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How Will Synthetix V3 Make Synths Assets & Derivatives More Accessible?
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Synthetix V3 is around the corner and with it multiple debt pools, a protocol-owned bridge, and oracle.
Read our notes below to learn more.
Core Contributor at Synthetix for 1.5 years.
Works on product risk mechanism design.
Core Contributor at Synthetix for 1 year.
Design and software development all over the stack.
Focused on V3 for the last six months.
At Synthetix for 1.5 years.
Involved as a developer on V3 and also worked on V2x.
History and Next Steps for Synthetix
Synthetix started as a payments protocol, became a stablecoin protocol and a generalized synthetic assets protocol.
Separately attached systems like perps and options.
Multichain future with a testnet deployed on Avalanche first.
v3.synthtetix.io is the testnet for V3.
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How does V2x Work
To quickly scale liquidity, there is a lever of inflation to incentivize staking of SNX.
Everyone is exposed to the same assets in the debt pool.
Only one synthetic asset needs high liquidity outside of the system (sETH), to convert other synthetic assets and keep their peg.
Downside is that all stakers have the same exposure.
Onboarding of new synthetic assets through governance.
V2x has an exchange function to convert sUSD into any supported synthetic asset.
Goals of V3
Maximally generalizable and modular in terms of length and product design.
Biggest mechanism changes are differentiated debt pools, but without fragmented liquidity as a default, all pools settle in sUSD.
Differentiated debt pools lead to purely permissionless markets, which brings more experimentation in terms of other agreements and instruments on-chain.
Modular architecture allows different ways to scale the stablecoin and collateral types.
The market manager interface allows different types of markets to be plugged into the protocol to interact with the pools to receive credit capacity and take advantage of the provided liquidity.
All sorts of markets (spot, legacy V2) can sit next to a perps market.
Factory contracts will allow users to create new assets and markets, with their own price feeds and fee structures and other customizations.
A liquidity pool is needed to bootstrap liquidity for that market.
The market manager interface allows users to mint synthetic assets and makes them tradable.
Creating futures markets will increase the capacity for handling risks in the system.
Exotic markets will be created, starting with an insurance market.
The insurance market will be connected to spot and futures markets, to ensure against insolvency.
Account tokens can get minted to move around positions within the protocol to a different wallet, without unstaking and paying back debt first.
V2 has a single pool, V3 will have multiple pools and users can decide which pool they want to provide liquidity to.
Within each pool, there is a vault for the different collateral types, vaults have a reward distributor attached.
This leads to different incentive structures to bootstrap liquidity, like gauges.
Importance of Multiple Debt Pools
V3 will mirror the most effective parts of V2x.
A main pool (Spartan Council) that backs the most widely used markets, new experimental markets would bootstrap liquidity from this, containing risk initially.
Spartan Council Pool will be the equivalent of staking SNX in V2.
Individual users can set up pools to create an investment strategy that others could join.
Pools can act as governance systems via own token, to vote on assets contained within the pool.
V3 is basic infrastructure to provide liquidity that does not exist in DeFi yet.
Different protocols can create multiple types of agreements and instruments.
Oracles in V3
A peripheral system called oracle manager is in development, will bring those logics into the system.
Users will be able to define the configuration of the price feed by price smoothing, averaging the minimum of two values, the more recent of two values.
The goal of the oracle manager is to increase safety and ease the process of creating a new market.
How Staking is Improving in V3
V2 is backed by ETH and LUSD through wrapping which isn’t visible to the public.
All staked collateral will be in the core system proxy address, making TVL transparent through etherscan.
V3 is completely agnostic to the collateral it accepts, improving sUSD’s scalability.
Liquidation parameters can be set individually.
Rewards are distributed continuously to users pro rata, depending on their backing of the asset, but rewards are also shared through the rewards distributor for flexibility.
How to Scale sUSD
Wrapped derivative positions containing spot ETH and a perp ETH short, allow a delta-neutral position to be used as collateral.
Someone has to take the basic risk, the V2 debt pool is a suitable counterparty for that since it is a large pool containing different collateral.
Creates a capital-efficient, fully collateralized stablecoin, with funding rates tending to be positive.
How will Synth Teleporters Work
Synthetix will be the same system on every chain, governance on Optimism.
Testing with Chainlink has started, in the beginning, only sUSD will be bridgeable with other synths following.
Fees for bridging will be paid on both chains but with the same token, e.g. bridging SNX from ETH to AVAX will only cost ETH, ETH gets sent to cover the AVAX costs and the Chainlink fees.
Pool managers will be able to spread their liquidity across multiple chains, or invest in mainnet pools without deploying on mainnet.