TL;DR: Synthetix is ready to revolutionize DeFi with its V3 launch, enabling customers to pool collateral, create onchain monetary markets, and energy numerous new protocols with Synthetix liquidity and infrastructure. In essence, V3 affords a extra dynamic and modular strategy to onchain by-product creation, liquidity development, and infrastructure administration, increasing the probabilities of what could be constructed atop the protocol.
Synthetix stands on the cusp of making a DeFi revolution with its upcoming V3 launch. It will assist to usher in a interval of mass innovation all through the world of onchain derivatives and monetary devices.
What’s Synthetix V3? Let me clarify.
At its core, all the Synthetix V3 system is a Collateralized Debt Place (CDP) protocol. Much like MakerDAO/Liquity, you’re taking your collateral (SNX, ETH/wsteth/different LSDs/and many others), deposit it right into a contract, after which generate a stablecoin. In Synthetix’s case, the system-generated stablecoin is sUSD.
The differentiator for Synthetix is that you could as an alternative delegate your complete CDP, collateral and all, to a bigger basket of collateral referred to as a Pool.
Swimming pools could be thought of a collective CDP, with baskets of collateral used to generate sUSD and allocate liquidity to by-product markets for merchants to make the most of. Pool house owners are the deciders of how liquidity is allotted. Due to this, despite the fact that anybody can create and handle a pool, most stakers will doubtless direct their collateral to extra ‘trusted’ swimming pools. For instance, the Spartan Council Pool, whose house owners are instantly elected by SNX token holders.
Swimming pools then use this collateral and allocate it to by-product Markets. Markets are arguably an important piece of all the protocol, as they’re the logic that turns LP liquidity into onchain monetary devices. Nicely-designed markets hope to generate delta-neutral charges for LPs – which, on this case, signifies that the charges earned by liquidity suppliers are unaffected by perps dealer revenue and losses, making certain secure returns no matter volatility. A latest instance of a ‘well-designed market’ is Synthetix Perps, which has returned $24m+ in charges to Synthetix Stakers. Synthetix Perps has built-in danger administration designs like price-impact and dynamic funding charges, which work collectively to maintain the market delta impartial.
LP’s, Swimming pools, Markets & Merchants
Earlier than we go any additional, let’s first shortly break down the stream of liquidity within the Synthetix V3 system.
Liquidity Supplier –> Swimming pools –> Markets –> Merchants
That is all the system in a nutshell, with LPs offering the preliminary collateral, then swimming pools receiving this delegated collateral and utilizing this collateral to generate sUSD and allocate it to markets. Markets deploy this sUSD to supply liquidity for markets like Synthetix Perps, after which merchants make the most of this liquidity for buying and selling.
The stream of charges goes the alternative means
Merchants –> Markets –> Swimming pools –> Liquidity Suppliers
All swimming pools inside the Synthetix V3 system will distribute charges on a pro-rata foundation, which means that those that present extra collateral to the pool will obtain extra charges. There’s one caveat right here in that Pool House owners can create a rewards distributor. This distributor can siphon off a share of the generated charges, and distribute them to any tackle, collateral sort, and many others., in any means. Moreover, the rewards distributor can obtain incentives from an out of doors supply, and distribute these further rewards to LPs, these can embody token rewards, inflationary rewards, and many others.
A rewards distributor, managed by the pool proprietor, might determine to allocate 10% of all charges to the unique creator of the market, or 10% of all charges to SNX stakers. Alternatively, the rewards distributor can distribute further rewards to LPs out there – an instance is inflationary SNX, which might be distributed by a rewards distributor. It is maximally configurable. To be taught extra about it, examine it within the official Synthetix V3 docs.
Earlier than delving into markets, let’s start with a broad overview of all the system. Beneath is a graphic of the Synthetix V3 system to visualise the construction.
I’m certain you perceive the illustration. Now, let’s delve deeper into the markets.
Markets in Improvement & Potential Markets
Some further markets being developed proper now embody Perps V3 & Spot, which can allow the creation of perpetual futures and spot artificial belongings. Markets are maximally configurable and modular. Builders can create a marketplace for any by-product utilizing any out there onchain Oracle. This is a non-exhaustive listing of potential markets from Synthetix Core Contributor Cavalier’s latest weblog put up on Synthetix V3:
Perpetual Futures / Choices / Structured Merchandise: buying and selling utilizing artificial belongings to characterize leveraged positions for perpetual futures, together with foundation buying and selling, and funding fee arbitrage vaults. Instance – GMX may very well be constructed on Synthetix v3.NFT-Fi borrowing/perpetuals: Customers can borrow artificial belongings collateralized by NFTs or create perpetual contracts speculating on the long run worth of NFTs, with rewards distributed to Synthetix stakers. As an illustration, nftperp.xyz may very well be constructed on Synthetix v3Insurance markets: Customers can buy insurance coverage contracts for varied dangers, collateralized by Swimming pools and ruled by good contracts. Eg. Nexus Mutual may very well be constructed on Synthetix v3.Prediction markets / Binary Choices / Sports activities Bettings: Customers can commerce shares primarily based on the end result of occasions, equivalent to election outcomes or sports activities video games. Eg. Time beyond regulation Markets may very well be constructed on Synthetix v3.Video games: any recreation might leverage Synthetix collateral, to supply aggressive prizes. Eg. a lottery (or no-loss lottery, like PoolTogether) is simple to implement on Synthetix v3.Offchain / RWA Markets: Markets may very well be developed for real-world belongings equivalent to artwork, carbon credit or different offchain belongings or devices. With adequate oracles and trusted entity verification, this “belief” might generate capital on chain, backed by Synthetix and snxUSD.
The alternatives are limitless. Now, whereas these market prospects are intriguing, the important thing part powering these derivatives is liquidity. Let’s delve into how Synthetix V3 addresses the problem of onchain liquidity.
Liquidity as a Service or LAAS
Constructing onchain derivatives is HARD. Many protocols have tried, and lots of protocols have died.
The most important drawback plaguing by-product protocols is usually known as the rooster and egg drawback. New by-product protocols cannot onboard merchants as a result of they haven’t any liquidity, they usually cannot herald liquidity as a result of they don’t have merchants. It does not matter how novel or bespoke your protocol is; in case you have no liquidity, you are lifeless within the water, and that is that.
That is the place Synthetix is available in. Liquidity as a service.
Builders construct on Synthetix infrastructure after which persuade LPs to deposit collateral into swimming pools to funnel liquidity to their by-product markets. As an alternative of getting to reinvent the wheel, you may as an alternative be inside the Synthetix ecosystem, a protocol with a historical past of supporting revolutionary concepts and new protocols.
I think about most protocols will use a combination of old-school liquidity development by token brrr and ask the Spartan Council for an preliminary seed of liquidity to get them off the bottom. That is the advantage of the Synthetix system – you’ll be able to collect liquidity your self and work by governance to collect liquidity on your new thought. However Synthetix doesn’t simply cease at offering liquidity. It affords an answer to builders by managing backend infrastructure complexities as nicely.
Infrastructure as a service
Builders need not handle infrastructure particular to liquidity provisioning, leaving them to deal with the 2 most vital elements of their protocols – by-product mechanism design, and a correct frontend to assist onboard and educate merchants.
Simply think about the numerous hours builders throughout DeFi have spent constructing infrastructure that would’ve been spent on creating a greater product. Synthetix V3 will quickly summary all of that ache away.
Synthetix V3 handles all the pieces, and also you need not rebuild liquidity administration, and reward distributors, for every market you construct.
Go Deeper
Right here’s a non-exhaustive listing of different sources for studying extra about Synthetix V3:
