Original author: Jiang Haibo, PANews
On December 9, Synthetix’s Improvement Proposal No. 2043 “SIP-2043: End SNX inflation” on ending SNX inflation began inSnapshotGo vote. If this proposal passes, it will mean the end of the era of Synthetix mining and inflation, and SNX will become a blue-chip token with no inflation (possibly deflation).
According to Synthetix’s governance framework, its governance body includes several committees and groups elected by SNX stakers, with elections held every 4 months. The Spartan Coucil (SC) is the core governance body in the system and is responsible for voting on improvement proposals and parameter changes.
As of the morning of December 11, SIP-2014 has8 SpartansSix of the committee members voted and the approval rate was 100%, which also means that the proposal has a high chance of passing, with the final vote closing on December 18.
Changes in interests of pledgers and ordinary currency holders
According to the protocol rules, SNX stakers in Synthetix act as counterparties to synthetic asset and perpetual contract transactions. On this basis, SNX stakers can receive transaction fee rewards and SNX inflation rewards.
Before then, the rights and interests of SNX pledgers include: profit and loss as a traders counterparty + inflation reward + sUSD debt destroyed through handling fees. Considering that the Andromeda version of Synthetix has been deployed to Base through voting, if the existing proposal to end inflation is passed, the rights and interests of SNX stakers include: profit and loss as a traders counterparty + sUSD debt destroyed through transaction fees + sUSD debt on Base Transaction fee income.
Compared with other perpetual contract projects, the income of SNX pledgers as liquidity providers is also more stable. As shown in the figure below, SNX stakers profits and losses (including transaction fees and profits and losses as traders counterparties) have almost been on an upward trend.
As shown in the figure below, in the last Epoch (November 30-December 6), the APR generated by inflation was more than 10%, and the APR brought by the destruction of sUSD through transaction fees was more than 5%. The specific value may be based on the mortgage Rates will vary.
This proposal is based on the fact that inflation is now significantly lower than before. In addition, Synthetix v3 will soon be deployed on Base, which will also generate new revenue. At the same time, the SIP-345 proposal, which is currently being voted on, hopes to use 50% of the fees generated on Base to buy back and destroy SNX, with the other 50% allocated to liquidity providers. But the proposal is divisive and voting will close on December 13.
Even if there is no new inflation income, the above-mentioned stable staking income and the new income on Base may attract enough pledgers to continue staking.
For ordinary SNX holders, this proposal will increase their equity and the downward price pressure caused by inflationary incentives will disappear. If the SIP-345 proposal passes, SNX will also enter a deflationary era.
The Importance of SNX Staking
For Synthetix, maintaining a sufficiently high pledge rate is more important than other projects. Whether it is the original synthetic assets or the current perpetual contract, there needs to be sufficient synthetic asset volume.
sUSD is an endogenously collateralized stablecoin that relies on SNX within the same system as collateral. Almost all similar stablecoins have failed. To maintain stability, Synthetix sets the collateralization ratio for minting sUSD at 500%. Even if SNX drops significantly, it usually doesnt face liquidation.
This means that the more SNX staked, the more synthetic assets can be minted. In the current perpetual contract trading of Synthetix, only sUSD can be used as margin. The issuance volume of sUSD may also restrict the trading volume of perpetual contracts. If sUSD does not have sufficient liquidity in the secondary market and the fluctuations are large and you need to purchase sUSD for trading or increase margin, there may be a premium of 1% or more for purchasing sUSD. , will also affect the trading experience. This is also the reason why high inflation was previously relied upon to attract pledges.
But the sUSD rules restricting project development may disappear, and the Andromeda version that Synthetix will deploy to Base will use USDC as a deposit. From this perspective, sUSD will become less important and Synthetix will become less dependent on SNX stakers.
After many inflation adjustments
Synthetix has made many inflation adjustments in its history. It is also considered to be one of the first projects to start liquidity mining. Gradually reducing inflation was also a plan made from the beginning.
In 2019, when Synthetix was renamed from the stablecoin project formerly known as Haaven to its current name and synthetic asset business, in order to attract capital pledges, mint sUSD and the rapid distribution of tokens, Synthetix began a period of high inflation. Initially The annual staking reward may be close to 100%.
In March 2019, Synthetix formulated an inflation schedule and planned to issue a total of 245 million SNX, initially with 1.44 million SNX issued weekly, with weekly rewards halved every 52 weeks for a total of 260 weeks.
Taking into account the uncertainty caused by the reward halving, SIP-23 and SIP-24 proposed in September and October 2019 changed the inflation to a weekly adjustment, gradually decreasing. Inflation fell to 2.5% by August 2023.
In August 2022, Kain also proposed a proposal to end SNX inflation and cap the total supply of SNX at 300 million, but the proposal was only in the draft stage and was not voted on.
summary
This proposal to end inflation means a redistribution of equity between SNX stakers and ordinary currency holders. The proposal will most likely be passed, the inflationary incentives for SNX staking will disappear, and the rights and interests of ordinary currency holders will no longer be continuously weakened due to inflation.
The transaction fees charged by SNX pledgers as traders are relatively stable and have almost been on an upward trend. This part of the additional income relative to ordinary currency holders may also attract sufficient pledge volume. As the Andromeda version is about to be deployed on Base, USDC will serve as collateral and the reliance on sUSD and stakers will be reduced, which will also bring new income to stakers.
