Synthetix Quarterly Report — Q3 2024

Quarterly Report for Synthetix, Quarter 3 of 2024: July — September.

👉Q3 Highlights

⭐ Spartan Council/CCs: V3 Migration, SNAX Chain, & Referendum
⭐ Ambassador Council: Ecosystem Grants

Over the past few months, the Synthetix Protocol has undergone significant developments and faced a range of challenges as it continues to expand and evolve. In this report, we will explore some of the key highlights, such as the successful migration to V3, new market launches, and governance updates. We’ll also dive into the challenges that have surfaced, particularly around liquidity, integration delays, and governance complexities. Let’s take a closer look at both the achievements and obstacles during this transformative period.

The migration to Synthetix V3 has been a major focus over the past few months, representing a critical shift in how the protocol operates. This transition required an incredible amount of technical execution, and the first phase began with the migration of the Synthetix Treasury. This migration required strong coordination between Core Contributors, auditors, and the Spartan Council, allowing migration to finally open to all stakers towards the end of the quarter. Post migration, the Treasury is now backing debt on V2X and V3 simultaneously, which paves the way for the launch of the much-anticipated L1 Perp offering.

L1 Perps finally made it to testnet this past quarter and is expected to be live on mainnet by the middle of October. Though the progress was slower than originally expected, the product will add more avenues for trading on-chain Perps and will deepen the trading activity supported by SNX collateral. One of the key challenges was preparing the front-end interfaces and coordinating with integrators, like Kwenta, to support Perps trading and Vault functionality.

Another significant milestone this quarter was the introduction of SNAX Chain, which was designed to serve as the primary hub for Synthetix V3 governance. Built on the OP Stack, SNAX Chain enables cross-chain messaging and decentralized governance, allowing voting to take place seamlessly across various networks. The development of SNAX Chain was driven by the need to address limitations in the current governance system, particularly with election mechanics that were restricted to Optimism Mainnet. This has been crucial for improving election systems and aligning governance with the needs of the protocol. SNAX Chain officially hit mainnet just in time to host this past epoch’s elections in September.

Perhaps the most significant development of the quarter came just days after the new Spartan Council was elected when Fenway, a long-time Synthetix community member and newly elected Councilor, proposed a referendum mechanism in SIP-408. The proposal represents a significant shift towards a more direct form of governance on sensitive strategic issues within the protocol. This mechanism allows for specific changes or upgrades to be put to a token holder vote, rather than being exclusively decided on by the Spartan Council.

Under the proposal, a quorum of 75 million SNX would be required for a vote to be valid, with 67% of voters needed to approve the proposal for it to pass. Shortly after the proposal passed in a unanimous meta-governance vote, a referendum was proposed, and subsequently passed, to completely reshape the governance landscape of the protocol. The transition is currently in progress but in short, the Ambassador and Treasury Councils will be deprecated and a new Spartan Council will be created. This new Council will be comprised of 4 elected members who will then appoint 3 Core Contributors to ensure vision continuity. Check out our blog post here, where we reviewed the full referendum in depth.

👉Challenges

This past quarter was certainly not without challenges and, to some degree, these challenges are what motivated the governance overhaul. In SR-2, the Synthetix Reboot referendum, Fenway highlighted several aspects of the protocol that appeared to be hindering growth, including delays and lack of accountability or direction.

This has been most apparent in the consistently delayed launch of the L1 Perp product. In 2023, Ethena approached Synthetix with a request to create a bespoke Perps product on L1. Previously, the protocol steered away from offering L1 Perps, due to the high gas fees on Ethereum. Ethena, however, was seeking additional opportunities to support the yield on their stablecoin and was mostly concerned with deep perps liquidity as well as deep liquidity on staked ETH. This was expected to be ready at the beginning of this year but several prerequisites, including V3 migration and frontend integration, caused significant delay.

These delays also highlighted some accountability concerns within the protocol. While the chase for ever more decentralization has offered some flexibility to the protocol, fragmented decision-making structures have led to misaligned priorities and inefficient workflows. This was put on full display with the failure to deliver multi-collateral Perps to Arbitrum in the agreed upon timeframe. This forced the protocol to return half of the originally awarded 2 million ARB grant to deploy Perps V3 to Arbitrum, which would have been used to incentivize trading activity once the product launched with multi-collateral margin at the end of July.

One of the solutions proposed towards the end of last year to alleviate some of these issues was a published roadmap that would serve as a north star for the community and stakeholders to hold Core Contributors and elected councilors accountable to a plan. The protocol struggled to deliver on this promise for a 2024 roadmap and it was another glaring issue highlighted in SR-2.

Aside from the more operational concerns, interest in Synthetix Perps seems to have faded in the last three months, even as the Arbitrum deployment went live and the protocol positioned itself for the new L1 Perp. While part of this may be due to broader market headwinds, TVL on Arbitrum and Base have also dropped to just over $10 million from a high of around $45 million. Combined daily trading volume across the deployments has been under $10 million since the trading incentive programs dried up. The Arbitrum and Base deployments represent two of five experiments Kain proposed at the end of last year to assess interest in trading Synthetix Perps and delegating non-SNX collateral to back that trading activity on networks other than Optimism. While there was some early interest in the Base deployment, momentum seemed to slow once economic incentives ramped down.

👉Protocol Stats

Overview of Synthetix Q3 Stats: July 2024 — September 2024.

👉Spartan Council

Q3 2024 Spartan Councilors: Cavalier, Cyberduck, Fifa, Jackson, Millie, ml_sudo, Snaxfrens, and Snxmaximalists

Challenges aside, the Spartan Council still contributed to several Synthetix milestones this past quarter, so let’s take a minute to review everything that the council was able to achieve in the last 3 months.

In July, Synthetix announced that it was moving forward with a governance proposal to introduce a new pool on Base — Degenthetix. This initiative introduced a specialized market with a separate debt pool for long-tail assets, offering a sandbox environment for traders to experiment with Perps trading of more volatile listings. This innovative move highlights Synthetix’s commitment to expanding its trading capabilities and catering to more niche markets. The Spartan Council also gave the green light to bring Chainlink Oracles back into the mix. Perps V3 was designed to be oracle agnostic and, though Chainlink Data Streams are more expensive, SIP-398 allows them to be used at the discretion of integrators.

The biggest achievement of the quarter was finally getting the V3 migration over the line. While V3 has been deployed on other networks for most of the year, finally delivering the SNX migration front end will allow stakers, who were previously only backing V2X Perps, to migrate their debt positions to V3 where they will be able to collateralize trading activity on Ethereum Mainnet and Optimism (and share in the fees for doing so). The council also decided to solidify the fee sharing model that was agreed upon for the Base deployment across all chains that Synthetix is deployed on in SIP-385.

After some initial back and forth during the first presentation to launch SNAX Chain, the elections were conducted this past epoch for the first time on the now central governance hub for the protocol. Some of the initial objections were mostly directed towards the more complex implementations originally suggested — such as deploying Perps to SNAX Chain. The council did end up agreeing that centralizing the election infrastructure may prove beneficial for the protocol.

And finally, though it was a new council, SIP-408 to introduce the referendum mechanism was passed unanimously at the end of the quarter. This change hopefully marks a step towards more community-driven governance, empowering SNX holders to have a greater influence in the strategic direction of the protocol and encourage broad participation.

👉Ambassador Council

Q3 2024 Ambassador Councilors: Dsacks, GUNBOATs, MasterMojo, Matt, Westie

While the recently passed referendum will deprecate the role of the Ambassador Council, the Ambassadors still had a productive quarter promoting the interests of the protocol through governance participation, various DAO collaborations, and community support. So let’s review what the Council accomplished in Q3:

✅ Retroactive Funding

In July, the Council assisted ecosystem partners in applying for Optimism’s Retroactive Funding Round 4 and, as a result, several projects were awarded OP for retroactive funding! The Optimism Collective allocated 10M $OP to reward Superchain builders in this round, and a total of 573,000 $OP was distributed to the following projects that received assistance from the Ambassadors:

Synthetix — 256k $OP
Kwenta — 167k $OP
Thales — 54.8k $OP
dHEDGE/Toros — 10.4k $OP
Polynomial — 13.9k $OP
TLX — 8.2k $OP
Copin — 4.9k $OP
Keng Lernitas — 11.79k $OP
Pyth Network — 1.09k $OP

Matt, MasterMojo, and Westie are Optimism Badgeholders, and they reviewed and participated in Round 4 of Optimism Retroactive Funding. Round 5 is currently taking place now.

✅ OP Grants

Round 6 of Optimism Grants is currently ongoing and will last until the end of November — the list of Mission Requests (Grants) can be found here. The Ambassadors contributed to a few OP Grants this quarter, including:

Creating Optimism Mission Requests:
TLX — 50,000 $OP
- TLX is a leveraged tokens protocol that enables users to mint and redeem leveraged tokens for over 50 assets with up to 20x leverage.
- This grant was applied for to help increase user interaction on TLX by distributing OP rewards to users who buy, hold, and sell leveraged tokens.
Strands Subsidized Audit — 73,000 $OP
- Strands Finance, still in alpha, is a global Fintech conglomerate that uses smart contracts and transactional gateways to develop traditional and decentralized institutional tools.
- This audit unlocks significant opportunities for Strands, and will encourage more users and builders to engage with Strands, contributing to a safer and more innovative DeFi environment on Optimism.

✅ Governance

1. General Governance

The Ambassadors always want to make sure they’re staying transparent with their voting. As always, their activity can be followed through their wallets on Snapshot and Tally.

Voting Activity can be tracked using these links:

2. Optimism Governance Forum Activity:

The Ambassadors OP Voting Power saw an overall increase this past quarter:

The AC also remained a major voice in Optimism Governance overall, and their respective OP Governance Forum Activities can be found using these links:

3. X/Twitter Engagement

The Council also posts quick governance updates on X, and posted one this quarter in August. In their governance update the Ambassadors announced, among other things, that they ran in the Kwenta elections and were voted in by the community to be on the Kwenta Council.

4. Partner Support

Current Partners

This quarter, the Ambassadors continued to check in on partners and work with them on any feedback, support requests, DeFi grant assistance/guidance, etc.

5. Spartan Spaces

While not technically a Spartan Space, Matt joined a call hosted by CyberDEX, which is a decentralized perpetual swaps trading platform functioning on Optimism and powered by Synthetix.

What’s next for the Ambassadors?

As previously mentioned, SR-2 will deprecate the Ambassador Council. However, it was widely agreed upon during the Town Hall that the role of the Ambassadors is extremely vital. Going forward, these roles will likely be hired, full-time Core Contributor positions. Stay tuned for more updates from SNXweave as this develops.