July 12, 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 July 5, 2022 Spartan Council Weekly Project Sync:
Spartan Council: Afif, Ale, Burt Rock, Danijel, ksett, TerraBellus
Core Contributors: Arthur, KALEB, Mark, Matt, Mike, noah, Steve
The new Councils are in full swing, with the first week of the epoch now under their belts! Last week the Spartan Council discussed several SIPs, and were presented several SIPs, so let’s review them.
SIP-229 for the synth Optimism bridge was discussed, as it was implemented a while ago but has been paused pending internal reviews. Kaleb was concerned that this SIP is not considered a standard bridge because there is protocol debt associated with each sUSD. Currently, there are no limits on transfer volume, which could be resolved by SIP-230 (Universal Circuit Breaker) or another SIP. Db thinks this should be separate since SIP-230 is already approved and ready to deploy.
Kaleb also brought up a new SIP he wrote — SIP-258 to improve the pricing of atomic swaps by incorporating directionality of the trade into the Uniswap pricing methodology. This SIP aims to reduce fees while also facilitating more competitive fills. Kaleb said this will hopefully allow for more precise trading that is more fair to traders and stakers and should lead to more volume.
The Council also discussed issues such as the sUSD peg, c-ratio- and staking ratio. Right now, sUSD is trading at a bit of a premium. This isn’t as much of an issue on L1 because when sUSD is trading high, so is sETH — so the pair ratio is still the same. There may be a routing issue with 1inch, possibly that it’s routing through Uniswap instead of Curve. The Council proposed some solutions to this including lowering the c-ratio, changing L1 loan parameters, or increasing LUSD wrappr fees.
TerraBellus is opposed to using wrappers to fix the peg, and thinks the willingness to use them could be an issue in the future. Everyone else, on the other hand, agreed that wrappers are the most effective way to fix the peg, and changing the loan parameters wouldn’t guarantee the desired result.
Lastly, Kain proposed reducing the c-ratio to 300%, which the entire Council was against. He also proposed reduing the target staking ratio in SIP-202 to 55% as a way to start reducing inflation. The target ratio was a configurable parameter in the original SIP and since the current ratio is 65%, it would trigger a gradual decrease in inflation.
After the call, several SIPs were presented:
SIP-255: Redistribute sUSD Fees to L2
- Presented by db, this SIP proposes changing the sUSD fee distribution to send additional sUSD to L2 (where the amount is proportional to the amount of SNX on L2)
- Primary concern is that the logic of the SIP assumes no fees are generated on L2, which is not true, and this creates a fee distribution imbalance
- Solution is to make the distribution from L1 to L2 an SCCP-configurable value
- Afif reiterated his position that any ‘fix’ other than a fully equitable distribution of fees is not a step forward
- Danijel initially said he would vote yes for this SIP, but was surprised by the fee generation data on both networks (i.e. L1 was not always higher than L2 even after atomic swaps)
- Ale brought up that this adds to the V2X scope and any additional resources spent on v2 could create v3 delays
SIP-252: Liquidation of SNX Escrow
- Kaleb presented this SIP, explaining that it will update the SNX liquidation functionality (laid out in SIP-148) to allow SNX escrow entries to be liquidated in addition to SNX tokens held in accounts
- Escrowed SNX would not be eligible for self-liquidation. It would however be eligible for forced liquidation if the account was flagged for liquidation and there was not enough of transferrable SNX to cover the cost
- Vesting entries that will be liquidated first will be the ones closest to being unlocked
- Danijel: “How much is the gas cost per escrow entry?”
- Arthur: “It’s almost 1m more gas to liquidate accounts with escrow entries.”
- Once this SIP is deployed, approx. $3m in SNX would be eligible for liquidation immediately
SIP-257: Debt-ratio futures market
- Lastly, this SIP will create a futures market for Synthetix debt share price (debt ratio) for capital efficient debt-hedging
- Arthur explained that this will allow smaller stakers to hedge debt using this market and pay the funding rate premium to larger stakers who are able to hedge externally
- It’s more capital efficient because it uses leverage
- The proposed parameters are pretty defensive for rollout so if there is any behavior that looks concerning, it can be wound down and retired
Present at the July 7, 2022 Grants Council meeting:
Grants Team: CT, cyberduck, JVK, Mike
In Grants Council updates, the team had a productive planning meeting last week, giving JVK a thorough introduction to the ins and outs of Synthetix Grants. JVK will be jumping right in to help with a few ongoing initiatives, including the Hero Stats page and NFT project.
The team also discussed a new issue that was brought to their attention — the tip bot only allows one wallet to tip at a time, which is an issue when the Grants Council member who is managing that wallet is unavailable. They are exploring other ways to tip, including a personal tip/reimbursement process. The tips are currently in SNX, but they are considering an sUSD tip as well.
On another note, the Wrappr UI is very close to completion. As a reminder, this project will give users an uncomplicated and aesthetically pleasing way to interact with wrapper contracts, rather than having to interact with them directly to use them. This UI will allow more users to take advantage of this feature.
Present at the July 6, 2022 Ambassador Council meeting:
Ambassadors: mastermojo, Matt, MiLLiE
In Ambassador updates, the team laid out some goals that they have for the upcoming epoch including:
- Advocating for a new seat to better fill the large demand for inbound/outbound partnerships
- Develop a more formalized process for bringing new/existing projects through the flow of building on or with Synthetix
- Advocate for a “One-time integrations budget,” i.e. allow Ambassadors to fund one-off bounties for new/existing projects to integrate with or build on Synthetix
- Expand the reach of the Synthetix Ambassadors onto YouTube
- Create a new and improved Ambassador website on Notion (one-page website showing a breakdown of what ambassadors do, how to contribute to our Council, etc.)
The Ambassadors also hosted a Spartan Space last week with 1inch, where we got to hear from Kaleb and Kirill. Kaleb, of course, works for Synthetix on the product-side, focusing on optimization and market fit. And Kirill is the lead backend engineer for 1inch, and started crypto through hackathons — 15 of which he has won with his team. He joined 1inch in 2020, and is currently developing a DEX aggregator.
Kaleb explained how atomic swaps was proposed and implemented as a solution to the latency caused by swaps previously on Ethereum (which were done using Chainlink as the oracle price feed). The preference is obviously for transactions to execute in a single transaction rather than 2 transactions separated by 6 minutes. UniswapV3 provided an additional accurate oracle because bots are incentivized to arbitrage price discrepancies. This allowed them to combat the latency issues, and the combination of the 2 oracles (Chainlink price + Uni TWAP price) made atomic swaps possible. And what was the end result? Transactions in large amounts, at oracle prices, with zero slippage.
Kirill describes the integration saying it was fairly seamless for 1inch and not very computationally intensive. Users also gained a lot from this integration, and $2 billion in volume was routed through Synthetix in June. Kaleb agreed saying, “it’s really amazing how such a small change could produce such an incredible result.” Wise words, Kaleb, wise words.
When asked if there is any stale flow in the volume, the guests said that is being monitored and the fills are very close with centralized exchange prices because of the incentive to arbitrage. So if a lot of the volume was stale flow, there would be a lot of ‘recycling’ from synth to synth, but they said they’re not seeing that because it’s not profitable (since the prices are competitive).
Currently, all of the transactions are under $10 million. The biggest barrier to further increasing transaction volume for 1inch is synth liquidity on Optimism. A lot of bots are using this functionality to arb curve pools, usually $50k-$100k, and some are arbing CEXs, $500k-$2million). Kwenta users are also using this functionality, and Kwenta was actually the first to integrate atomic swaps.
The Ambassadors and 1inch guests also discussed other topics such as current incentives for integrators and who benefits from all these atomic swaps. So be sure to check out the recording if you missed it!
Podcast now also on YOUTUBE
SNXweave Anchor Podcast: https://anchor.fm/snxweave
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SIP/SCCP status tracker:
SIP-229: Optimism Bridge for Synths, Status: implemented
SIP-230: Universal Circuit Breaker, Status: approved
SIP-258: Trade Directionality In Pricing of Atomic Swaps, Status: draft
SIP-202: Target Staking Ratio, Status: implemented
SIP-255: Redistribute sUSD Fees to L2, Status: draft
SIP-252: Liquidation of SNX Escrow, Status: draft
SIP-257: Debt-ratio futures market, Status: draft