Synthetix has recently released its roadmap for 2020 and at a glimpse, there are many interesting developments we can look forward to in this quarter. However, it could be daunting to the new influx of users to be able to comprehend what exactly is being implemented and how it benefits the system as a whole. I am no expert myself even though I have been lurking around Discord for months since I wrote my beginner’s guide.
The purpose of this article is to break down the proposals in the upcoming Achernar Release to better understand the meaning behind each of them. 2019 was an eventful year for the growth of Synthetix and the roadmap serves as a great foundation for what is to come in 2020. Without further ado, let's begin!
Achernar Release
This is scheduled to be released on 30th January.
Uniswap staking rewards
LP = Liquidity Provider
Introduction:
Users are incentivized to provide liquidity to the ETH/sETH pool on Uniswap by providing an equal amount of both. This pool provides a cost-efficient gateway for traders to enter or exit the system and improve the viability of Synthetix Exchange. The LPs are rewarded with SNX weekly.
Current Situation:
There is a weekly snapshot of the LPs and rewards will be forfeited if any tokens are being withdrawn from the pool during the entire week. There are 7 signers and 5 signers are required to sign the transaction in order for the rewards to be distributed.
This can take up to a week due to the rigorous checks that the signers have to do to ensure that the right people are getting paid and there is no foul play involved.
Proposed Solution:
The verification & distribution process will be moved on-chain where LPs have to deposit their uniswap tokens into a unipool time staking contract and claim their SNX rewards from the contract. With this implemented, it would solve the issues below.
LPs want their rewards ASAP — They do not have to wonder when their rewards will come in as the checks are being automated and can be claimed once the weekly snapshot is taken. There is currently no deadline set for claiming.
LPs have the ability to withdraw their liquidity at any point in time without having to forgo rewards — The rewards will be time-based, you will be rewarded SNX based on your % of uniswap tokens against the total pool and how long your tokens are staked
The off-chain verification is too tedious for the signers due to the sheer number of liquidity providers — The smart contract handles all the calculations and checks on-chain.
Remove XDR
sUSD will replace XDR as it is redundant and confusing to most users. This will help facilitate better integration with price oracles & third party analysis tools. On the user side, this will reduce gas usage which helps save on fees for minting, burning, claiming of rewards and is made easier to calculate the current amount of fees claimable inside the fee pool.
Skinny ETH Collateral
Introduction: Only sETH can be generated when locking ETH which would incur a minting fee of 0.5% and a compounding interest rate of 5% APR. The interest charged will be paid to SNX minters once the loan is repaid and it is a fixed 3-month term loan.
There is a hard cap of 5000 sETH that can be generated and the collateral ratio to maintain is at 150% so locking 1.5 ETH would generate 1 sETH. Exchange trading fees rewards are NOT applicable to users who choose to lock ETH so as to not dilute the value capture of SNX.
Current Situation:
SNX is the sole collateral backing the system and the total volume of synthetic assets that can be traded is limited to the amount of sUSD that is generated by locking SNX. This has to scale in order for the exchange to gain further traction and attract whales to trade. This is what ultimately gives rise to the value of SNX — higher trading volume on Synthetix Exchange.
There are also many critiques about the quality of SNX as a collateral — its ability to sustain the whole system if drastic price variations were to occur due to illiquidity where more than 80% of SNX is locked, plunging the network in unhealthy state of under collateralization especially when there are no liquidation measures in place.
Proposed Solution:
Adding Ethereum as collateral. Users of DeFi hold ETH in high regard and the price of ETH is more difficult to manipulate compared to SNX, thus, ETH is viewed as a safer form of collateral. ETH collateral is likely to give a huge boost towards the onboarding of new users and synth supply can increase at a faster rate to match trading demand on Synthetix Exchange if trading volume rises sharply.
With ETH as collateral, it enables a much more efficient way of trading in and out of the system without having to touch SNX at all or be exposed to the slippage when buying or selling of sETH through the uniswap pool which also reduces pressure on peg.
Fee Reclamation
There is currently a maximum gas price imposed on all transactions on Synthetix Exchange to prevent front-running of oracle. This proposal allows users to process the transaction at whichever gas price they choose. There will be a short waiting period where exchanging or transferring of that synth will fail. If the price increases during this window and the profit exceed the exchange fee, the profit will be reclaimed.
If this strategy to combat front-running of oracle is successful, trading fees are expected to be lowered.
Production: Synthetix Exchange V2
High volumes of trading activity on the exchange is vital to the success of Synthetix and an important part that could make or break the user experience is the interface. Comparing both versions, we can see a vast improvement in the UI as v2 mirrors the standard UI that most exchanges have. The new interface looks sleeker and has more relevant trading information spread out nicely across the screen.
SNX Uniswap Pool Staking Incentives
Introduction:
Following the successful incentivization of the sETH pool on uniswap where it has now become the largest pool, Synthetix is using the same method by rewarding SNX to LPs who contribute to SNX/ETH uniswap pool weekly in an attempt to enhance liquidity for SNX.
Current Situation:
Because of the attractive rewards by minting SNX, the locked SNX ratio stands around 80%. Hence, the supply of SNX is considered to be scarce with very little liquidity available. The best option for people who are looking to perform larger trades is to deal through the OTC channel via Discord or be exposed to high slippage when trading through DEXs.
With this being implemented, the rewards make it more attractive to provide the much-needed liquidity that SNX requires which will be supplied by different parties around the world, helping to reduce slippage for large trades and keep the available supply well-distributed.
SNX Auction
Introduction:
Maintaining the ETH/sETH peg at a 1:1 ratio is crucial in giving confidence to users of the exchange that they are able to trade in and out of the system without the risk of slippage cutting into their profits.
Current Situation:
The arb pool is a measure to stabilize the peg. Around 72k SNX is deposited into the contract weekly and is activated when sETH/ETH ratio falls below 99:100. A user can then send ETH to the contract to buy out the SNX and the ETH received will be used to buy sETH to restore the peg to 1:1. However, it has failed to manage the ETH/sETH peg efficiently as the SNX is instantly being depleted whenever it is up due to peg manipulation.
Proposed Solution:
Hold a weekly SNX auction where SNX that are escrowed for 12 months are being sold at a discount. The ETH that is being collected will be used to buy sETH from the Uniswap pool to support the peg. The first auction trial has already been held on 17 Jan and the process looks like this with a minimum bid of 1 ETH. (This is currently manually handled)
- 50K SNX will be auctioned
- The trial will run for 2.5h
- The SNX price in ETH will be fixed at the opening of the auction
- The initial discount will be 2%
- Every 30 mins the discount will increase by 2%
- The maximum discount will be 10%
- All orders will be filled at the highest discount rate
Conclusion
This sums up the January release for Synthetix! I hope I managed to help you guys better visualize how each proposal is helping Synthetix move forward. There is so much information to cover in these proposals and I learned a lot while writing this article. I can’t help but be excited at the long-awaited addition of ETH collateral coming to fruition and build onto the robustness of the Synthetix protocol.
Please stay tuned to the next article which will be covering the Betelgeuse release scheduled in mid to end February!
Huge thanks to @nocturnalsheet in clarifying my doubts for certain aspects of this release.
UPDATE: The team has decided to delay the Achernar Release till further notice to have more time to get the critical items audited. (i.e. smart contracts with value locked in them)
