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SNXweave Weekly Recap 35

SNXweave Weekly Recap 35

April 19, 2022

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

Spartan Council and SIP updates

Present at the April 12, 2022 Spartan Council Weekly Project Sync:
Spartan Council: Afif, calavera, Danijel, JVK, Kain, ksett, Mark, Synthaman
Core Contributors: Cavalier, jj, KALEB

The Nunki release has gone out! This release brought 8 additional perpetual futures markets: SOL, AVAX, MATIC, AAVE, UNI, EUR, GOLD, and SILVER.

Next, SIPs 198 and 222, to update the atomic exchange function and the exchange fee system, respectively, are both ready to go. Kaleb is working on the parameterization and circuit breakers, and he said the goal is to add new stables when 198 is launched. The point of SIP-198 is to allow for low fees on stablecoins — possibly as low as 15 basis points. Both of these SIPs are currently on Kovan and should hopefully be launched on Mainnet this week.

As for the upgraded liquidation mechanism, it’s currently back in audit for a second check. Kain actually had a call with the auditors about increasing capacity, and he said “we should hopefully have a couple of additional resources allocated to us by June.”

In regard to futures automation, the Council said the pausing bot was successfully tested on Kovan. They are still going back and forth with Chainlink on the performance for oil, however. Kaleb said there is still some work to be done before increasing the caps, adding that although the pausing bot is currently live on Mainnet, they need to just keep it as a tracking item for now while they continue to review its performance.

Arthur will be starting on the rate limiting aspect of Futures soon. The purpose of this is to put a cap on how much and how quickly the futures market can issue sUSD. It’s a safety mechanism that was recommended by the auditors in order to cap any possible abuse in the event of an exploit or bug.

The Council also discussed SIP-229, proposing an optimism bridge for synths. Now that the debt pools have been merged, sUSD is fungible on L1 and L2. However, due to no bridges being set up, it is still not possible to send sUSD between layers. SIP-229 will therefore enable the transfer of sUSD for deposit and withdrawal through Optimism Bridge. According to db, this SIP is code-complete, however there will need to be some coordination with Chainlink to finalize before sending it for audit.

Deprecation of L1 staking and Debt Migration also came up during the call. There was a question about why it has become such a low priority — Kain explained that the Debt Migration SIP is likely only required for the top 150 wallets because most other users should be able to get enough sUSD to migrate their positions. He added, “If we wanted to get more users on L2, we have a pretty simple mechanism: we can shift the inflationary rewards more towards L2.”

Kaleb also pointed out that there hasn’t been a significant impact on the staking ratio from the inflation increases. Kain argued, however, that he expects it to take a few more weeks for users to catch up to the higher APYs. Kaleb and Danijel reviewed some of the staking data and noticed that while ratio is ~97% on L2, it seems to be very stable on L1 at around 60%. Danijel agrees with letting it play out a little longer, but thinks they need better tools to monitor this.

Danijel also called attention to the fact that inflation rewards would be at 2.2 million per week at the end of the next 4 weeks, and Kaleb suggested tilting staking rewards to L2 as a way of bringing the staking ratio up. Kain brought up that even at 2.2 million weekly rewards, the inflation as a percentage of total supply would still not be at the highest it ever was. The highest recorded was 1.4 million with a 100 million supply, so proportionally that would be about 3.2 million weekly rewards now. Kain said “If we got to that point and we’re still not seeing any movement, that’s probably when I would be open to making some changes.”

Lastly, Afif gave the Council some V3 updates. Leo and Noah are working together on some of the V3 implementation items, and Afif said the team is finishing out engineering feasibility for account tokens. He explained that this is the concept of wrapping your whole staking position under the differentiated debt pool in a single position token. He added, “Once we work through some more of the feasibility and finalize SIPs, the next step will be to merge them so people can start digesting the contents.” There has also been discussion about another possible office hours event for V3 to take more community questions, so stay tuned for more about this.

There were also a bunch of SIP presentations last week, so let’s briefly review them:

SIP-203: Volume Source Fee

  • Presented by Kain, this SIP proposes adding an optional source fee as a transaction parameter that can be passed from any frontend to the Synthetix Exchange Contracts. Kain explained that the existing volume program is capped, so it’s insufficiently incentivizing to get other integrations over the line. Adding a source fee at the protocol level will allow integrators to capture fees from the volume they route through Synthetix.
  • The initial SIP proposed a subtractive fee; however, the SIP has been changed to make it additive to create competition on as many dimensions as possible.
  • Ksett asked if there is a maximum, and Kain said there will need to be a cap — possibly 100 basis points.
  • Danijel asked if the volume partner has total control over fees after setting it originally, and Kain replied yes, they can change it any time.

SIP-224: KPI based Ambassador Mandate

  • Millie presented this SIP, which will introduce a series of key performance indicators (KPIs) for the Ambassador Council.
  • These KPIs include things such as delegated voting power, number of social events and their audience, grant referrals, SIPs written by the Council, and more.
  • Kaleb questioned what kind of reporting mechanism will be used with regard to transparency. Millie said the plan is to compile data monthly, adding that there is very little overhead in the tracking process.
  • Kain and Danijel challenged whether a SIP is necessary for this kind of change. Matt emphasized, however, that if it were just a spoken mandate, future Ambassador Councils could choose to not adhere to it. It therefore makes more sense as a formalized SIP, rather than a self-imposed measuring stick.

SIP-227: Configuration of New Synths/Futures/Shorts with SCCPs

  • Kaleb presented this SIP, which proposes allowing the Spartan Council to vote on adding new synths, futures markets and shorts via SCCP rather than SIP.
  • The idea behind this SIP is to decrease governance fatigue and expedite the listing of new assets that are straightforward and might not warrant the slow governance process of a SIP and presentation.
  • Consensus was reached that only asset instruments with existing Chainlink feeds can be added via SCCP.

SIP-225: Curve Futures Market & SIP-226: SNX Futures Market

  • Both of these SIPs were also presented by Kaleb, who explained that the plan is to add these products to the futures market with low interest caps.
  • The idea is to bring more volume to the futures functionality.
  • Kain brought up that with SIP-227, adding SNX for futures would allow spot SNX to be added later via SCCP, which he is opposed to. Kaleb will be adding language to the SIP that requires other SNX products to be added via SIP in the future.
  • These will be placed on hold until there is more consensus and other synths are rolled out.

Grants Council

Present at the April 14, 2022 Grants Council meeting:
Grants Team: ALEXANDER, BigPenny, CT, Mike

In Grants Council updates, the team has been discussing the 300 Lieutenant position more in depth. They currently have one possible candidate, and Mike is in the process of outlining the responsibilities for the role.

The Council is also still working on getting some Synthetix tutorial YouTube videos put together. This will likely be broken into two sub-initiatives: one formal version with hired contractors and one informal version with community submissions. The more formal half will be where the Council works closely with Kwenta on futures-related explainer videos. Mike will be leading the coordination on these formal videos, and the rest of the team will be drafting up a competition notice for the community videos. The hope is to have this out some time this week.

Regarding the Hero Stats page, the team had a very good meeting with a data engineer who provided some options for building a whole new data acquisition approach. The Council plans to meet with the Core Contributors this week to finalize whether or not they will be able to rely on them for their data needs, or if they will need to seek external resources.

In other news, the Hackathon that the Grants Council sponsored has finished! Devspace is a global student-run hackathon and conference that aims to provide solutions to real-world problems. Synthetix was a registered sponsor of the event, and Core Contributor Noah was the keynote speaker who represented the protocol. He put together a really great set of slides about Synthetix, and delivered a thoughtful presentation that you can view on YouTube — so check out our blog post for a link to the video!

Ambassador Council

Present at the April 13, 2022 Ambassador Council meeting:
Ambassadors: mastermojo, Matt, MiLLiE

In Ambassador Council updates, the team is in the midst of planning several L222 calls on top of their Spartan City Hall planning. They are currently planning an exciting grants-themed L222 call for next week! This call will feature Grants team members from Synthetix, Lyra, dYdX, and Aave. Full house!

And speaking of City Halls, the Ambassadors hosted one last week with Thales and UMA. We got to hear Millie speak with Danijel from Thales and John from Risk Labs (which works on UMA). Thales, as we all probably know, started as a binary options spin-off from Synthetix. And UMA is an optimistic oracle service that provides data for smart contracts.

Millie asked our guests how they would describe an optimistic assumption as it’s applied to crypto, in layman’s terms. They explained that optimistic assumptions are the processes by which a user makes a claim with a dispute period. If nobody disputes, then the transaction goes through. If it is disputed, then it gets escalated. Danijel said the idea behind optimistic assumptions is to build a system based on good actors with a fallback position that allows for a resolution in the case of a bad actor.

John added that crypto right now is “kind of like having to go to court to verify every transaction.” And with optimistic oracles, you don’t have to write a technical verification system that captures everything perfectly — the final vote is escalated to token holders who are incentivized to return the correct answer so they can get rewards and protect the value of their token. The objective is to get an economically secure data input for smart contracts, which reduces the attack surface. The proposer posts a bond that they lose if their data is incorrect, which disincentivizes bad proposals. And disputers post an equal bond to disincentivize bad disputes.

Danijel mentioned how Thales is on the verge of releasing exotic markets that would use its own version of optimistic oralces. Millie asked him to elaborate a little on this, and explain how these fit together. He said they noticed from the community that there is a desire to have custom markets, so they came up with the idea for an oracle council. Their framework is customized such that markets can be disputed when they’re created, and bonds are required for creators and disputers.

In regard to dispute resolutions, Danijel said their biggest driving motivation was to make sure markets are fair for participants. There is, however, still some human element for verification — so it’s not fully trustless.

“That’s what optimistic oracles are to me — a compromise.” -Danijel

John added that some disputes are human-mediated, and some are done by a bot. Disputers only receive half the bond tied to a bad proposal to ensure there is a penalty for a disputer disputing their own bad proposal.

“We want to make sure that the cost of corruption is always higher than the profit for corruption.” -John

Here’s on overview of how each of these dispute processes work:

Thales Dispute Process:

  • Disputes are handled primarily through dispute council
  • 3 of 5 votes are required to resolve a vote in either direction
  • Thales council is a backstop for this — they can pause the contract at any time if there is an issue
  • Any user can establish a market
  • Users must capture the full range of outcomes in whatever market they are proposing
  • Users can then take their positions on that market which must happen before the event happens
  • The odds are determined at the end of the positioning phase
  • Then there is the maturity phase where anyone can set the result (this is where disputes come in)
  • There is a 24-hour period from the end of the event to the claiming phase
  • If a dispute is filed and the oracle council resolves this dispute, the window drops to 4 hours

UMA Dispute Process:

  • Anyone can ask a question to the oracle
  • Anyone can propose an answer
  • The default challenge window is 2 hours but that can be changed
  • If it’s disputed, all the UMA voters go to the interface and propose their vote secretly
  • Voting period is 24 hours
  • All the voters who voted correctly receive token rewards and get their gas cost rebated
  • At least 5% of token holders must vote or it gets put to a revote
  • Average voter participation is 30–40%

Towards the end of the call, Clayton joined the stage. As a community lead at UMA, he is a big fan of optimistic oracles. He said he thinks they’re going to be central in a lot of web3 applications because they allow more flexibility in the questions that can be asked.

Millie also asked our guests how they justify the decentralized peer-to-peer use case for end users over the centralized alternative. John said it’s about incentive alignment, trust minimization, and availability, adding that the underrecognized aspect of decentralized services is that they can be built to be resilient and autonomous. Danijel said a huge part of why we’re all involved in crypto and DeFi is market fairness and to get away from centralized institutions, saying centralized systems are set up so the house always wins.

If you’d like to hear the whole call, check out our blog post for a link to the recording!

Podcast now also on YOUTUBE:

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SIP/SCCP status tracker:

SIP-198: Update to Atomic Exchange Function, Status: approved

SIP-222: Update Exchange Fee System, Status: approved

SIP-148: Upgrade Liquidation Mechanism V2, Status: approved

SIP-229: Optimism Bridge for Synths, Status: draft

SIP-208: Debt Migration, Status: draft

SIP-203: Volume Source Fee, Status: SC review pending

SIP-224: KPI-based Ambassador Mandate, Status: vote pending

SIP-227: Configuration of New Synths/Futures/Shorts with SCCPs, Status: vote pending

SIP-225: Curve Futures Market, Status: rejected

SIP-226: SNX Futures Market, Status: rejected