Synthetix 2022 Release Milestones - Halfway Review and Deep Dive
We've reached the year's halfway point, so it's a good time to revisit key milestones for 2022. It's been an exciting six months thus far with several highly anticipated features hitting mainnet and driving $100-200m in daily trading volume through the Synthetix protocol. As Kain mentioned on Twitter, sights have been set high and the community is working hard to deliver on these expectations. 👇
Several upcoming milestone’s will help Synthetix reach this goal.
Cross Asset Swaps (launched mid-June) have been a big driver of volume lately, and there are still a number of optimizations and integrations that can direct a larger share of on-chain spot volume through Synthetix. Additionally, Synthetix perps have seen decent organic (and non incentivized) volume, and the upcoming release of Perps V2, combined with other releases from ecosystem partners like Kwenta and Polynomial, will continue to drive adoption on Optimism. Finally, V3 aims to accomplish what Synthetix set out to do many years ago by transforming the protocol into a permissionless derivatives platform.
More detailed overviews of the impact each of these milestones will have on the protocol will be released in the coming weeks. The Synthetix community believes that the completion of these milestones will set the protocol on a path to further growth as a building block of DeFi derivatives.
Releases Delivered in H1 2022
Synthetix Futures - March 2022
The most anticipated feature of them all! Synthetix's perpetual futures enable a much expanded and capital-efficient trading experience by allowing leveraged long and shorts on Optimism with low fees and instant execution.
For SNX stakers, perps provide an additional source of trading fees from exchange fees and funding rates.
Atomic Swaps and Integrations - May 2022
What are Atomic Swaps?
Atomic Swaps are a new exchange function allowing users to atomically exchange assets with a reasonable fee by pricing synth exchanges via a combination of Chainlink and DEX oracles (Uniswap V3) This helps to enable seamless trading between synthetic assets like sETH, sUSD, sBTC, etc. A unique property of this is that for large trade sizes, it greatly reduces the overall cost for traders due to slippage.
Where is this product integrated?
1inch and Curve are currently the primary volume sources for these. Yet, there is still a further degree of integration that needs to be enabled through 1inch. Members of the community are in contact with other major aggregators to integrate cross-asset swaps. Several aggregators have teams actively working on completing integrations.
Atomic Swaps & Synthetix’s Volume Boom
Synthetix's trading volume has vastly increased in recent weeks due to 1inch integrating with Atomic Swaps. 1inch traders gain access to another path of liquidity, with low slippage and fees, and SNX stakers receive trading fees from up to hundreds of millions in trading volume per day.
These contracts are processing hundreds of millions in daily volume while also generating up to $1M in daily fees for SNX stakers and Curve LPs
What is the future of Atomic Swaps?
- Completed integrations - While 1inch generates the majority of aggregator volume, additional volume can be captured by tapping into all remaining aggregators. Further, 1inch is only partially integrated. As it stands, users need to complete two separate transactions for USDC > ETH. They need to do USDC > sUSD > sETH in a single tx, and then sETH > ETH in a second tx. Once this is combined into a single transaction for the end-user, the UX will be greatly improved and more generally accessible.
- Market volume - At the time of publication, DeFi is in a period of declining swap volume through aggregators as measured here. When on-chain swap volume picks up again, Synthetix will be in a position to capture this volume.
- Large traders - As awareness of the efficiency of Synthetix cross-asset swaps spread, and the parameters of cross assets swaps are improved, the community anticipates that trading volume will further increase, creating more fee volume for Synthetix and integration partners.
- Layer 2 Liquidity Growth - Liquidity on Optimism is currently low but growing. In the coming year as more liquidity moves to Optimism, there will be larger trade volumes being executed on Optimism which could also lead to more demand for cross-asset swaps through Synthetix.
- Note - Atomic Swaps are currently possible on L2 and can currently be routed through Curve/1inch/Velodrome, but increased liquidity is needed to improve the utility
- Multi-Layer - As Synthetix V3 contracts are deployed and ongoing works with Chainlink to deploy CCIP progresses, there will be an opportunity for synth swaps to be supported on other Ethereum L2s and EVM chains.
Debt Pool Synthesis - March 2022
Debt pools on mainnet and Optimistic Ethereum have been merged, which helps to provide maximum liquidity and allows synths to be fungible across chains.
New Liquidation Mechanism - May 2022
Ensures the system is properly collateralized and liquidated users that fall below the collateralization requirements. Liquidated SNX is distributed to users alongside their liquidated debt.
This redesigned liquidation mechanism creates better incentive alignment within the system by providing options for stakers to repair their c-ratio with a minimal penalty if they are unable or unwilling to buy synths on the market to restore their c-ratio.
V3GM Election Module - June 2022
Synthetix elections have gone FULLY ON CHAIN! No more discord nominations, google sheets, and so on. Users nominate and vote through an election module which includes pitches for candidates, their socials, and so on.
Circuit Breakers and Dynamic Exchange Fees - Feb/March 2022
Two changes to limit frontrunning:
Circuit Breakers - Oracle pauses Synthetix markets when on-chain prices deviate from off-chain prices by over a certain threshold.
Dynamic Exchange Fees - Fee added on top of exchanges that are triggered when volatility is high and decays as volatility subsides.
Automated SNX Claiming - June 2022
Synthetix collaborated with Gelato to allow stakers to automatically claim SNX staking rewards on Optimism. As of right now, the integration enables stakers to claim their weekly rewards once their C-Ratio is above the target C-Ratio.
No more waiting to be above the target, just set and (kinda) forget!
Automated debt pool hedging by dHEDGE and Toros - June 2022
One-click debt mirror index for SNX stakers on Optimism. Constantly checking and rebalancing your debt is a thing of the past, dHEDGE has you covered!
Product Releases - H2 2022
sUSD Bridge - SIP 229 by DB
Allows users to move sUSD back and forth from Optimism and mainnet Ethereum. This will drastically increase the network's capital efficiency and pave the way for debt migration.
Synthetix Futures Perps V2
Perps V2 will help to scale the Synthetix Perpetual Futures and makes it more accessible to more traders. But before we dive into V2, let’s first review the current state of Synthetix Perps and how much volume and fees it generates.
The Current state of Synthetix Perps
The beta release of Synthetix Perps has been a success, it has generated upwards of $2.8b+ in volume since release and $10m in exchange fees for stakers. This is from 4000 unique traders making approx 26,000 trades.
Synthetix hasn’t offered any to incentivize trading, all of the growth is from completely organic usage of the product. With incentivizes like SIP-254 by Kain, which proposes to divert 20% of inflation to trading incentives, trading volume will surely increase alongside fees for stakers.
Perps V2 and The Future of Perps
Perpetual futures will be updated drastically to improve on the following goals:
- Significantly improve user experience with lower fees and more predictable funding rates
- Increase open interest limits and expand support for additional markets.
Note: A follow-on effect of improved user experience for perps will be increased fees captured by the Synthetix protocol.
Ecosystem partners are also hard at work to improve the trading experience, a snippet from Kwentas for roadmap breaks down some of their futures-related releases.
Highlights from Kwenta Updates:
- Mobile UI support
- Cross Margin
- Limit Orders
- Copy Trading
- Release of the KWENTA token and trading incentives
Kwenta isn’t the only one building ontop of futures, Polynomial is also building a basis trading vault to generate fees for users by capturing the inconsistencies between the spot market and its corresponding perpetual futures. In this strategy, they’ll try to collect funding rates by going long on the spot market and an equal amount short on the perpetual futures market.
Twitter Link - Polynomial Post
These vaults from Polynomial are expected to go live by the end of July.
V3 aims to accomplish what Synthetix set out to do many years ago by transforming the protocol into a permissionless derivatives platform.
Complete rebuild of Synthetix as a more versatile protocol on a much more efficient architecture. Redesigns the entire protocol from the ground up to facilitate development of novel DeFi applications.
What are the benefits for the Synthetix protocol, users, and builders?
Long Term Vision
- Permissionless asset creation - Any financial derivative can be built on top of Synthetix V3.
- Better control of credit - Stakers can pick and choose which assets they'd like to collateralize. It improves the hedging experience and allows new assets to increase their liquidity without being approved by the Spartan Council.
- “Liquidity as a Service” - Synthetix will not just be a protocol to route trading through b/c of its debt pool and assets; it will be a protocol you build on top of if you're looking to increase liquidity for any financial derivative on-chain rapidly.
Why Builders will love V3
- Create a pool to support [nearly] any financial derivative you want to build
- Anything you've ever dreamed of, from traditional financial markets to more exotic markets such as no-loss lotteries or even supporting liquidity for peers protocols.
- Current (perceived) competitors could, in theory, source, and route liquidity through Synthetix to increase their available markets.
- Solves the Cold Start liquidity problem - supports experimentation by simplifying provisioning of liquidity for early markets
- Clean and simple to understand: Integrating with Synthetix will take days not weeks.
Why Stakers will love V3
- Simplified Staking: Staking SNX is as simple as any other protocol
- Differentiated Debt Pool: supply collateral to, and receive fees from, specific asset pools without having to be exposed to every asset the Spartan Council supports (as is the case in V2x)
- Inflation Weighting: veSNX gauges
- Staking Incentives: lock for greater rewards
- Far easier staking experience for new users who only want to hedge certain assets.
Here are some of the in progress SIP’s to learn more about the current state of Synthetix V3 and how it will evolve:
- SIP-300: Synthetix V3
- SIP-301: Accounts (V3)
- SIP-302: Funds (V3)
- SIP-303: Markets (V3)
- SIP-304: Liquidations (V3)
- SIP-305: Staking Incentives (V3)
- SIP-306: Collateral Migration (V3)
- SIP-307: Proxy Router Architecture (V3)
Debt Migration - SIP 237 by Kain Warwick
One-click migration of staking debt position from Ethereum to Optimism without requiring users to burn their debt.
As the last V2x SIPs are finalized and V3 preparations begin, SNX staking may have to migrate from Ethereum to Optimism. This will allow the new V3 staking system to be deployed only to Optimism initially, reducing the migration overhead, and then expanded to other networks as needed.
WIP and Proposed SIPs
In addition to the product release schedule, some changes and additions to the system are being reviewed and debated. Core contributors have proposed some, and community members have proposed others. The Spartan Council will determine if and when these SIPs are implemented.
To provide input, please join us on Discord or weekly Spartan Council <> Core Contributor syncs.
Liquidation of SNX Escrow - SIP 252 by Kaleb
Updated the Liquidation Mechanism to include SNX tokens held in an account alongside SNX tokens that are in escrow to be liquidated until the target issuance ratio of an SNX staker is restored. Currently, accounts can circumvent the intention of the SIP-148 by not vesting their tokens. With the changes proposed in this sip, that debt would be wiped clean, allowing the protocol to be more resilient and better capitalized in the long run.
If the self-liquidate method is called, a user's account is liquidated with only the snx available in his account (escrow cannot be utilized to repay debt with the self-liquidation method). This ensures that accounts aren't able to bypass escrow with a self liquidation.
Perps Trading Incentives - SIP 254 by Kain Warwick
Proposes to divert 20% of weekly inflation to trading incentives on perpetual futures markets.
Each day at UTC, 0 trading volume and open interest will be measured for the prior 24h period. A combination of cumulative open interest and trading volume will be calculated for each active address to assign a trading reward score.
Redistribute sUSD Fees to L2 - SIP 255 by DB
Changes the sUSD fee distribution to send additional sUSD to L2. With the increase of sUSD fees on mainnet, there has to still be an incentive for users to stake on Optimism. To meet this, this SIP proposes sending an additional amount of sUSD from L1 to L2 upon fee pool closure.
Debt-ratio futures market - SIP 257 by Arthur
Creates a Synthetix futures market for Synthetix debt share price (debt ratio) for capital-efficient debt-hedging. A Chainlink oracle for the debt ratio is already part of the debt system (SIP 165). A futures market will create a more efficient debt hedging market and keep more of the hedging fees in the protocol.
Additional Crypto and Commodities Futures Markets
There are currently three SIPs outstanding regarding adding new futures markets; they are as follows: