Matthew Losquadro
Chartering the protocol's first expansion since its deployment to Optimism, Synthetix Perps V3 is live on Base with the release of Andromeda. This Base deployment is an opportunity for mass experimentation—a new chain, new collateral (USDC), new perps margin (USDC), and new fee distribution (40% to LPs, 40% used to buyback and burn, and 20% to integrators).
Before we get to anything else, a quick reminder of how the system works.
At its core, Synthetix V3 is a liquidity layer for derivatives. This has primarily powered one core product - Synthetix Perps, which has generated 45b+ in volume and 35m+ in fees on Optimism thus far.
Users deposit collateral to delegate to governance-controlled pools like the Spartan Council Pool. Subsequently, these Pools delegate this collateral to Markets (Ex, Synthetix Perps).
An interesting portion of the system that the above leaves out is that fees can be split up in any way deemed appropriate by rewards distributors.
For example, a rewards distributor could be created to gather 100% of the fees and then provide 40% to LPs, 40% to obtain SNX and burn it, and 20% to integrators. Alternatively, it could siphon off 40% of the fees from a different pool and distribute it directly to SNX stakers.
That example above will be used by the Andromeda Release to distribute fee rewards to various stakeholders (40% LPs, 40% buyback and burn SNX, 20% integrators/volume generators)
Andromeda will bring about an expansion that will deploy Synthetix V3 and Perps across the Optimism Superchain. This can open up new avenues in the future, such as an app chain specific for Synthetix, opSNXchain, built on the Superchain. Some say why build your own chain? Users will use your chain regardless if you simplify the user experience to onboard DYDX-style.
The end-state vision of the Optimism superchain is to enable cross-chain interoperability. Delivering the same Perps V3 experience, with shared liquidity and cross-chain communication between the deployments on Base, OP Mainnet, and opSNXchain, would be the ideal experience for the protocol.
Edit: As of the last few days, Synthetix governance has also approved the expansion of Synthetix to Arbitrum, which will see a ramp up of activity coinciding with Base. The initial release seeks to attract a critical mass of collateral over the first few weeks and then enable Perps V3 once collateral can support sufficiently high open interest. The focus of this piece is still Base, but this edit has been added to understand the rapid nature of Synthetix governance.
Perps V3 on Base currently supports a limited number of markets (BTC & ETH) with constrained open interest due to the limited amount of USDC LPing on Perps V3. Recently, governance has moved to increase this, up to $10m USDC in LP caps, but hasn't increased open interest caps yet.
Even with these constraints, Perps just saw its first day of $10m in volume.
With the increase of LP caps to 10m USDC, I anticipate governance will also move to increase OI caps & support new markets (see SIP 363 and 368, which intend to add SNX, WIF, SOL, and W token to Perps) once LPs flow in. Around 4-5m USDC, I anticipate OI caps to be scaled up 1:1. I anticipate a flow of capital from users staking Optimism and Ethereum Mainnet, exchanging their idle sUSD debt, and using it to LP on Base.
This Base Deployment allows Synthetix to trial a clean slate perps protocol using perps V3, which will serve as a proper test to see if the perps mechanism can onboard significant volume, fees, users, and liquidity on a new chain without a major Perps protocol deployment.
Perps V3 is also rich with new features, including - native cross margin, MEV-resistant liquidations and settlement, and an NFT-based account to delegate user control. Many of these features are commonplace on centralized exchanges, so bringing them to users on a DEX will be extremely helpful for frontend integrators building atop Synthetix.
We've also seen integrators, notably Kwenta, Polynomial, and Infinex, deploy many features to make the new users' experience more seamless and aligned with a centralized perps experience.
Infinex itself is expected to deploy only to Base, and with its smart account setup, it will be able to automatically bridge users' assets from any chain, as they'll abstract away the complexities in the backend.
USDC LP and perp margin on Base will help onboard new users and LPs. Obtaining sUSD was difficult because it relied on SNX as the only collateral type, confusing wrappers, and peg maintenance issues. LPs will also be served well by utilizing USDC, as that's a much more straightforward experience.
Governance must also consider future possibilities following this deployment. These are some of the thoughts that are at the top of my mind.
New LP Collateral Types—USDC may prove challenging to onboard at scale without native yield built in. Use sDAI (earning 15% from makerdao DSR) and ETH derivatives, liquid restaked ETH, to onboard collateral with native yield. Besides convincing the risk mangoorrrss, the only issue is ensuring these are liquid enough to be LPd.
DegenThetix—Deploy instances of Synthetix across the Superchain (and elsewhere?) and use assets native to those chains. This runs the risk of fragmenting liquidity and degrading the experience users have become accustomed to on Optimism, but the benefits of being first to a chain with enough liquidity to support trading shouldn’t be understated.
Orderbook DEX—AMM Perps are slow, expensive, and difficult to onboard for those used to a CEX-like experience. This includes funds/whales who like to ensure a guaranteed fill. Building an order book DEX atop Synthetix Perps would greatly improve traders' experience and provide them with a similar experience to CEX Perps.
Ethena and L1 Traders — Ethena is a protocol that allows users to deposit USDe, a derivative stablecoin, and earn yield based on a delta-neutral trade that shorts eth and longs spot eth. This is profitable b/c of the high funding rates for longing ETH on CEX/DEX Perps.
Synthetix will have its own L1 Perp, catering to traders/protocols of size, Ethena.
Governance should prioritize L1 Perps to the highest degree following the Base ramp-up, as it is likely to onboard many whale traders who do not want to onboard to Base/Optimism/Arbitrum and do not mind paying higher gas fees to access onchain leverage.
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