Synthetix 2020 - A decade in review

It’s hard to believe it’s only been 365 days since Jan 1st 2020. So much has happened not just within Synthetix but across all of DeFi. It will be hard to cover it all in a single post, but I’ll try to pick out the highlights. I'll be taking a slightly different approach to this recap, rather than simply listing what we did, I will be identifying all the things that didn’t yet exist at the end of 2019.

So let’s go all the way back to Midnight Dec 31st 2019 to review the state of the project at the time. Honestly, it’s kind of shocking when you realise just how little was built at the time.

Firstly, we were still in semi-benevolent dictator mode, and the Synthetix Foundation still existed. There were also less than ten people working on the project, something many people are not aware of even today. We had come through the “bear winter” of 2018/2019 by scaling back our burn rate to only what was critical for progressing the project since we had no way to know how long it might be before the market thawed and the bears died. RIP beras.

We were only up to SIP-34 at the end of 2019, a year later we just hit SIP-103. We had also only made nine variable changes via SCCP, today it is 67.

We were still operating a centralised Oracle! Only FX rates and commodities had been transitioned to Chainlink at the time. Shocking, I know.

We were still fixated on L1 and had yet to demo any of the magic of Optimistic Ethereum.

The grantsDAO was just a glimmer in Garth’s eye and the Spartan Council was just a glimmer in Andy’s. In fact Andy was just a glimmer in the synthetixDAO’s eye. Glimmers all the way down…

Kwenta was an as-yet-unnamed UX upgrade to Synthetix.Exchange that I was vehemently against, quite the coincidence that it launched almost as soon as the dictator was dethroned...

Fee reclamation was yet to even launch, for those interested I will be publishing another post in a few days with a detailed recapitulation of the entire history of fee reclamation, front running of the Synthetix protocol.

Virtual Synths were not yet conceived, let alone deployed. Mainly because we had yet to break composability with fee reclamation, a pretty big missed opportunity there.

The SNX token was trading a few million dollars a day across both DEXs and CEXs and liquidity was extremely thin, plus liquidations were not even live yet. Talk about living on the edge, amirite Teo?! We now have tens of millions of dollars in volume across all trading venues and SNX is one of the most liquid ERC-20 tokens in DeFi.

Not many people realise this but you used to be able to delay for up to six weeks before claiming, as we crossed into 2020 this had been reduced to two weeks, but we had not yet implemented the change to reduce claims to one week.

While we had launched liquidity incentives in July of 2019, we had yet to launch the inverse incentives to offset the debt pool skew. Seems kind of insane that we just casually allowed the protocol to be skewed 100% long for a year without implementing anything to address it. Hedge or die, I guess.

I had to actually check this twice, but at the beginning of 2020 the protocolDAO did not even exist. Maybe it is the fact that the pDAO nonce is now up to 1,600 but it feels like it has been around much longer than 10 months…

Also, the ETH maxis remember even if no one else does, but we had not yet enabled ETH as collateral yet. And we certainly hadn’t launched BTC collateral via renBTC or the new shorting mechanism, these both scraped in at the end of 2020.

The sUSD Curve pool was also not a thing at the start of the year. sUSD now has orders of magnitude more liquidity than it had at the end of 2019. Fun fact, it was the one and only @andrecronje who brokered the deal between Michael and I to get the sUSD pool over the line after some early friction. Is there anything that guy can’t do…

All through 2019 Justin had been asking for “a month long sprint” to deal with technical debt, in 2020 we finally got sick of his complaining and the result was the Opsec Sprint which addresses a myriad of boring things I won’t go into here. But I am told it was important. If you have insomnia the post is here.

The partner program had yet to launch, so we certainly didn’t expect to end the year with over a dozen participants.

In 2019 only a few forward thinking institutional investors had joined the project to provide liquidity, you know who they are. In 2020 this became a wave with almost every active institutional investor in the DeFi space joining the Synthetix network. I expect a number of the holdouts to finally capitulate in 2021 and join the party.

We were still running with our old brand, the major refresh didn’t happen until late 2020.

Binary options were not yet launched, and while they achieved some immediate traction, we believe the best path forward is to spin options out into their own standalone project. Several teams have submitted proposals to take this on. If you are interested in participating, reach out on Discord as we’ve yet to finalise this process.

The depot was still a thing. Pepperidge farm remembers… Also the bZx hacker.

Limit orders didn’t exist, and while we got close, the implementation was scrapped and a new mechanism will be deployed in early 2021. We did get differential fees out though which was a huge UX improvement allowing Synths to incur different trading fees based on community consensus.

Similarly futures came close to launching, but given issues with oracle latency, it was decided to delay them until L2 mainnet, in the meantime a testnet trial will be run early next year.

Staking pools had not yet launched, and it was a huge milestone to see xSNX launch. This combined with the launch of dHedge demonstrated that Synthetix was a viable platform for projects to build on.

That is a huge list of items that were non-existent when clocks around the world struck midnight on December 31st, 2019. And yet as we close out 2020 there are still many things to do, some of which we knew going into the year and some which only emerged as we worked through the various priorities throughout 2020.

A few things are clear. The Synthetix community has built the least volatile, most liquid and most decentralised stablecoin on Ethereum. sUSD has over $100m in total supply, and there are now over $250m synthetic assets in circulation. This claim might trigger some people who believe DAI is a stronger candidate with over $1b in total supply. However, with more than 50% of DAI now backed by centralised or custodial assets many in the community have come to the conclusion that SAI (pure ETH backed) was actually a better model than the current system, even though it was far less scalable. This will be something Synthetix must contend with as well as we look to expand the Synth supply to over $1b this year. Additionally the sBTC curve pool has been a significant driver of adoption of BTC on Ethereum, with one of the most liquid pools of BTC tokens.

Yet there are many challenges ahead, I will leave the deeper discussion of these for my upcoming Synthetix 2021 roadmap post. But at a high level, we need to migrate to L2 to solve a number of issues, these include frontrunning and the impact of leveraged trading enabled by synthetic futures. We need to continue leading the space with our experiments in decentralising governance. And we need to get to a point where we can switch on the growth engine for trading volume through Kwenta and other interfaces. While the playbook we used for scaling staking in the protocol won’t translate perfectly, many of the tactics and strategies will and we expect to see an explosion of trading volume towards the middle of the year as the last of the architectural challenges are solved.

2020 was another incredible year for Synthetix, but it has also highlighted just how challenging building a decentralised derivatives exchange is. The added complexity of ensuring the system is uncensorable has meant we needed to proceed more carefully than we did in 2019, but the stability of the system over the last six months has demonstrated this effort has been worth it.

The final point to raise is that a large amount of the effort in the first two quarters of next year will be directed towards Synthetix V3, a full contract rewrite from the ground up. This initiative will allow us to address many of the issues facing the protocol and will establish a platform that is ready to scale to tens of billions of dollars in volume over the next 12-18 months. Thankfully the synthetixDAO is well capitalised and able to fund these and other initiatives for many years to come, to help execute on this we expect the number of Synthetix contributors to grow even further in 2021.

I’ve never been more excited to be part of the Synthetix community than I am today, the project has more potential and more certainty about the path forward than at any previous time. On to 2021.