Synthetix hopes the completion of these milestones will put the protocol on a path to further development as a cornerstone of DeFi derivatives.
Now that we’re in the middle of 2022, it’s a good time to revisit the key milestones of 2022. The half year 22 has been an exciting six months, with Synthetix having several highly anticipated features coming to mainnet and driving $1-200 million in daily transaction volume via the Synthetix protocol.
Overall, several upcoming milestones will also help Synthetix achieve its goals.
Cross-asset swaps (launched in mid-June) have been a significant driver of volume lately, and there are still many optimizations and integrations to be implemented that could capture a larger share of on-chain spot volume through Synthetix. Additionally, Synthetix Perpetual Swap has seen significant organic (and non-incentivized) trading volume, and the upcoming release of Perpetual Swap V2 and other updates from ecosystem partners like Kwenta and Polynomial will continue to drive Synthetix Perpetual Swap in Optimism adoption above. Finally V3 aims to do what Synthetix started many years ago by transforming the protocol into a permissionless derivative platform.
In the coming weeks, Synthetix will release a more detailed overview of the impact of these milestones on the protocol.
Delivery in the first half of 2022
Synthetix Futures – March 2022
Synthetix’s perpetual futures enable leveraged long and short trades on Optimism with low transaction fees and instant execution, enabling a greatly scalable and capital efficient trading experience.
For SNX stakers, perpetual futures provide an additional source of transaction fees in exchange fees and funding rates .
Atomic Swap and Integration – May 2022
Atomic Swap is a new swap feature that allows users to price synthetic asset transactions through a combination of price feeds from Chainlink and DEX oracles (Uniswap V3), automatically making asset assets at reasonable fees , which helps achieve sETH, sUSD, Seamless transactions between synthetic assets like sBTC. It is unique in that, for large trades, it significantly reduces the overall cost to traders due to slippage.
1inch and Curve are currently the main sources of transaction volume for these, and Synthetix still needs a higher level of integration with 1inch. Community members are reaching out to other major aggregators to integrate cross-asset swaps, and some aggregator teams are actively working on the integration.
Due to 1inch’s integration with Atomic Swap, Synthetix’s transaction volume has increased significantly in recent weeks. 1inch traders get another avenue to liquidity with lower slippage and fees, and SNX stakers get transaction fees from up to hundreds of millions of transactions per day.
These contracts process hundreds of millions of transactions per day, while also contributing up to $1 million in daily transaction fees to SNX stakers and Curve LP .
- Completed Integrations – While 1inch generates the most primary aggregator volume, additional volume can still be captured through the remaining aggregators. Also, 1inch is only partially integrated. For now, users need to initiate and complete two separate transactions for USDC > ETH. They need to do USDC > sUSD > sETH in a single transaction, then sETH > ETH in the second transaction . Once Synthetix incorporates this into a single user transaction, the user experience will be vastly improved and more general;
- Market Volume – At the time of publication, DeFi is in a period of declining aggregator volume, as measured here. When on-chain transaction volume increases again, Synthetix will be able to capture that volume;
- Large-value traders – With the popularization of Synthetix cross-asset swap efficiency and the improvement of cross-asset swap parameters, the community expects that the transaction volume will further increase, contributing more transaction fees to Synthetix and integrated partners;
- Layer2 Liquidity Growth – Optimism’s liquidity is currently low but growing. In the coming year, as more liquidity turns to Optimism, Optimism will gain greater trading volume, which may also lead to an increase in the demand for cross-asset exchange through Synthetix;
- Note – Atomic swaps are currently available on L2 and routed via Curve/1inch/Velodrome, but liquidity needs to be added to improve utility;
- Multi-layered architecture – with the deployment of Synthetix V3 contracts and the continued progress of deploying CCIP in partnership with Chainlink, there will be opportunities to support synthetic asset exchanges on other Ethereum L2 and EVM chains;
Debt Pool Synthesis – March 2022
Debt pools on mainnet and Optimistic Ethereum have been merged, helping to provide full liquidity and make synthetic assets fungible across chains.
New Clearing Mechanism – May 2022
Ensure that the system is properly collateralized, and liquidate users who are lower than the target pledge rate. Both liquidated SNX and debt will be distributed to users.
This redesigned liquidation mechanism works by giving stakers the option to fix their c-ratio with the option to liquidate with minimal cost if they are unable or unwilling to buy synthetic assets in the market to guarantee their c-ratio , which can create better incentive alignment within the system.
V3GM Election Module – June 2022
Synthetix elections have been conducted entirely on-chain, with no Discord nominations, Google Sheets, etc., users nominate and vote through the election module, which includes candidates’ promotional materials, their social connections, and more.
Circuit Breakers and Dynamic Transaction Fees – Feb/Mar 2022
Two updates to limit front-running transactions:
- Circuit Breaker – When the on-chain price deviates from the off-chain price by more than a certain threshold, the oracle will suspend the Synthetix market;
- Dynamic transaction fees – transaction fees that are triggered when volatility is high and decay as volatility subsides;
Automatic SNX Claims – June 2022
Synthetix has partnered with Gelato to allow stakers to automatically earn SNX staking rewards on Optimism. Now, users can automatically claim weekly staking rewards when the c-ratio is higher than the target c-ratio.
Don’t wait for the c-ratio to be higher than the target value, just set it and (limitedly) forget it.
Automated Debt Pool Hedging with dHEDGE and Toros – June 2022
One-click debt mirror index for SNX stakers on Optimism.
Delivery in the second half of 2022
sUSD Bridge – SIP 229 (Daniel Beal)
Allowing users to transfer sUSD back and forth between Optimism and the Ethereum mainnet will greatly improve the capital efficiency of the network and pave the way for debt migration.
Synthetix Futures Perps V2 (Perpetual Futures Contract V2)
Perps V2 helps extend Synthetix perpetual futures and makes it easier for traders to use. But before we dive into V2, let’s review the current state of Synthetix Perps and the volume and fees it has generated.
The beta version of Synthetix Perps has been a success, generating more than $2.8 billion in transaction volume since its launch and bringing in $10 million in transaction fee rewards for stakers. These trades came from 4,000 different traders who made about 26,000 trades.
Synthetix offers no incentives for trading, all growth comes from fully organic usage of the product. Some incentives such as SIP-254 proposed by Kain, which proposes to transfer 20% inflation to transaction incentives, the transaction volume will certainly increase with the transaction fee incentives that stakers receive.
Perps V2 and the future of Perps
Perpetual contracts will be significantly updated to achieve the following goals:
- Improve user experience through lower fees and more predictable funding rates;
- Increase open interest limits and add support for other markets;
Note: A further effect of improving the user experience of perps is an increase in transaction fees captured by the Synthetix protocol.
Ecosystem partners are also working to improve the trading experience, and Kwenta’s roadmap segment breaks down some of their futures-related versions.
Highlights of the Kwenta update:
- Support for mobile user interface
- cross margin
- limit order
- stop loss
- copy trade
- Release of KWENTA Tokens and Trading Rewards
Kwenta isn’t the only protocol built on futures, Polynomial is also building a base trading library that earns users fees by capturing the spread between the spot market and the corresponding perpetual futures market . In this strategy, they will try to charge a funding rate (i.e. forward arbitrage) by going long in the spot market and short in the perpetual futures market by an equal amount.
Polynomial’s trading library is expected to be live by the end of July.
V3 aims to do what Synthetix started many years ago by transforming the protocol into a permissionless derivatives platform.
Completely rebuilding Synthetix as a more general protocol on a more efficient architecture, redesigning the entire protocol from the ground up to facilitate the development of new DeFi applications.
What are the benefits of the Synthetix protocol, users and builders?
long term vision
- Permissionless asset creation – any financial derivative can be built on top of Synthetix V3.
- Better control over credit – stakers can pick and choose the assets they want to stake, it improves the hedging experience and allows new assets to increase their liquidity without Spartan committee approval.
- “Liquidity as a Service” – Synthetix will not only be a protocol for trading through its debt pool and b/c of assets, but also help users to quickly increase the liquidity of any financial derivatives on the chain;
Why developers love V3
- Create a pool to support (almost) any financial derivative you want to build;
- Covers any user’s coveted product, from traditional financial markets to more exotic ones, such as lossless lotteries, and even support for the liquidity of peer-to-peer protocols;
- In theory, current competitors can acquire and transfer liquidity through Synthetix to increase their available market;
- Solve the cold start liquidity problem – simplify the provisioning of experimental projects for early market liquidity;
- Simple and easy to understand: integration with Synthetix takes days instead of weeks;
Why Stakeholders Love V3
- Simplified Staking: Staking SNX will be as easy as any other protocol;
- Differentiated Debt Pools: Provide collateral to and receive fees from a specific pool of assets that may not necessarily be Spartan committee-backed (as is the case in V2x);
- Inflation weight: veSNX guages;
- Staking rewards: lock for more rewards;
- The staking experience is much better for new users who just want to hedge certain assets;
Users can go through some ongoing SIPs to learn more about the current state of Synthetix V3 and how it will evolve:
- SIP-300：Synthetix V3
- SIP-301: Accounts (V3)
- SIP-302: Funding (V3)
- SIP-303: Market (V3)
- SIP-304: Clearing (V3)
- SIP-305: Staking Incentives (V3)
- SIP-306: Mortgage Migration (V3)
- SIP-307: Proxy Router Architecture (V3)
Debt Migration – SIP 237 (Kain Warwick)
One-click migration of collateralized debt positions from Ethereum to Optimism without the need for users to burn debt.
SNX staking may have to migrate from Ethereum to Optimism as the final V2x SIP is finalized and preparations for V3 begin. This will allow the new V3 staking system to be deployed only to Optimism initially, reducing migration overhead, and then scaled to other networks as needed.
WIP and Submitted SIP
In addition to the product release schedule, some changes to the system are under review and debate, with some recommendations from core contributors and others from community members, and the Spartan committee will decide if and when to implement these SIPs.
Clearing Custody SNX – SIP 252 (Kaleb)
Updated liquidation mechanism to liquidate SNX tokens held in accounts along with SNX tokens in escrow until the target c-ratio for SNX stakers is fixed. Currently accounts can circumvent the effects of SIP-148 by not vesting their tokens.
With the modifications proposed in this sip, this portion of the debt associated with SIP-148 will be cleared, which will make the protocol more resilient and better capitalized in the long run.
If the self-liquidation method is invoked, only the SNX available in the account is used for liquidation (the self-liquidation method cannot use escrow SNX to pay off debts).
Perps Transaction Incentives – SIP 254 (Kain Warwick)
It is proposed to use 20% of the weekly inflation for trading incentives in the perpetual futures market.
Every day at 0:00 UTC, trading volume and open interest for the previous 24 hours will be measured, and a combination of cumulative open interest and trading volume will be calculated for each active address to calculate trading reward points.
Reallocate sUSD fee to L2 – SIP 255 (DB)
Change sUSD fee allocation to send additional sUSD to L2. With the increase in sUSD fees on the mainnet, users must still be incentivized to stake on Optimism. For this purpose the SIP proposes to send an additional amount of sUSD from L1 to L2 when the fee pool is closed.
Debt Ratio Futures Market – SIP 257 (Arthur)
Create a Synthetix futures market for the Synthetix debt stock price (debt ratio) for capital efficient debt hedging. Chainlink oracles for debt ratios are already part of the debt system (SIP 165). The futures market will create a more efficient debt hedging market and keep more hedging fees in the protocol.
Other cryptocurrency and commodity futures markets
There are currently 4 outstanding SIPs aimed at adding new futures markets; they are as follows:
- SIP 214 – OIL Perpetual Futures (Matt and Raffiegang)
- SIP 248 – Doge Perpetual Futures (Berlock)
- SIP 249 – BNB Perpetual Futures (Burt Rock)
- SIP 250 – XMR Perpetual Futures (Burt Rock)
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/synthetixs-mid-2022-review-and-roadmap/
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