Synthetix V3 Pools: A Comprehensive Guide
Introduction
In the Synthetix V3 ecosystem, pools play a crucial role in facilitating liquidity for various markets. They serve as a bridge between liquidity providers and markets, allowing the latter to access the necessary liquidity to back on-chain derivatives. This article provides a comprehensive understanding of how pools function within Synthetix V3.
Understanding Pools in Synthetix V3
In Synthetix V3, liquidity providers deposit their collateral into CDP-style vaults and delegate their stablecoin credit to pools. These pools, in turn, allow markets to withdraw stablecoins to underwrite various financial products.
There are several types of pools in Synthetix V3:
- Preferred Pool (Spartan Council Pool): This is the main pool managed by the Spartan Council. It is the default pool suggested for liquidity providers to participate in. The ID of this pool can be retrieved by calling the
getPreferredPoolfunction. - Approved Pools: The Spartan Council also specifies approved pools with IDs that can be retrieved with the
getApprovedPoolsfunction. These are expected to be a series of pools owned by the Spartan Council with exposure to different combinations of markets. - Zero Pool: A pool exists at ID "0" which backs no markets and never can (because it has no owner). Depositing collateral with this pool is similar to using a decentralized borrowing protocol, where the only functionality is minting and burning sUSD.
- Permissionlessly Created Pools: During the Synthetix V3 Alpha/Beta phases, a feature flag has been set that disables the permissionless creation of pools. When governance chooses to alter this feature flag, anyone will be able to create and configure their own pool.
The Role of Pools in Synthetix V3
Pools in Synthetix V3 serve as a crucial link between liquidity providers and markets. They receive delegated stablecoin credit from vaults (by way of LPs) and then delegate liquidity to markets, allowing markets to withdraw these stablecoins to back various financial products. This mechanism ensures that markets have the necessary liquidity to facilitate trading and other financial activities.
Moreover, pools provide an avenue for liquidity providers to earn rewards. By participating in well-designed markets with suitable fee structures, liquidity providers can earn rewards from trading fees. This incentive encourages more liquidity providers to participate in the market, thereby enhancing the overall liquidity of the Synthetix V3 ecosystem.
The Role of Pool Owners
Pool owners are responsible for allocating liquidity to markets. Specifically, for the Spartan Council Pool, this allocation is governed by the passage of Spartan Council Configuration Proposals (SCCPs).
Rewards Distributors
Pool owners may register and remove rewards distributors from the vaults in their pools. Rewards distributors are smart contracts that can distribute rewards among all liquidity positions in a specified vault (instantaneously or over time) and allow these rewards to be collected.
Pools and Vaults
Every pool has one vault for each of its pool owner-approved collateral types. Keeping the collateral in pools separated into vaults has the following implications:
- When a liquidity position is liquidated, its collateral and debt are distributed pro-rata across the other liquidity positions of the same collateral type in the pool (i.e. of the other positions in the vault), not across all positions in the pool.
- Entire vaults may be liquidated, referred to as a vault liquidation.
- Pool owners can attach rewards distributors to pools, allowing them to incentivize liquidity of particular collateral to be added to their pools.
Going Deeper
Learn more about Synthetix V3 by visiting the following links:
- Synthetix V3 Development Progress
- Where Synthetix V3 could take us - CC Cavalier
- Getting to the Synthetix v3 End Game - CC Cavalier
- $500m is waiting for you to #BuildOnSynthetix - CC Cavalier
- Synthetix V3 is on Mainnet - CC Noah
- Perps V3 Testnet Competition
- A fork in the road. - Kain Warwick
- A quick explainer on Synthetix V3 - CC Matt