Tech

Synthetix commence debt pool merger to enhance liquidity and staking capabilities

03/24/2022
Bitcoin Ethereum News

Decentralized finance, or DeFi, protocol Synthetix (SNX) has announced that the deployment of their Debt Pool Synthesis feature will occur on Thursday 9pm through 11pm UTC, expected to impact staking participants in two distinctive categories: SNX inflationary staking rewards and Debt Hedging.

Currently, Synthetix operates debt pools across two chains, Ethereum mainnet and layer 2 Ethereum scaling solution Optimism, which have amassed an accumulative total-value-locked of $930 million and $157 million, respectively.

The company have stated their intention to transition into an “Optimism-native protocol”, with one of their council members kain.eth advocating this route by stating the vast growth potential of Optimism.

On the subject of debt hedging — a method of derivate investment designed to reduce asset exposure — it was calculated that the total-value of the two pools once merged equates to sETH: 31% Short, sBTC: 25% Long, sUSD: 27% Long, other assets: 11% Long, and sEUR: 7% Long.

Cointelegraph reached out to a spokesperson from Synthetix for a deeper insight into the specific method for merging a 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.”

In addition to the improvements for debt hedging, Synthetix is also implementing a long-awaited functionality — initially proposed via governance in May 2020’s SIP 80 (Synthetix Improvement Proposal) — to create a pooled synthetic futures contracts, with the networks native asset SNX being the financial instrument. 

Later in our conversation, the spokesperson from Synthetix commented on the diversify 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.”