For those unfamiliar with Synthetix, you can read up on the project in 5 minutes or less here.
To provide some context, Synethitix.Exchange (herein referred to as sX) crossed $1B in cumulative volume this past week. Paired with the #2 slot on DeFi Pulse’s TVL leaderboard, many have come to regard Synthetix as one of the top DeFi projects. More stats about Synthetix are available using the following dashboard.
Yesterday, Synthetix shared their roadmap for 2020, including a variety of upgrades which we believe will be huge drivers of the protocols continual growth in the coming months. Some of the more notable plans include:
- Introducing ETH as collateral to mint sETH (Synethetix’s version of ETH)
- Enhanced Uniswap LP reward flows
- Transitioning governance to a Synethetix DAO
- Optimistic Rollup integration
- SNX stake delegation
The post broke down the 2020 roadmap into three phases, with launch dates as follows:
- Achernar – January 30
- Betelgeuse – mid-to-late February
- Hadar – March
While all of these dates are estimates, it’s refreshing to see so many exciting upgrades baked into the immediate roadmap. It’s likely that new phases will also be rolled out post-Hadar launch.
For the sake of breadth, we won’t dive into detail on all the roadmap ideation in this post. The original article has links to all the planned updates for those looking to know more.
Instead, let’s examine some of the more notable items.
Skinny Ether Collateral
As it stands today, one of the biggest criticisms surrounding Synthetix is the need to stake 750% of collateral value in SNX to mint new Synths. Seeing as roughly 80% of the supply is now being staked, there were legitimate concerns that should Synthetix keep growing, this schema may prevent the protocol from capture significant amounts of capital due to an inevitable ceiling should 100% of SNX be staked (what an uncommon problem to have!)
In recent weeks, the Ethereum community has been championing an “Ether as Economic Bandwidth” movement, signalling that more DeFi projects should look to leverage ETH as a form of collateral for various value-added services.
The trillion dollar case for ETH
— Ryan Sean Adams – rsa.eth (@RyanSAdams) January 16, 2020
With the introduction of “Skinny Ether as Collateral”, Synthetix is doing just that. The main point to note is that while introducing Ether as collateral does raise the debt ceiling potential, it also diminishes the value capture narrative for SNX. As such, the team is working hard to find a happy medium between the two assets.
In particular, the following Synthetix Improvement Proposal (SIP-35) dedicated to this value capture initiative introduces a way for ETH to be staked as collateral for sETH while still driving value back to SNX token holders:
“There are two fees associated with opening an ETH backed sETH position, a minting fee of 50bps and a compounding interest rate of 5% APR. The interest charged on the loan will be paid to SNX Minters when the loan is repaid.”
Similarly, the Skinny Ether SIP will allow traders to purchase Synths directly using ETH.
“Rather than having to trade Ether for Synths a trader can put up Ether as collateral to borrow Synths and trade on sX, unwinding the loan once they wish to exit the system.”
At the end of the day, this initiative will likely expand access to the sX at large, further driving adoption of what is currently a sector-leading product.
For those unaware, Synethetix currently offers rewards to those who seed Synthetix Uniswap pools. Seeing as DEXs like Uniswap have become the leading liquidity source for many leading DeFi assets, it only seems natural that Synthetix-based assets (SNX, sETH, sUSD) should follow this trend.
In fact, it’s been estimated that over 50% of all Uniswap liquidity can be attributed to Synethetix based asset.
Been a while since I looked at this, but I just realised SNX related pools (sETH, SNX, sUSD) now account for over 50% of total @UniswapExchange liquidity. Will be interesting to see if it increases further once ERC20:ERC20 pairs launch 😉
— kain.eth (@kaiynne) January 3, 2020
With this roadmap release, the team vocalized their intent to synthesize (no pun intended) the Uniswap reward process. As it currently stands, there are a number of UX hurdles to claiming rewards, and in the coming months the protocol aims to make it easier for non-technical users to take advantage of the reward schemas being offered for providing liquidity to Uniswap (and other DEXs).
While we could go into these updates for pages, we’ll leave it here for this article.
What’s important to recognize is that Synthetix has a clear playbook for priorities, with major thought going into the design and thought processes behind all of them.
To stay up to date with Synthetix, follow them on Twitter or be on the lookout for their community calls.
After such a successful 2019, it’s hard to imagine how the project can grow at similar rates. If one thing’s for certain, if there’s any team capable of reaching their milestones, Synethetix has displayed their punctuality time and time again.
Cooper is focused on building compelling blockchain products. He currently works as the managing director at Fitzner Blockchain Consulting and is a contributor to DAOs like MetaCartel and Moloch. He is an active member of the Ethereum community and has a strong interest in for-profit businesses such as The Block Crypto and Messari.