Synthetix is currently one of the most valuable products in Ethereum’s open finance stack and ranks 2nd in terms of total value locked in the protocol with a whopping $175 million. From just under $2 million locked at the beginning of March 2019, when the staking yield kicked in, to tripling total value locked from October to December, the project has come a long way with a strong tokenomic model, December 3, 2019.
Building Out the Platform
When projects set out to build something, they usually have an ideological outline for how the network should shape up, and they try to design it to be as robust as possible. But until very recently, many of these protocols were not focusing on the most important aspect of building a financial tool: liquidity.
Synthetix, or as it was previously called, Havven, learned a lot about developing dApps through trial and error. Initially starting out on Ethereum and working on a rollout for EOS in tandem, they realize that development tools on the likes of Tezos and EOS were infantile relative that of Ethereum.
Fast forward less than four months later and Synthetix has done well across the board in various metrics. The percentage of issued tokens staked and active collateralization ratio indicates that users are following the rules to reap their rewards, which is 75 APR as of now.
Financial Intricacies and Community Input
The price of SNX, the native token of Synthetix, started to take off because more people were interested in earning a high yield and selling their tokens. But as you would have it, more people kept their tokens as the price appreciated and this merely cascaded the process. In this manner, Synthetix managed to bootstrap platform liquidity and draw a wide range of more finance savvy users, and even small institutions.
Maker is renown for bringing an on-chain governance process to the dApp ecosystem, albeit the trade-offs are widely debated till date. Synthetix brings in a new model, where members can create their own proposals and the community discusses the implications of it.
Synthetix initially had a declining supply schedule that eventually hit nil emissions in the long term. A few community members who saw this as a matter of concern drew up a proposal for a fixed annual emission at the end of the 5 year supply schedule in place, and the proposal is likely to be implemented. Things like this show that the team is actively integrating stakeholder feedback into the protocol.
Despite issues with oracle centralization (which the team was candid about) that allowed bots to front-run users, it is pretty evident that the platform has had a successful start. The real challenge is that more adoption of synthetic asset investment is required for long term sustainability of the economic framework.