Key Insights
Synthetix V3 has successfully burned $200,000 worth of SNX tokens in the third quarter, bringing the total burned amount to $480,000 since the launch of V3 on the Base platform in the second quarter. Although the overall perpetual trading volume for Synthetix saw a decline of 21% quarter-over-quarter (QoQ), the volume for V3’s perpetual trades surged, now accounting for 30% of the total perpetual trading volume on the platform. Furthermore, the Total Value Locked (TVL) in Synthetix V3 increased by an impressive 117%, primarily driven by liquidity providers migrating from V2 to V3. Open interest also peaked at $288 million on July 21, coinciding with Joe Biden’s announcement of his withdrawal from the U.S. presidential race. In Q3, the Synthetix DAO approved significant governance changes aimed at enhancing efficiency and governance effectiveness.
Primer
Synthetix (SNX) operates as a decentralized protocol for the issuance and liquidity of synthetic assets, enabling users to trade these assets, known as Synths. Synths are designed to mirror the price movements of external assets using oracles from sources like Chainlink, Pyth, and Uniswap V3 TWAP. Users can engage in both spot and perpetual futures markets. The native token, SNX, serves dual purposes: governance and collateral for the protocol’s liquidity. With the rollout of Synthetix V3 on Base in Q2 2024, the protocol embraced a new structure that accommodates various types of collateral for minting its stablecoin, sUSD. These collateral options now include SNX, ETH, USDC, and yield-generating assets like stataUSDC. The leading product within Synthetix remains the perpetual futures trading. Governance is delegated to a seven-member council known as the Spartan Council, with four members elected by SNX holders and three appointed by the elected members.
Key Metrics
Performance Analysis
The adoption of perpetual futures on Synthetix V3 has grown since its launch in Q2, now constituting 30% of all perpetual trading volume, up from 27% previously. However, the trading volumes for perpetuals experienced a decline QoQ, with V2 and V3 seeing decreases of 24% and 13%, respectively. Overall, the perpetual trading volume fell for the third consecutive quarter, recording $5.1 billion, a 21% drop QoQ. According to DefiLlama, the on-chain perpetual trading volume collectively decreased by 18% in Q3. Following this volume decline, trading fees for perpetuals also diminished, falling 24% QoQ from $2.6 million to $2.0 million. Conversely, Synthetix introduced 57 new perpetual markets, marking a 90% increase QoQ from the 30 new markets launched in Q2. These new markets mirror the assets already available on Synthetix V2 rather than introducing new assets, leveraging V3’s enhanced infrastructure. Future developments may lead to the creation of new markets that include fresh asset listings, guided by the SIP-387 proposal, which stipulates that an asset must have a Pyth oracle price feed and be listed on Binance Perps.
Total Value Locked
In Q3, Synthetix saw a 15% decline in its TVL, dropping from $439.4 million to $374.9 million. However, Synthetix V3’s TVL surged by 117% QoQ, climbing from $42.9 million to $93.3 million. This increase can be attributed to liquidity providers on the Ethereum network transitioning their assets from V2 to V3, an option that became available at the end of Q2.
Open Interest
Open interest (OI) denotes the total value of active derivatives contracts that remain unsettled at any given moment. For Synthetix, OI reflects the dollar value of all currently open perpetual contracts. A higher OI indicates greater risk, as more capital is locked in active positions, and signals robust demand for Synthetix Perps, demonstrating that users are consistently opening and maintaining these positions. Beginning Q3 with an OI of $86.6 million, it soared to $287.7 million on July 21—marking the highest figure in a year—before gradually declining through September. This volatility was partly influenced by the political unrest surrounding the U.S. presidential elections, with Biden’s withdrawal coinciding with the peak OI. By the end of the quarter, OI had risen again, concluding at $170.8 million. Notably, this increase was entirely organic, with no additional incentives provided to traders.
Synthetix V3 Fees
Synthetix V3 on Base allocates 40% of fees generated from perpetual trading to repurchasing and burning bridged SNX tokens. The complete fee structure for V3’s perpetual trading is as follows: 40% for liquidity providers, 40% for SNX buyback and burn, and 20% for integrators (such as Kwenta). In Q3, the amount of SNX burned rose by 31% QoQ, from 89,000 to 129,000 SNX, valued at $200,000, raising the cumulative total of burned SNX to $480,000. Following the cessation of inflation in Q4 2023, the supply of SNX has become deflationary. This quarter marked the third consecutive reduction in the SNX supply, which decreased by 0.04% QoQ from 325.8 million to 325.7 million SNX. Throughout Q3, the total fees from V3 perpetual trading amounted to $500,000, resulting in earnings of $200,000 for V3 liquidity providers. In comparison, Synthetix V2’s trading fees fell by 27% QoQ, down from $2.0 million to $1.5 million, while V3 fees dipped from $0.6 million to $0.5 million, reflecting a 13% decrease.
Qualitative Analysis
War Mode
Synthetix appears to have entered a “War Mode” phase following a series of governance reforms that were put to vote at the end of Q3 and subsequently passed shortly after. Traditionally, the Synthetix DAO has functioned under a delegated governance model, where SNX token holders elect representatives to various councils tasked with specific functions. For instance, the Spartan Council was responsible for voting on and executing approved Synthetix Improvement Proposals (SIPs). Toward the end of Q3, SIP-408 was passed, introducing a new process for implementing changes via Synthetix Referendums (SRs). This shift granted voting authority for proposed changes directly to SNX token holders instead of through the representative council members. Shortly after the approval of SIP-408 and the establishment of SRs, a significant change was proposed and accepted through SR-2: the Synthetix Reboot. This proposal, developed by Benjamin Celermajer, seeks to enhance Synthetix through a comprehensive governance overhaul and a clear set of objectives.
Governance Overhaul
Under SR-2, the governance structure will be streamlined into a unified seven-member Spartan Council, where each member possesses equal voting rights. Four seats will be directly elected by SNX holders, while the other three will be appointed by the elected council members. Each elected position will serve a six-month term, with elections scheduled semi-annually in the first two weeks of April and October. The elected members will fill three advisory roles and one treasury role, while the hired seats will encompass strategy, operations, and technical functions. All decisions made by the council will require a 4/7 multi-signature approval, with treasury-related actions necessitating the endorsement of the treasury council member. For the inaugural term, each member will receive a monthly stipend of 2,000 SNX, with future potential for a revised incentive structure. Celermajer has outlined his vision for the founding members of the new Spartan Council.
Objective Goals
Some immediate objectives put forth in SR-2 include: conducting a review of the SNX token design to enhance its tokenomics, thereby placing it at the core of Synthetix; revitalizing work on Synth Teleporters; operationalizing SnaXchain by adding new functionalities, migrating SNX, and launching a new stablecoin for use across all V3 deployments. SnaXchain, introduced in late Q3, serves as an optimistic Layer 2 rollup within Optimism’s Superchain framework, designed to be the governance home for Synthetix V3. Additional goals include strengthening business development and sales to onboard front-end developers, fostering stronger relationships with current integration partners, enhancing product marketing, launching perpetual contracts on the Ethereum Mainnet, deploying Synthetix on Solana, scaling V3 perpetual markets on Base and Arbitrum, expanding perpetual contracts while depreciating V2, and establishing the Synthetix Foundation. Successfully implementing SR-2 by the end of 2025 would result in a revamped economic model for SNX with diversified revenue streams, positioning SNX to operate on its dedicated appchain to collect aggregated fees and facilitating a more robust stablecoin. The initiative would also drive the deployment and scaling of V3 perpetual contracts across various Layer 2 solutions and major Layer 1 blockchains, alongside enhanced integration with product developers and user-friendly asset transfers across chains.
Kwenta Acquisition
Following the conclusion of the quarter, Synthetix governance proposed acquiring Kwenta through a token swap at a discounted rate. KWENTA token holders would receive SNX in exchange for their KWENTA at a rate of 17 SNX for every 1 KWENTA, reflecting a 19% discount off the 30-day average KWENTA/SNX ratio, valuing Kwenta at approximately $13.2 million. This acquisition proposal was subsequently accepted by both the Synthetix DAO and the Kwenta DAO.
Closing Summary
This quarter was characterized by significant governance transformations within Synthetix. The DAO has transitioned to a unified Spartan Council, comprising both elected and appointed members, designed to address previous governance inefficiencies and collectively pursue a renewed vision for the future. Meanwhile, perpetual trading volumes fell by 21% to $5.1 billion, and TVL decreased by 15% QoQ, ending the quarter at $367.2 million. In contrast, the daily average open interest surged by 62% to $136.3 million. The newly streamlined and straightforward process for creating perpetual markets on Synthetix has facilitated automated market creation. Additionally, $200,000 worth of SNX tokens were repurchased and burned during the quarter. Despite fluctuations in key metrics, this period marked a pivotal shift in the Synthetix DAO’s mindset and organizational structure.
