future but this has gone on quite long. And I want to end off by saying that the future is mobile. So when mobile-friendly sX and Mintr?
Kain: You know it is very frustrating to say that we don’t have a good mobile experience. But at the same time, most of our users especially the OG users are all using hardware wallets. So until we had some kind of ‘delegation’ mechanism I was of the opinion that it just was not going to get used. I think we’re getting very close to delegation mechanism, which will make you happy. So once we have full delegation for the core sX and Mintr functionality, then mobile experiences will become much better. But I still don’t believe that we as the core Synthetix team is the best place to implement that. We are talking to lots of great wallet teams and I think that you will find that there will be a lot of new integration for this functionality once delegation is in place. They will do it much, much better than what we could.
Noc: Alright that’s great to hear. Go support my SIP-10 delegation! And there is a hint of mobile wallet integration we can speculate on. I just want to end off this chat so thank you so much Kain.
Kain: Thank you for coming all the way from *censored*
Noc: This is a great journey. I love stories and this is a great story to tell in the future when we are at that $6 price. “When $6?”
This is the Professor signing off. See you guys!