SNXweave Weekly Recap 138

SNXweave -

May 22, 2024

The following post contains a recap of news, projects, and important updates from the Spartan Council, Core Contributors, and Ambassador Council from last week.

👉TLDR

  • Spartan Council sUSD peg discussion: Gene pointed out that it has dropped as low as $0.97, Kaleb proposed a solution to push the price back towards $1 that would change the SNX buyback and burn to sUSD buyback and burn instead. More to come.
  • V3 Migration rollout: see below for summary of details
  • SIP-383: Multi-Collateral Margin Support — Perps V3 presentation recap
  • SNX incentive program for perps trading on Base: see below for summary of details — the program starts today!
  • Ambassador Council update: team has been onboarding new member (dsacks), discussing future Spartan Spaces, and preparing for the next Optimism retroactive funding round.

Spartan Council and SIP updates

Present at the May 15, 2024 Spartan Council Weekly Project Sync:
Spartan Council: Afif, Cavalier, Jackson, Millie, ml_sudo, Snax Frens, snxmaximalists
Core Contributors: Ana, Kaleb, Mike, noah, Steve, troy

The Spartan Council had a discussion last week regarding the current sUSD peg on Optimism, with Gene raising concerns around the fact that it has dropped as low as $0.97 recently.

Kaleb proposed a potential solution that would change the SNX buyback and burn to sUSD buyback and burn instead. This would effectively reduce the supply of sUSD, which would push the price back towards $1. However, $6-$10 million would be required in sUSD buyback/burn to accomplish this. Another possible solution would be to introduce a native interest rate on sUSD once the migration to V3 happens. More to come here.

And speaking of the V3 migration, a blog post was recently released that goes over some of the details for this pivotal phase of the V3 rollout. Here are the highlights:

Accelerating Real Yield

  • V3 is shifting away from incentivization through inflationary minting participation, and is focusing on 1) generating yield from trading fees and distributing to LPs, and 2) introducing a buyback and burn mechanism to remove SNX from circulating through the purchase of trading fees.

Expanding sUSD Collateralization

  • With V3, sUSD will be backed by a range of collateral assets, rather than the V2X system where sUSD was only collateralized against the native SNX token.
  • These additional assets include SNX, ETH, USDC, yield-generating collateral (stataUSDC), and other governance-approved tokens.
  • This expansion of collateral options will contribute to the scalability of the sUSD stablecoin in V3.

Facilitating the V3 Migration

Some supporting measures for the migration will begin this week:

1. Increased OP incentives for sUSD liquidity on Velodrome (Optimism): Incentives will be increased to 10,000 OP tokens per week.

2. SNX Incentives for sUSD liquidity on Curve (Ethereum Mainnet): Synthetix will introduce 20,000 SNX tokens per week in incentives for LPs in the sUSD/USDC/DAI/USDT pool on Ethereum Mainnet.

Migration Plan and Mechanics

Will begin in June, and will proceed in 2 phases:

1. Ethereum Mainnet Migration: SNX stakers will be able to migrate their positions to V3 in June.

2. Optimism Migration: After the Ethereum Mainnet migration, Synthetix V3 will be deployed to Optimism, and the migration process will extend to Optimism SNX stakers.

The V3 migration will further push Synthetix in the direction of building a robust decentralized ecosystem of derivative protocols on Synthetix liquidity and infrastructure, while enabling builders, traders, and liquidity providers to scale on-chain derivatives.

There was also a SIP presentation last week: SIP-383 to add multi-collateral margin support to Perps V3, which was presented by Kaleb. He explained that rather than only having sUSDC available as trading margin, users would be able to deposit wrapped ETH or BTC and receive snxETH and snxBTC to use as margin for trading. In addition to a feature upgrade that improves user experience, this addition will allow for the opening of delta neutral positions for traders interested in farming the funding rate.

However, the introduction of new margin collateral types does add a step for LPs during liquidations. Currently, since the LP collateral and trading margin are both sUSDC, LPs receive a portion of the sUSDC margin as their reward when liquidations occur, which can be added to their LP position. Since snxETH and snxBTC won’t be supported LP collateral, LPs will be responsible for unwrapping those liquidation rewards. This approach was decided in favor of swapping the collateral at liquidation prior to distributing the rewards because of the risk involved (systematic token swaps would introduce the possibility of sandwich attacks).

Since the value of these additional margin collaterals is not constant (as is the case with stablecoins), a discount rate will be applied that will limit the amount of the deposit that may be used as trading collateral. This discount rate will be set based on the expected price impact to LPs, who would then have to unwrap and sell their non-sUSDC staking rewards. There are a number of governance-configurable variables that would enable the Spartan Council to limit LP risk. The introduction of non-stablecoin margin also introduces the possibility of liquidation without any open positions if the value of that margin drops significantly.

Next, Synthetix announced the launch of an SNX incentive program for perps trading on Base, which is starting today May 22nd!

For details check out the blog post here, but in short: the Synthetix Treasury will be allocating up to 500,000 SNX for fee rebates on perps markets and 90% of fees paid up to the 50k SNX weekly cap. The first rewards epoch will run until May 28th, with the initial distribution of SNX rewards calculated based on this epoch and distributed within 24–48 hours after May 28th. The current incentive budget allows for a minimum of 10 full weeks of 90% rebated fees. The goal of this program is to onboard new traders, generate fees, and attract new liquidity providers to support trading Synthetix Perps V3 on Base.

Ambassador Council

Present at the May 15, 2024 Ambassador Council meeting:
Ambassadors: dsacks, GUNBOATs, Mastermojo, Matt, Westie

Lastly, in Ambassador updates, the team has been onboarding their newest Council member — dsacks! They’ve been going over new duties with him, while also discussing future Spartan Spaces and the next Optimism retroactive funding round. The Council has been reaching out to all of the SNX ecosystem protocols, as well as communicating with Season 5 OP Grant applicants to gather feedback.

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SIP/SCCP status tracker:

SIP-306: V3 Migration, Status: approved

SIP-383: Multi-Collateral Margin Support — Perps V3, Status: vote pending