Synthetix Is Coming Home to Ethereum Mainnet

Synthetix -

Synthetix is an OG DeFi protocol that launched on Ethereum Mainnet in 2018. Since inception, Synthetix has continually reinvented itself in line with changing technology and market conditions. This has included transitioning from a stablecoin to a Perps exchange and leading the Defi migration to L2’s...

It’s time for our next big move - Synthetix is coming home to Ethereum Mainnet, where our story began.

By early Q4, Synthetix will have launched the first Ethereum Mainnet settled CLOB perp exchange. A hybrid onchain-offchain architecture that allows Synthetix to overcome Ethereum Mainnet’s block latency and significant gas costs. This architecture evolved from years of experience running perps and allows Synthetix to make a unique set of trade-offs that is optimised for an L1 Perp.

  • Real Ethereum L1 Asset security: Fully onchain custody, deposits and withdrawals. No Bridging. No rehypothecation.
  • Composable with all Mainnet assets and DeFi apps, which have the deepest liquidity and the most TVL by far.
  • Community market-making and liquidation vault. No insiders. No back room deals.
  • An institutional-grade Centralised Limit Order Book (CLOB) - CEX level throughput and latency.
  • Multi-collateral and cross-margin with subaccount support.
  • Account data privacy - your orders and trades will not be publicly displayed.

Ethereum Mainnet Perps are a game changer

Ethereum Mainnet delivers unparalleled security, credible neutrality, and seamless composability, establishing it as the most trusted blockchain for custody and settlement. As such, it’s been able to maintain the majority of DeFi activity over the years. This feature which will enable Synthetix Perps on Mainnet to address a key challenge that even successful Layer 2 solutions face: liquidity fragmentation.

Despite the low fees and faster block times of L2s, Ethereum Mainnet continues to maintain over 50% of DeFi’s total value locked (TVL). The Synthetix CLOB on Ethereum Mainnet will be co-located with the largest and most liquid DeFi protocols (e.g., Uniswap, Curve, Aave), making integration for collateral conversions and hedging strategies simple. A perp on Mainnet will increase the capital efficiency across DeFi and is already garnering the interest of institutional players.

First some preamble

SR-2 in late 2024 marked the start of the next big Synthetix pivot. After meandering for 2 years down a fruitless path (decentralisation maxi’s and AMMs everywhere), SR-2 catalysed a significant departure from Synthetix norms. Make no mistake, the Synthetix of today is wildly different to the Synthetix class of 2022-24:

  • A new crack team - 16/20 team members have joined in the last 12 months.
  • OG leaders Kain and Jordan have returned - adding key strategic oversight and industry expertise.
  • Full stack protocol - owning the consumer facing product massively empowers Synthetix by removing significant dependencies and improving brand positioning in the market.
  • Game changing new strategy - CLOB not AMM, delegated not discretionary staking/minting, Ethereum Mainnet not L2s. 

Over the coming weeks/months as we get closer to launch, we’ll be sharing much more frequent updates, including releasing information and rationale on our key architectural decisions, core matching engine performance tests (showing 100k tps throughput and sub-50ms trade latency), deployments on testnest, our launch feature set etc. Make no mistake - this new and driven team are COOKING. 

One interesting observation from ETHcc was that so many people the team met talked about how much they wanted Synthetix to win. Synthetix has a special place in the hearts of the DeFi community, but it hasn’t delivered on an inspiring vision for the last few years, leaving many to mostly stop paying attention. We’ve acknowledged this and completed a dramatic overhaul. We are now rapidly iterating, innovating and driving to release products that will once again bring Synthetix into the forefront and mobilise our passionate community again.

Raging CLOB wars

Hyperliquid’s success in building a $13B onchain business that is a revenue generating machine was inevitably going to result in what is now dubbed ‘CLOB wars’. Hyperliquid’s primary success came from using more centralised trust assumptions, which is exactly what is required to truly deliver a high frequency trading system onchain… They just were the first to acknowledge delivering a CEX-like trading experience onchain far supersedes the importance of decentralising the complete architecture.

This has spawned a number of competitors including Bullet, Hibachi, Ambient, Lighter, GTE, Paradex, Kuru, Fuel Network, Injective, dYdX and Vertex, each of which simply offers nuanced variations and slight differentiation as they compete for market share over the next year.

Each of these competitors have consciously made a decision to operate with an offchain matching engine, or on a blockchain with a centralised sequencer. Each of these CLOB operators have staked their claim as to what matters when it comes to the spectrum of how decentralised their chain is and how much of their operations are on / offchain.

Synthetix has taken everything that it’s learned building perps engines over the last 5 years to optimise the tradeoffs required to launch a L1 Perp in the increasingly competitive CLOB wars.

Enter Synthetix

Synthetix is once again building the first perp market on Ethereum - We're laser focused on developing a high-performance, non-custodial perpetual futures platform where it is needed the most, and where everyone has now realised they actually want it - on Ethereum Mainnet. 

Synthetix has long battled the trade-offs between product performance and toxic flow minimisation in the 4 years it’s operated a perp AMM. Whilst this proved to be the wrong battle, operating a perp for so long resulted in many important learnings that position us uniquely to deliver a robust perp CLOB, and intimately understand the spectrum of trade-offs and what is important to deliver a great blockchain based application.

A perp DEX, relative to a perp CEX, is foundationally interesting as a result of three core attributes they achieve from being onchain:

  • Permissionless - Blockchain applications have low barriers to entry. Any trader with ownership of a blockchain address can access the DEX and start trading within seconds/minutes.
  • Composability - The ability for multiple financial and non-financial applications to sit side by side on the same infrastructure creates opportunities and reduces friction.
  • Non-custodial - users retain control of their funds via self-custodial wallets, reducing the risk of mismanagement of assets.

BUT, let’s not pretend CEXs are bad or fundamentally flawed. Perp CEXs are incredibly performant markets that offer some of the best UX in all of crypto. That’s why it’s been so difficult for DEXs to take market share. Key attributes that have resulted in CEX dominance include:

  • Fast execution - centralised servers enable rapid order matching and execution, which is critical for a high frequency trading system.
  • Privacy - There is a pretty good reason that all of Tradfi only offer level 2 order book data, it’s because NO ONE WANTS THEIR FINANCIAL DATA OR TRADING PERFORMANCE PUBLICLY AVAILABLE.

How is Synthetix bringing all these features together?

High-volume traders’ priorities are well-defined - they seek a swift and efficient trading experience, minimisation of bridge-related risks, access to capital rapidly, protection against being hunted, and assurance that their financial data remains confidential.

To achieve this experience, Synthetix’s CLOB will:

  • Operate on Ethereum Mainnet, the most liquid and secure blockchain.
  • Accept deposits in a permissionless and non-custodial manner. Assets will remain in decentralised custody (e.g. smart contracts) until settlement.
  • Operate an offchain matching engine to provide CEX level execution (latency and throughput).
  • Offer gas-less trading and free withdrawals (with limits).
  • Only display Level 2 order book data (i.e. quantity of asset available at each price level).

But offering this is not sufficient without an attractive feature set to back it all up. Synthetix is driving to launch a perp exchange from day 1 that has all the standard features (e.g. order types, funding rates, leverage, etc), but in a DEX first will uniquely offer:

  • Ethereum deposit and withdrawal contracts - no bridging, no time delays to mainnet and composability with the largest DeFi applications.
  • Multi-collateral support, including:
    • sUSDe - Imagine capturing Ethena’s returns (currently 12% APY) whilst using stablecoins as collateral for perp trading.
    • cbBTC - Never sell your Bitcoin!
    • wstETH - ETH collateralised trading whilst earning yield, where are my basis tradooors?!
  • Subaccount support to enable organised portfolio management, risk isolation, strategy diversification, and client fund handling into distinct accounts.
  • Trader privacy to prevent the world seeing your PnL, positions, liquidation prices and conditional order limits.

These are just some of the features, the rest we’ll be sharing in more detail in the leadup to launch.

Why an offchain matching engine

Having a centralised sequencer is currently THE ONLY way to develop a high frequency trading system that meets trader performance expectations. It can either be an exchange’s sequencer (the matching engine) or the blockchain’s sequencer.

It is our belief that operating a high performing offchain matching engine on the most secure and highest TVL blockchain (Ethereum Mainnet) far outweigh the downsides of operating a fully onchain matching engine on a decentralised blockchain. 

This is not to say that there aren’t ways we can minimize the trust assumptions required of an offchain system. The improvements to ZK technology, led by companies like Succinct and their zkVM SP1, have played a key role in expediting the ability to trustlessly verify large offchain computations with small fast proofs. Technology like this can play a role in the future of Synthetix to enable us to further minimize the ‘trust’ a trader needs to place on us without sacrificing our ability to operate a high frequency trading system on Ethereum Mainnet. 

The worst part of the current perp experience is having to bridge. Being on Ethereum eliminates this friction. There are no bridge risks and no waiting for another chain to receive your deposits (on and off an alternate chain). There’s just an Ethereum Mainnet deposit contract, co-located where the majority of DeFi activity takes place. Relative to building your own chain, where you end up requiring bridges to a new / your own island where you need to incentivise an ecosystem of activity.

In addition to this, whilst it’s cool to say how transparent everything is when operating a fully onchain matching engine, this introduces features that NO ONE ACTUALLY WANTS - fully transparent account level data. Traders are willing to give away their financial privacy to avoid CEX custody, but what if you could maintain privacy without doing so? Hosting a matching engine onchain voids an exchange's opportunity to do this as all trading data ends up being posted publicly.

There have been many comments since our announcement that offering a high frequency trading system on Ethereum is not plausible, primarily due to PTSD from DeFi summer where a simple send would often cost over $50. Whilst Ethereum has come a long way since, and is now committed more than ever to scaling the L1, by operating an offchain matching engine, Synthetix can and will offer gasless order placement, and abstract away settlement costs.

Synthetix is Back and Better than Ever!

Synthetix is returning home to Ethereum Mainnet, where our story began, to launch a high performing perp marketplace. We’re mission driven to bring a perp market to Ethereum Mainnet, the home of DeFi. This will enable traders to manage asset exposure, hedge risk, access leverage, build structured products (e.g. basis trade vaults) and execute complex trading strategies ON ETHEREUM MAINNET. We’ve made very deliberate trade-offs in our designs and architecture that will offer a unique and market leading trading experience. We’ve combined the permissionless and non-custodial benefits of building on a blockchain, with high performance requirements and trader privacy that an offchain matching engine permits us to offer.

Synthetix will have its comeback arc. And for those paying attention it’s already in motion.

>> Ethereum Mainnet Perp soon <<

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