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From the founder: What is the future of Synthetix?
Written by: Kain Warwick, Founder of Synthetix
** Compilation: Frank, Foresight News**
After re-integrating into the community over the past few months, I often ask myself "what is missing from this Synthetix project?"
My conclusion is that people are often hesitant to pursue high-risk, non-obvious paths. This makes sense, since the incentives are closely tied to everyone's work on the critical path, which also results in very few people having the time to sit down and make crazy plans for Synthetix.
Synthetix Core Contributors have become more and more effective over the past year, thanks to the Core Contributors Board we introduced, while also hiring many brilliant minds to replace those in 2018, 2019" The exhausted OGs during the death march helped Synthetix make a lot of progress on core initiatives, including ending V2x, designing V3, and reimplementing Perps.
Among them, the design of V3 and the re-implementation of Perps are still in their infancy at the beginning of 2022. Now just over a year has passed, Perps continues to expand its market coverage, and the initial components of V3 have also been deployed to the mainnet.
Overall Synthetix has seen some changes in the past year, some of them are very effective, but there is much room for improvement, this article will list the opportunities I found, where in some cases I will provide an overview of the problems and options sketches, and in other cases detailed plans.
The Synthetix Treasury Committee is also working on a new proposal template for the initiatives listed below, ensuring more transparent communication of Synthetix changes and avoiding misunderstandings. It is important to emphasize that everything listed below is conceptual and has not been voted on by the Treasury Board, although many aspects of these proposals are supported by the Treasury Board:
Core Contributor Positioning
I know this may delve into the issue of equity distribution philosophies in startups or token distribution in DAOs, but I think it's a crucial point. The early Synthetix community either understood this problem intuitively, or I imposed my understanding on them.
In my experience, many people working at startups have multiple motivations, but financial freedom is often an important factor. At the same time, working in a startup is already an adventure in itself, and working in a DAO is even more important. more risky.
Because there is little hierarchy in Synthetix, self-motivated people are more attracted to this atmosphere, however we also have to make sure to align with financial incentives.
I suggest set aside a portion of SNX every quarter as a bonus, and the treasury committee will decide on the distribution method, and combine CCs (core contributors) feedback to make a fair distribution according to the degree of impact each colleague has on the Synthetix protocol , in recognition of everyone's performance. The exact amount of SNX to be distributed is still to be determined, but ideally it should be in the millions.
Transaction Incentives
While OP incentives have been successful in increasing transaction volume, SNX-based incentives may have a more impactful feedback loop, especially since the incentive will be available in escrowed SNX, which will drive more transactions Members understand and participate in SNX staking. Ideally, should distribute 5-10 million SNX over time to this incentive program.
SNX Passive Staking
Although Synthetix has taken a series of measures to simplify the staking process, such as implementing a hedging (dHedge) strategy, the difficulty of participating in SNX staking is still an important obstacle to attracting new participants to the Synthetix ecosystem.
Even getting users to understand why these hedging strategies are needed is a challenge because it is difficult to quantify, and it is this complexity that has deprived the Synthetix ecosystem of too many potential staking users, and even I think it can be conservative to assume that potential staking users are actually Several times the number of pledged users.
In order to make the staking process easier, we can create a passive staking pool and work together with active SNX staking, new staking users can try staking without facing too many complicated processes, and better Understand Synthetix.
We can think of it as a freemium business model, where the "price" represents risk and complexity, and if we reduce risk and complexity while paying lower yields, we may attract more investors. This benefit should initially be paid by the Synthetix treasury, possibly in SNX or sUSD, but preferably in sUSD.
This income should also be dynamically calculated based on the ratio between active pledge users and passive pledge users, and a cap of about 10% of the transaction fee will be set for passive pledge users. Of course, this is only a very rough conceptual outline, and the specific details are subject to discussion. I think a three-month trial with a payout cap of 1-2 million sUSD (or equivalent in SNX) could be done** enough to see if this would increase the percentage of SNX passive and active staking .
Incentive Integration
As Synthetix transitions to a liquidity layer, our reliance on integrators has become a matter of life and death, and of course the community can fund new internal Synthetix transaction front ends.
In the long run, it is critical that we align incentives for integrators. We've had a lengthy debate on Discord about how to achieve this, so I'll quickly recap what each side of the debate has to say:
The SIP-2002 proposal moves us away from the purists' point of view, but it won't affect the revenue generated by SNX staking users, the question is if fees continue to grow, although it is a step in the right direction, it won't be a sustainable mechanism.
**I propose to subsidize integrator fees by allocating a certain percentage (eg 10 million SNX) of SNX from the treasury, which can be staked on their behalf, which will generate a base fee income of 3-5% (depending on staked SNX percentage), the advantage of this is that there is no need to increase the number of SNX in circulation to pay for these fees. **
If this incentive is successful, it can be incorporated into the protocol without staking SNX on behalf of the integrator; if it fails, because it is not further tied to the integrator, it can be gradually reduced and allocated to other incentives or Distributed to SNX pledged users.
3:1 ratio of SNX split + buyback
Last year I tried to stop the pace of inflation before Synthetix reached 300 million SNX. Fortunately, this proposal failed because we have not yet reached the point where zero inflation can be sustainable.
The issue of SNX inflation is just as important today, and in V2x I believe we can stop inflation with minimal impact. Unfortunately, we are now planning our transition to V3, and the question of whether we need an inflation incentive is again a bone of contention.
The main reason for preserving inflation in V3 is to ensure that there is a mechanism to launch permissionless liquidity pools, and there have been several proposals on how to achieve this, such as adopting the veCRV voting model. Even if inflation is the only solution to this problem, I think the offsetting effect of buybacks and burns cannot be ignored.
If we do a 3:1 split on this, we will have about 90 million SNX that can be repurchased and burned at a market price of $60 million.
Where does the money to burn these tokens come from? Treasury earnings, based on recent earnings, the treasury committee earns about $5 million a year, which would take about ten years to complete if 100% were spent on buybacks. If transaction volumes increase over the next few years, the timeline will shorten significantly.
You might ask, why not just destroy the over 30 million tokens in the treasury board wallet? These tokens are already effectively locked up, so the impact is minimal; however, once this buyback is complete, it makes sense to consider pro-rata distribution of the remaining SNX to stakers.
Distribute SNX to stakers
The question is why not burn this part of SNX directly?
The reason is that these SNX can be used to incentivize, if fully distributed, the equivalent of 3% inflation for three years, which would allow Synthetix to test the need for inflation without actually increasing the token supply. However, these tokens are currently encumbered with a large amount of debt, so in order to distribute them, the debt needs to be transferred or repaid accordingly.
So if the fee proceeds are used to repurchase and burn SNX, the debt will not be repaid until the repurchase is completed, but there is an option to sell SNX off the market to pay off the debt, but this offsets the burning effect, so if the repurchase starts, Any distribution of SNX will need to wait until the repo is complete, which could take many years.
Working group funded by treasury committee
This is one of my favorite proposals. As we enter a new era of the Synthetix protocol, we have a need for functions such as sales and support. While it's possible to outsource these functions to an integrator, there's still a potential gap, which I think is a bit like Salesforce.
Salesforce is a platform that relies on a network of integrators, yet Salesforce still requires internal teams to work with integrators on large customer transactions and ensure support for the integrators themselves. As of today, Synthetix can support market makers and large traders on the platform, providing them with sufficient liquidity and trading capabilities.
Maintaining a team focused on reaching out to large traders and integrators to ensure smooth familiarization and adoption of Synthetix by new users is necessary, and our previous approach was simply to hire new core contributors to fill this role.
However I think that transparency and accountability can be increased by funding independent working groups to perform these functions and report directly to the Spartan Council. Funding will be provided directly by the treasury board to enable us to test this new type of coordination, in order to attract the right people to this working group, some continuity is required, so I would suggest that this trial run for 6 to 12 months, if the trial ends The agreement decided against this method and I will pay a termination fee in SNX.
The other working group I'm proposing is an analytics group to ensure that all data on the protocol is available and up to date, and that we have real-time dashboards for all key metrics, historically due to low priority and technology complexity, this approach fails.
Synthetix Ecological Foundation
In the early days of the protocol, the Synthetix DAO decided not to invest outside of the protocol due to the risks of such investments and fear of losing focus on its core mission of funding protocol development. While it can be argued that the Synthetix project would have been better funded if we had leveraged our position for early deals over the past five years, at times this can also put pressure on the development of the funding protocol, especially at the end of 2019 When assets become less and less.
Given the plan to wind down the vault funding and the opportunity to fund ecosystem projects through the remainder of the bear market, it makes more sense than ever to dedicate a portion of the vault to the ecosystem fund, especially as we expect The number of new projects built on Synthetix will grow significantly in 2019, and this ecological fund will be owned by SNX pledgers in proportion, and the funds can eventually be used for specific distribution or even for further repurchases of SNX tokens.
Subsidize keeper fees
Due to the lack of potential for order flow payments in the Synthetix protocol design, it is difficult for Synthetix to achieve zero-fee transactions. But we should strive to remove any fixed fees associated with trading, and treasury boards should subsidize keeper fees to ensure low volume traders are not priced out.
Ideally, the keeper should be subsidized directly, but considering the complexity of this method, it may be better to initially pay the rebate of the keeper fee directly to the trader. The specific implementation method is to be discussed, and it can be realized through SNX or sUSD.
Perpetual contract referral program
In theory, this is another move integrators can handle, and the protocol-level referral program makes it more powerful than any additional referrals.
Referral programs have historically worked very well for crypto exchanges, but need a usable product, and given that Perps is ready, there is great potential to facilitate greater adoption of the protocol through a referral program. These referrals should be paid in escrowed SNX, which will ensure that there is no immediate price impact, and that SNX is preferably staked (passive or active) as it is locked anyway.
As the trading experience improves and more markets are released, this will create a flywheel where traders can gain access to SNX stakers and large referrers will become important stakeholders in the ecosystem.
Treasury Board Proposal Template
The Treasury Board is currently creating a proposal template to increase transparency on current and future Treasury Board initiatives. This template will be based on the SIP template, but may be adjusted over time. While community feedback is not always necessary, and in some cases can even be harmful, having a single document outlining each initiative and explaining its rationale would be very helpful for community members to refer to.
Disband the treasury committee
It seems to me that the treasury committee has to be dissolved at some point, there are various ways to do this, but the main idea is that if the protocol works properly, the treasury committee can be split into smaller parts and assigned to new or An existing governing body to avoid becoming a single point of failure for the protocol.
While the treasury council has made some progress since the sDAO, there is still room for improvement and it has remained the same as a governance body for far too long.
Summarize
As stated at the beginning, these are just suggestions and I'm only one of four voters on the Synthetix committee. This article is meant to spark discussion and ensure the community understands possible ways forward, and I'd love to debate and discuss all of these proposals on Discord.