Synthetix is proposing to acquire TLX, per SIP-412 and TIP-14, as an exciting first step towards producing native vaults that leverage the composability of Synthetix and give users frictionless access to high-quality structured products.
Synthetix, a leader in decentralized derivatives markets, is excited to announce the launch of a new product line – ‘Synthetix Vaults’. Vault strategies are highly complementary to Synthetix’s core product, its decentralized derivatives platform, and can help diversify the protocol’s revenue.
Over the coming months, Synthetix plans to launch a wide variety of vaults to expand the core platform with innovative new financial products—starting with leverage token vaults and expanding towards yield-generating strategies (i.e., basis trade capture, funding rate arbitrage) and other actively managed strategies.
Want to come vaulting with us?
Followers have probably noticed that Synthetix is in the early innings of a very exciting reboot and is motoring toward a fresh 2025 vision.
While Synthetix has a well established reputation of delivering safe, decentralized, and performant spot and derivatives trading infrastructure, it’s now time to get closer to the user and offer a more integrated, feature-rich experience.
One key pillar of this new strategic direction is already behind us: the successful acquisition of Synthetix’s leading front-end integrator, Kwenta.
Today, Synthetix further announced the proposed acquisition of TLX, a leveraged token protocol powered exclusively by the Synthetix v2x perps platform on Optimism. Should the acquisition be approved by both communities, it would mark the first step towards offering a whole suite of vaults that will enable newer, easier forms of access to the Synthetix ecosystem. Vaults will be core to the future of Synthetix, enabling high-quality, composable, Synthetix-originated financial products that can be used and re-used far and wide across DeFi.
Simply put, vaults allow passive users to deposit a base token into a pool, engage in a trading strategy managed by code or by someone else, with the expectation of earning returns of some form.
They’ve been around since the sands of time. Grizzled DeFi veterans will remember the DeFi summer OG Yearn Finance. $6bn+ TVL in its glory days: a one-stop-shop to park your USDT and ensure that smart people will send it to all the right places in DeFi to earn more USDT. Today, stalwarts like the Aave safety module ($800m+) which lets you backstop the protocol and earn fees, or Arrakis Finance vaults that programmatically rebalance Uniswap LP positions for you, are a mainstay of DeFi.
And yet, we are seeing fresh momentum in the use of vaults in DeFi. Vaults, vaults everywhere. For three reasons:
1. Creating one side of the market
DeFi protocols are almost always multi-sided platforms: traders and LPs, borrowers and lenders, etc. It’s increasingly the case that one side of the platform is best suited to a retail audience, who need a ‘fire-and-forget’ way of contributing to the protocol, intermediated by a professional manager. Morpho, the new $2bn TVL darling of overcollateralized lending, is a good example of this. Their dApp doesn’t even allow for retail lenders to deposit into one of their 300+ lending markets on Ethereum and Base (this can still be done programmatically): instead lenders must contribute to vaults, managed by ‘curators’ (professional asset managers like Re7 Capital), who will in turn do the lending for them.
It’s worth noting that Synthetix has always been in the vault game: over $100m in SNX is still entrusted to the mainnet SNX staking pool, and no less than 11 liquidity pools form the liquidity-providing side of all the Synthetix perpetuals exchanges.
2. Community engagement
Allowing an easy way for community members to (i) power the protocol with their own assets and (ii) earn a quality risk-adjusted return while doing so has proven to be an incredibly powerful growth catalyst and tool for community engagement.
Hyperliquid was able to achieve this with their Hyperliquidity Provider (HLP) vault, which allowed up to $270m in TVL to fund a professional-grade market-making and liquidations bot. HLP has generated $45m in PnL to date for its depositors, letting them benefit from a strategy they could never deploy themselves. HLP played a critical part in overcoming the cold start problem.
Synthetix vaults will be designed to complement and add robustness to our perps markets, helping to kickstart network effects and provide users with sustainable strategies to capture revenues.
3. Building higher-order financial products
Users, particularly retail users, come to a DeFi protocol to fulfill an actual objective; whether its gaining various levels of price exposure to their favorite asset of the moment, earning yield on their stablecoin, earning a higher, riskier, volatile return by funding liquidations or providing a risk backstop to the protocol they believe in.
In every case, the mechanics and multi-step workflow of using the underlying protocol to achieve this objective can be abstracted away and replaced with a vault. Just give the people what they came looking for. Nothing more, nothing less.
Additionally, the composable and transferable nature of vault tokens, on top of a truly decentralized and trust-minimized system like Synthetix, means one can envisage the right vaults becoming absolute pillars of DeFi. Imagine a truly decentralized stablecoin earning its fractional share of Synthetix system staking returns that becomes accepted widely across DeFi as the new collateral of choice?
Synthetix is moving from the shadows of the infrastructure layer into the foreground. In the absence of a significant amount of integrators leveraging Synthetix’s liquidity layer, it’s for the protocol to go HAM and build the stack itself.
In the first instance, Synthetix will integrate the existing TLX leveraged token vaults into its product suite. Allowing anyone to own a transferable, fungible representation of e.g., a 3X Long DOGE position, backed by the Synthetix protocol. Leverage tokens have a long history in crypto and in DeFi. Coinbase offers them. And they were one of the few things that FTX actually did pretty well (along with mansions in the Bahamas).
In the long run, vault products offer opportunities to allow broad-based, retail-friendly participation in every facet of the Synthetix ecosystem. As leveraged speculators, as liquidity providers, as funding rate harvesters, as cross-exchange arbitrageurs, and more. SOL-SUI-3x-USDC-Optimism anyone?
In each case the design decisions for vaults are non-trivial – these are sophisticated, higher-order financial products. Trustlessness, decentralization, adherence to the underlying financial objective, complexity all exist in a tradeoff space. Even a simple leverage token can lose any value from the underlying price appreciation through excessive trading and poor mint/redeem mechanisms.
Stay tuned to Synthetix socials for more updates on this exciting development and more as the reboot kicks into high gear. And in the meantime, practice your vaulting.
