Synthetix (SNX), a protocol dedicated to Decentralized Finance (DeFi), has announced its Debt Pool Synthesis feature will be active on Thursday, 9-11 pm UTC. Results will impact staking participants in two distinct categories: inflationary rewards and debt hedging.
In the current form, Synthetix operates debt pools along two Ethereum chains: the mainnet and layer-2 scaling solution Optimism, which have accumulated an aggregate total-value of $930 million and $157 million, respectively.
Kain.eth, one of the company’s council members, has advocated the adoption of the “Optimism-native protocol,” citing the vast potential for growth of Optimism.
What is crypto debt hedging?
Debt hedging involves using derivative investments to reduce asset exposure. The value of the two pools once merged is as follows: synthetic Ether (sETH) 31% short, synthetic Bitcoin (sBTC) 25% long, synthetic United States dollar (sUSD) 27% long, as well as 11% long, and synthetic euro (sEUR) 7% long.
We reached out to a spokesperson from Synthetix for a deeper insight into the specific method for merging an L1 debt pool with an L2, as well as the benefits and challenges that could arise during the process.
Utilizing Chainlink oracles as the core component of consensus for the total debt accumulation, they stated that the “debt amount for all of the issued synths is calculated off-chain, and then the value is pushed on-chain using Chainlink‘s decentralized oracle network, which is read by Synthetix contracts on both L1 and L2.”
“Merging the debt pools provides maximum liquidity across the protocol and [the ability to] transfer synths between multiple chains efficiently via cross-chain messaging, rather than relying on automated market makers […] debt pool synthesis allows the protocol to have fungibility on both L1 and L2.”
Happy Debt Pool Synthesis Day!
Starting later today, March 24th, at 9pm UTC, the debt pools on L1 and L2 will be merged into one.
This paves the way for Synth Teleporters, where synths can instantly be moved to any chain and fungibility b/w @optimismPBC and mainnet
Get ready. https://t.co/JfcsR4DYEH
— Synthetix ⚔️ (@synthetix_io) March 24, 2022
In addition to the improvements for debt hedging, Synthetix is also implementing a long-awaited functionality — initially proposed via governance in May 2020‘s Synthetix Improvement Proposal (SIP 80) — to create pooled synthetic futures contracts with the network native token SNX as the financial instrument.
Moreover, the spokesperson from Synthetix commented on the diversification of assets that synths currently replicate, to which they stated that “Synthetix has synths for several financial assets including crypto and DeFi tokens, forex and commodities,” before revealing:
“We can deploy synths for any assets or instrument where we can secure a reliable feed. That opens the door to synths based on the price action of equities, measures of volatility, interest rates or other novel mechanisms like our own debt pool.”