While the protocol has seen a significant amount of growth in 2019, the past few months have seen stagnated growth as Synthetix faces a range of different attacks and exploits.
One of the biggest issues with Synthetix has been the saturation of front-runners, where users are able to profit from oracle latencies.
Other exploits included the ability for “snapshotting” where users could claim exchange fees and inflationary rewards by minting Synths directly before and burning them directly after – essentially earnings rewards for no risk or benefit to the overarching system.
This has had a negative effect on the protocol in recent months as the price of SNX has declined a fair amount despite the market-wide bull-run.
For those unfamiliar, the Achernar release will feature a suite of new SIPs including:
- SIP 31 – sETH pool automatic rewards – The system will transition paying out the sETH – ETH liquidity pool on Uniswap manually to an automated system, improving efficiency while reducing margin for error
- SIP 33 – Removal of XDRs – The XDR Synth was originally used as the base unit of account within the system. Now, sUSD will fulfil that role to simplify a multitude of functions for SNX users.
- SIP 35 – Skinner Ether Collateral – SIP 35 will introduce the preliminary functionality for ETH-based collateral to increase total available economic bandwidth for synths while reducing barriers to entry for new traders.
- SIP 37 – Fee reclamations and rebates – A new anti-frontrunning mechanism to ensure traders cannot profit from oracle arbitrage.
- Synthetix Exchange v2 – The Achernar will release v2 of Synthetix Exchange into production Beta
- SCCP 11 – Reduce Trading Fees to 0.3% – The fee reclamations will allow the protocol to reduce the trading fees back down to 0.3% (up from 0.5%)
if you currently provide sETH liquidity, here's what you need to know about the new reward system we're launching with the Achernar release! https://t.co/mp0krF6FGJ
— Synthetix ⚔️ (@synthetix_io) February 19, 2020
Follow-Up Details on Achernar
Earlier this week, Synthetix released a follow-up blog post outlining additional details and rationale regarding some of the upcoming implementations. One of the more controversial initiatives announced with the Achernar upgrade is the 2M SNX distribution to stakers who did not exploit the system through “snapshotting”.
The exploit has been available since 2018, but at the time there were little incentives for traders to capitalize on the opportunity. However, in recent months, the amount of users exploiting this flawed design mechanism has increased significantly to the point where the protocol must look for alternatives.
The Synthetix Foundation decided to allocate a portion of their treasury to offset the debt increase from these exploits along with setting the standard that the Foundation will take action to reward good actors within the system.
In addition to this SNX distribution to honest liquidity providers, the Synthetix Foundation will also allocate SNX from its treasury to alleviate the debt burden caused by frontrunning. Exact amounts for this subsidy will be released at a later date.
Lastly, Synthetix will be implementing some new liquidity incentives – one of them being a stablecoin trial to incentive sUSD liquidity to help restore the peg which has fallen due to the skew of the feel pool for holding sETH in Uniswap. The trial will last over four weeks with a 50k SNX allocation per week (~$50,000 per week as of writing).
The other is a new improvement on the existing model as outlined in SIP 31. Following the Achernar release, sETH liquidity providers on Uniswap will be required to claim their SNX rewards by staking their UNI-V1 LP tokens into the sETH LP smart contract.
With the new upgrade, rather than requiring LPs to wait every week for their rewards, they will be claimable in real-time so long as the Uniswap tokens are staked into the contract. If you’re an sETH LP, rewards will initally be claimable via Etherscan’s contracts using MetaMask with the intention of integrating functionality directly into Mintr within the next few weeks.
The Achernar upgrade is one of the bigger protocol improvements for Synthetix. The new implementations will mitigate frontrunning and snapshotting exploits while streamlining rewards incentives for ecosystem participants.
One of the most important upgrades not discussed in-depth in this article is the addition of ETH collateral in SIP 35. The ability to mint Synths with Ether rather than Synthetix will drastically increase the available economic bandwidth associated with the protocol, allowing for a significantly higher amount of Synths to be minted. With that, the more Synths minted and trading on a daily basis, the more fees earned by SNX stakers. Ultimately, the addition of ETH-based collateral may be one of the driving catalysts which could propel Synthetix’s next leg of growth.
7/ Especially when you realize DAI is just one of many bandwidth consumers…it's not even the only synthetics consumer
Synthetix will be adding ETH as collateral for the first time on Jan 31. This was less a choice & more an inevitability
ETH 120x's their bandwidth overnight pic.twitter.com/sNaIjrH40B
— Ryan Sean Adams – rsa.eth (@RyanSAdams) January 16, 2020
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Analyst at Bankless – one of the leading resources for open finance. Lucas is an active contributor to the DeFi ecosystem with appearances in other notable DeFi outlets including The Defiant and Our Network. He has years of experience working with dozens blockchain and token startups where he focused on token economics, marketing, and growth.