1/ We're running a trial to incentivise people to hold iETH to balance the Synths debt pool! The debt pool (i.e. the sum of all Synths) is currently skewed long ETH, which negatively impacts SNX stakers. https://t.co/L7UVpz4CNe
— Synthetix ⚔️ (@synthetix_io) April 24, 2020
For those unaware, Synthetix directs weekly inflation for their native token – SNX – to those who provide liquidity to sETH and sUSD. We even have a tutorial on how to participate here.
This past week, we saw two new updates – both of which are slightly changing those reward incentives.
sUSD CurvePool Changes
As many might have sense, iEarn recently shared that they discovered an exploit regarding the sUSD Curve token wrapper – ySUSD. While no funds were affected, this required all Curvepool holders to exit their funds and migrate to a new version of the Curvepool contract which was released earlier this week.
We have been working with the Curve team this morning, to reiterate no funds are at risk as the pool has been disabled. Only withdrawals are available. We will update on the plan forward shortly. https://t.co/cjr5ttsLao
— Synthetix ⚔️ (@synthetix_io) April 19, 2020
In tandem with this migration, Synthetix kicked off an increased incentive to sUSD holders, namely bumping the 32,000 SNX weekly inflation to 64,000 SNX – effectively doubling the number of available rewards to sUSD liquidity providers. After 3-4 weeks, the pool will be upgraded again to include Aave interest-earning assets to all those providing liquidity as well.
While the new contract does not require any different flows from how the pool was entered before, it’s important to note that only those who migrate to the new pool by unwrapping ySUSD and re-entering the new Curve pool will be eligible for these rewards. To aide in this migration, Synthetix baked in an “Exit Old Rewards Pool” button directly into Mintr, generally making it as easy as possible for old participants to migrate to the new and improved pool.
iETH Liquidity Incentives
In tandem with the sUSD changes, Synthetix is now introducing a trial to reward those for supply liquidity to iETH – or inverse (short) positions on ETH. Now while you might be thinking – why would I ever short ETH? this trial offers a solution to essentially neutralize your position by providing liquidity in both iETH and ETH – effectively offsetting any potential gains or losses that may occur.
“The expectation is people who are currently holding stablecoins will construct a market neutral position using iETH and ETH while generating an SNX yield for balancing the debt pool.”
The reasoning behind this incentive is simple. Seeing as the large sum of all Synth volume is currently in sETH, this effectively makes the vast majority of liquidity skewed long ETH. This is being rebalanced by diverting half of the sETH Unipool rewards (from 64,000 weekly SNX to 32,000) in favor of the sUSD pool mentioned above and by offering 32,000 weekly SNX to iETH holders.
For more details on the iETH trail, check out the official blog post here.
Why Should I Care?
Both of these changes pose an interesting example of balancing +mitigating risk vectors by using a native token as an incentive. Seeing as the vast majority to SNX is being locked by users to mint sUSD, it only seems logical that new SNX entering the supply goes to those helping to battle harden the system.
— DappRadar (@DappRadar) April 16, 2020
The interesting thing to note here is that both of these changes are shifting attention away from the most lucrative opportunity of sETH/ETH liquidity rewards. This is largely due to both fees collected on Uniswap and the mitigation of impermanent loss due to the 1:1 peg. Instead, liquidity providers must now choose if allocating to either a stablecoin pool or a market neutral position to earn SNX bears a great opportunity than simply being long ETH.
In the meantime, be sure to stay up on all things Synthetix by following their official Twitter!
Cooper is the Editor of DeFi Rate and an active contributor to leading DeFi media outlets like The Defiant, DeFi Pulse, and Bankless. He works with early-stage teams through Fire Eyes DAO to incubate governance models and grassroots community development. He is an ambassador to Set Protocol and an author of a weekly publication called Token Tuesdays. To stay up with Cooper, follow him on Twitter.