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Proposal from the founder of Synthetix: Opportunities I've discovered and Synthetix's upcoming plans.

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This article will list the opportunities and related initiatives that the founder of Synthetix has discovered in recent contemplation.

Source: Kain Warwick, Founder of Synthetix

Translation: PANews

When I reintegrated into the community over the past few months, I asked myself the question, "What is missing from this project?" The conclusion I came to is that people are hesitant to pursue high-risk, non-obvious paths. This makes sense because incentives are closely related to everyone's work on the critical path.

In the past year, the efficiency of core contributors has been increasing, and the introduction of the Core Contributor Committee has promoted this. However, many incredible people have been hired to replace the exhausted OGs in the 2018/19 death march. This has led to great progress in the core plan; ending V2x, designing V3, and re-implementing Perps (derivatives). The latter two were unresolved issues in early 2022, and now, a little over a year later, Perps continues to expand, and the initial components of V3 have been deployed to the mainnet.

Very few people have the time to sit down and devise crazy plans for Synthetix. This article will list the opportunities I have found, some of which are rough descriptions of problems with some options, and some are detailed plans. The Treasury Committee is also developing new proposal templates to put forward the initiatives listed below. This will ensure that future changes are communicated more transparently.

Core Contributors Alliance

I know this may delve into the philosophy of equity distribution in startups or token distribution in DAOs, but I believe it's a crucial point. Early communities either intuitively grasped it or I imposed it on the community, I don't remember which. From my experience, many people working in startups have multiple motivations, but financial freedom is often a significant one. Working in a startup is already a risky job, and working in a DAO may be even riskier. In Synthetix, alignment is crucial because there's almost no hierarchy. Ambitious people are more likely to be attracted to this atmosphere. However, we must also ensure that we maintain financial consistency. I suggest setting aside SNX for bonuses every quarter. The bonuses will be decided by the TC (Treasury Committee) and will be based on feedback from CCs (Core Contributors) about their peers' impact on the protocol. This will ensure performance-based fair distribution. The specific amount of SNX to be allocated is yet to be determined, but ideally, it should be in the millions.

Transaction Incentives

Although OP incentives have been successful in increasing trading volume, SNX incentives may create a more impactful feedback loop, especially since the incentives will be conducted in escrowed SNX (eSNX), which should introduce traders to SNX staking. Ideally, over time, 5-10 million SNX should be allocated to this incentive program.

Passive SNX Staking

Difficulty in staking SNX makes it challenging to attract new participants to the ecosystem. Despite efforts to simplify the process, such as the implementation of dHedge strategies, understanding why these hedging services are necessary remains a barrier, and it is difficult to quantify how many potential stakeholders have been lost due to complexity. However, we can safely assume that it is a multiple of the actual number of stakeholders. To make staking easier, we can create a passive staking pool that works alongside active SNX staking. New stakers can try staking without facing too many challenges and better understand Synthetix. Think of it as a freemium model where the "price" is risk and complexity, and if we reduce these while paying lower returns, we may attract more stakeholders. The returns should initially be paid by the treasury, possibly in SNX but preferably in sUSD. The returns should also be dynamically calculated based on the ratio between active and passive stakers, with the upper limit for passive staking being around 10% of the fee. Again, this is a very rough concept outline, and specific details need to be discussed. A trial period of three months with a maximum expenditure of 1-2 million USD in sUSD or equivalent in SNX is sufficient to determine whether this will increase the percentage of SNX staked, both passively and actively.

Integrated Incentives

With the transition of Synthetix to the liquidity layer, our dependence on integrators has become more important. Of course, nothing can stop the community from funding new internal Synthetix trading front-ends. However, the challenges faced by integrators suggest that this is not a small matter. Therefore, in the long run, we must adjust the incentives for integrators, which is crucial. How to achieve this has been debated for a long time in Discord, so I will quickly review the two aspects of the debate.

The purists argue that no fees should be diverted from SNX stakers, and all that is needed is to allow integrators to add a fee on top of the base protocol fee. This reduces complexity for integrators while still allowing them to charge fees. Integrators are opposed to this as they believe it will reduce their competitiveness, but this is the current state of affairs.

The other party argues that a certain percentage of fees (such as 10%) should be allocated to integrators, which means that all integrators earn the same fees and there is no zero-cost competition among integrators to provide cheaper execution for traders.

There is an intermediate option that can guarantee a certain ratio, but integrators can also charge optional incremental fees, which can provide basic incentives for integrators. If they achieve significant differentiation in the market, there are additional benefits. This will mean that all integrators earn the same fee, and there will be no zero competition among integrators to provide cheaper execution for traders. There is an intermediate option that can guarantee a certain ratio, but integrators can also charge optional incremental fees, which can provide basic incentives for integrators. If they achieve significant differentiation in the market, there are additional benefits. This will mean that all integrators earn the same fee, and there will be no zero competition among integrators to provide cheaper execution for traders. There is an intermediate option that can guarantee a certain ratio, but integrators can also charge optional incremental fees, which can provide basic incentives for integrators. If they achieve significant differentiation in the market, there are additional benefits. SIP-2002 keeps us away from pure opinions, but it does not affect the costs generated for stakeholders. The problem is that if the costs continue to increase, this will not be a sustainable mechanism, although it is a step in the right direction.

I suggest implementing integrator fees by dividing a certain percentage of SNX held by the Ministry of Finance, such as 10 million SNX, and representing the integrator's mortgage. This will generate a basic fee of 3-5%, depending on the percentage of SNX mortgaged. An additional benefit of doing this is that it will not increase the number of SNX in circulation to pay these fees. If this incentive is successful, it can be incorporated into the protocol without the need for integrators to pledge SNX on behalf of themselves.

3:1 SNX Split and Buyback

Last year, I attempted to shut down inflation before we reached 300 million SNX. Fortunately, this proposal failed because we have not yet reached a sustainable zero inflation level. Today, the inflation issue is equally important, and in V2x, I believe we can shut down inflation with minimal impact. Unfortunately, we are now planning to transition to V3, and the question of whether we need inflation incentives is once again causing controversy. The main reason for maintaining inflation in V3 is to ensure that there is a mechanism to guide liquidity for permissionless pools. There are several proposals on how to achieve this, such as veCRV-style voting. Even if inflation is the only solution here, I do not believe it will negate the offsetting forces of buyback and burn. If we do a 3:1 split, we will have approximately 90 million additional tokens that can be bought back and burned at a market price of $60 million.

The money to burn these tokens comes from where? Treasury fee yield. Based on the recent yield, the annual revenue of the financial treasury is about $5 million. If 100% of it is allocated to buyback, it will take about ten years to complete. If the trading volume increases in the next few years, this timetable will be greatly shortened. You may ask, why not just burn the 30 million+ tokens in the treasury wallet directly? These tokens are already effectively locked, so the impact is minimal, but once the buyback is completed, it makes sense to consider distributing the remaining SNX proportionally to the stakers. If 100% of it is allocated to buyback, it will take about ten years to complete. If the trading volume increases in the next few years, this timetable will be greatly shortened. You may ask, why not just burn the 30 million+ tokens in the treasury wallet directly? These tokens are already effectively locked, so the impact is minimal, but once the buyback is completed, it makes sense to consider distributing the remaining SNX proportionally to the stakers.

Distribute SNX to Stakers

The same question is why not just burn SNX directly? The reason is that this SNX can be used for incentives. If it is fully distributed, it is equivalent to a 3% inflation rate over three years. This will allow us to test the demand for inflation without actually inflating the token supply. The problem is that these tokens currently carry a huge debt, so to distribute them, the debt also needs to be transferred or paid off. There are competing forces here, as if the cost-benefit is used for buybacks and destruction of SNX, the debt will not be paid off until the buyback is completed. One option is to sell SNX in off-exchange transactions to repay the debt, but this offsets the loss, so if buybacks start, it seems that any distribution of SNX will need to wait until the buyback is completed. This may take many years.

财政库资助的工作组

translates to

Working Group Funded by the Treasury

This is one of my favorite proposals. As we enter a new era of this agreement, we have developed a need for functions such as sales and support. While outsourcing these functions to integrators is possible, there is still a potential gap, which I think is a bit like Salesforce. Salesforce is a platform, but it does not directly facilitate implementation. Instead, they rely on an integrator network. However, Salesforce still needs an internal team to work with integrators to handle large customer transactions and ensure that the integrators themselves receive support.

Up to now, Synthetix can support market makers and large traders on the platform, with enough liquidity and functionality to make it worthwhile for entities like these to trade. Integrators should interact with these types of users, but a dedicated team working with large traders and integrators to ensure smooth usage processes would be very beneficial. The past practice has been to only hire new core contributors to fill this role. However, I believe there is an opportunity to increase transparency and accountability for these functions by sponsoring an independent working group to perform these functions and report directly to the Spartan Council. The treasury will provide funding directly for this, allowing us to test this new coordination. To attract the right people to join this working group, some continuity is needed, so I suggest running a trial for at least 6-12 months, with SNX paying termination fees if the protocol decides not to adopt this approach after the trial.

My proposed another working group is an analysis group, which will be responsible for ensuring that all data related to the protocol is available and up-to-date. And to ensure that we have real-time dashboards for all key metrics. Historically, this has failed due to low priority and technical complexity.

Synthetix Ecosystem Fund

Early on in the protocol's development, SynthetixDAO decided not to invest outside of the protocol due to the risks associated with such investments and concerns about losing focus on the core mission of funding protocol development. While it could be argued that the project may have received better funding if we had leveraged our position for early trades over the past five years, this could also have put pressure on funding protocol development, especially towards the end of 2019 as liquidity began to dry up. Given the intention to reduce funding and the opportunity to provide funding for ecosystem projects during the remaining time in the bear market, it now makes more sense than ever to allocate a certain percentage of funds to ecosystem funding. This is especially true as we anticipate a significant increase in new projects based on Synthetix in the coming years. The fund will be proportionally owned by SNX holders and can ultimately be allocated even for further buybacks of the SNX token.

Subsidizing Keeper Fees

Synthetix is unlikely to achieve free transactions due to the lack of potential for payment order flow in the protocol design. However, we should strive to eliminate any fixed fees associated with trading. The treasury should subsidize keeper fees to ensure that traders with low transaction volumes are not priced out, ideally through direct subsidies to keepers. However, given the complexity of this approach, it is best to first pay commissions for keeper fees directly to traders. The specific method, whether through SNX or sUSD, remains to be discussed.

Perps Recommendation Plan

In theory, this is another measure that integrators can handle; however, protocol-level recommendation programs make any other recommendation feature provided by integrators more powerful. Recommendation programs have been very effective in the history of encrypted transactions; however, they need an effective product. Given that Perps is finally ready, promoting adoption through recommendations has very strong potential. These recommendations should be paid with hosted SNX, which will ensure that there is no immediate impact on prices, and the SNX is best mortgaged (passive or active) because it is locked anyway. With the improvement of the trading experience and the release of more markets, this will create a flywheel, and traders can contact the pledgers of SNX. Large recommenders will become important stakeholders in the ecosystem.

Proposal Template for the Financial Committee

Creating a proposal template to improve the transparency of current and future treasury plans. The template will be based on the SIP template, but may be adjusted over time. While community feedback is not always necessary and may even be harmful in some cases, having a document that outlines the plan and explains its basic principles will be helpful for community members to reference.

Release Financial Committee

In my opinion, the Treasury Pool will be dismantled at some point. There are multiple ways to achieve this, but the main idea is that if the protocol is functioning normally, the Treasury Committee can be divided into smaller parts and allocated to new or existing management agencies to avoid becoming a single point of failure for the protocol. Although progress has been made since sDAO, there is still room for improvement, and the time for the Treasury Committee as a management agency has been too long.

These are just proposals and I am only one of the four members of the council. The purpose of this article is to start a discussion and ensure that the community is aware of potential paths forward. I am eager to debate and discuss all of these proposals on Discord.