SNXweave Weekly Recap 165

January 22, 2025

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

👉TLDR

• SIP-420: Protocol Owned SNAX presentation recap (see below for details)
  • Create a mechanism for SNX stakers to provide staked SNX to protocol-owned staking pool, where the protocol will own the debt and use it to generate yield via Ethena.
• Q&A session after presentation

Spartan Council and SIP updates

Last week Kain presented SIP-420 — a proposal to create a mechanism for SNX stakers to provide staked SNX to protocol-owned staking pool, where the protocol will own the debt and use it to generate yield via Ethena.

The key aspects of this proposal are that:

• Stakers would have the opportunity to delegate their SNX to a single, protocol-directed staking pool
• The c-ratio on this pool would be 200% allowing it to be more capital efficient
• There would be a “penalty” c-ratio assigned to individual stakers (1000%)
• The pool would then mint sUSD, then sUSDe, to generate additional yield and distribute that back to delegators in the pool
• 250k SNX from the treasury will be allocated to offer bonuses to CCs who implement this proposal (at the discretion of the Spartan Council)

Currently, SNX is one of the only remaining crypto assets that is still accepted as collateral for minting stablecoins (sUSD). This SIP therefore aims to leverage that reputation as a stablecoin provider to generate revenue for the protocol and stakers. Kain acknowledged that there are many parameterization and optimization details to still be worked out, but he thinks this is directionally beneficial for the protocol.

Rather than incentivizing stakers to issue and allocate debt where it’s needed, the incentive would be to delegate the collateral so that the centralized pool managers can allocate it as they see fit. This reduces the risk of ‘bad debt’ as any debt issued in this pool will be allocated at the pool manager’s discretion. There are, however, still market forces at play to get users to delegate collateral to the pool.

Kain also stressed that the time to do this is now, on the cusp of a bull market, rather than waiting and potentially missing out on the yield. And in order for this to be able to work now, the recent peg issues need to first be corrected (for which Kain said there will need to be incentives to arb the curve pool).

There were several questions in the chat after the presentation, so let’s review what was asked and how Kain responded:

• How will yield be generated?

Kain said primarily with Ethena to start, with a c-ratio reduction from 400% to 200% right away. With this, twice as much debt can be minted on the same collateral to generate yield. He added that Ethena needs staked ETH to scale their stablecoin, and there was not as much demand to provide staked ETH to the protocol for collateral, so they’ve changed their approach and have begun accepting stablecoins.

• Is Ethena selling sUSD for staked ETH?

The answer is yes, and the curve pool will need to be incentivized to accommodate this selling. Kain estimates $10–20 million TVL would be needed to allow for sales of $1 million a day.

• Will this start on mainnet or will it be released on Optimism as well?

Kain said this is a pretty technical question for the scope of the proposal, and really just the next step is to see an implementation plan from the CCs within 48 hours from an approval vote to ensure accountability and transparency.

• How long would a hypothetical debt reduction program last if that’s the direction the council decides to take with the proceeds of this pool?

And it was answered that this is one of the optimization levers that the pool managers will have to decide on to sufficiently incentivize the delegators to keep their collateral delegated.

• Have there been talks with Ethena about this already?

Yes, Ethena is happy to have more collateral as long as there is liquidity to convert it to staked ETH.

Overall Kain is bullish and thinks the Council needs to ruthlessly prioritize doing whatever has the potential to reinvigorate the project — starting with protocol owned SNAX!

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SIP/SCCP status tracker:

SIP-420: Protocol Owned SNAX, Status: draft