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Decentralised synthetic assets

SNX dFusion trial and eSNX

SNX dFusion trial and eSNX

We are currently running a three day trial of the dFusion protocol designed by Gnosis as a potential replacement for the Arb Pool mechanism that was halted earlier this year. The intent of this mechanism is to sell SNX for ETH, to be for peg maintenance via the sETH:ETH pool in Uniswap.

While the previous Arb pool was somewhat effective, it was prone to manipulation. An alternative was proposed to auction SNX for ETH to then buy sETH on market. Several trials were run of this process, and it was reasonably effective with several hundred ETH worth of sETH on the open market from the proceeds of SNX sales. The issue with these trials is they were manual, and the timing of each auction was not ideal for engagement.

The current trial is a significant improvement on this as it uses the dFusion protocol to run a small auction of SNX every two hours for three days, which ensures that timing issues do not impact demand. The ETH proceeds are then used to buy sETH using dFusion. It remains to be seen whether this be as impactful as buying sETH directly from Uniswap using ETH, but we will be closely monitoring the performance of arb bots during the auction to observe this.

The other issue is that dFusion only supports ERC-20 tokens so we need a way to auction escrowed SNX. The solution to this is eSNX, which is a form of SNX that can be sent to a contract and burned to create escrowed SNX. Once we have eSNX implemented we will be able to migrate from a trial to an ongoing incentive. More info on the eSNX mechanism can be found here.

By combining eSNX with dFusion, the protocol will be able to run a continuous auction of escrowed SNX to generate ETH to buy sETH on market through dFusion. This mechanism should ideally create sufficient buying pressure to restore the peg to 1:1.

If you would like to participate in the trial please check out the #snx-auction channel in Discord.

Learn more about dFusion

With the dFusion protocol Gnosis introduces a new decentralised trading mechanism for ERC20 tokens. The dFusion protocol uses batch auctions and a multidimensional order book in order to enable ring trades that share liquidity across all assets. There is currently a bug bounty program live on the dFusion protocol, and there will be a public launch of the protocol in H1 2020. You can earn up to $50K for every bug you report. Details of the bug bounty are here: https://blog.gnosis.pm/2020-dex-bug-bounty-210f2b67a764


Garth Travers

Garth Travers

Garth is Communications Manager at Synthetix, a synthetic assets platform.