Flash Note: Synthetix V2x Improvements

The Synthetix team continues to be one of the busiest in the space, with many upcoming developments for the protocol. While we’ve touched on many of these developments in previous reports (Synthetix: DeFi’s Shining Light, Q3 Protocol Outlook) such as Synthetix V3 and Perps V2, the team continues to innovate in other key areas that are less publicized but still worthy of attention. Most of these are in the form of Synthetix Improvement Proposals (SIPs), or major discussions within the team and community that could become significant implementations down the road.

New SIPs

Many current SIPs relate to what the Synthetix team is calling Synthetix V2x, upgrading Synthetix to a point where V3 is easier to implement or better integrated for maximum impact.

Delta Neutral sUSD

The current methods of creating synths (SNX/ETH collateral and synth wrappers) fall short of being able to handle true market demand for synths, resulting in supply shortages. This is because synth generation is contingent upon SNX price appreciation and overcollateralization is capital inefficient. Methods to scale usually involve significant risk as well. For example, lowering the required collateralization ratio reduces the stablecoin’s backing, PSM style scaling introduces censorship risk, and expanding and contracting debt in lending platforms takes on external smart contract risk

SIP-256 contemplates a contract that wraps a delta neutral position of long spot ETH and short perp ETH to mint sUSD 1:1, allowing sUSD to scale as needed. While this is slightly less capital efficient than the PSM for DAI, Synthetix is opting for complete decentralized backing for sUSD and synths. Additionally, any positive funding would accrue to SNX stakers.

Debt Migration and Trading Incentives