[SNX] MIP6 Collateral Onboarding Application

Hello everyone,
This is my proposal to include SNX as a collateral asset for MCD.

  1. Who is the interested party for this collateral application?

The strong and rapidly growing SNX community, with the full support of the Synthetix developer team would love to be able to mint DAI against SNX collateral. This would provide SNX holders more flexibility in the form of access to liquidity from their collateral asset, 1. at a potentially lower c ratio than is required to stake SNX (currently 500%) and 2. without being exposed to the debt obligations incurred by SNX staking (backing a proportional share of all synth value). Similarly, this would provide great value to MakerDAO and DAI holders by tapping into the considerable liquidity of SNX, generating interest for the DAO and strengthening the DAI peg against ever increasing demand.

  1. Provide a brief high-level overview of the project, with a focus on the applying collateral token.

Synthetix is a decentralized platform on Ethereum for the creation of Synths: on-chain synthetic assets that track the value of real-world assets.

Synthetix’s native token SNX is the primary method of collateralization, although minting sETH against ETH and sBTC against renBTC is also supported. SNX holders can stake it as collateral backing newly minted synths, which are freely tradeable ERC20 tokens. Instead of a predictable or DAO controlled interest rate for this loan against one’s own assets, the cost of minting synths is in the form of a debt obligation to back a fraction of all synths, which is proportional to the minted value.

The primary motivator to purchase and hold synths is to trade between them without slippage using the Synthetix Infinite Liquidity Mechanism provided by the Synthetix Exchange. Transaction fees from Synths traded through one of multiple interfaces for the exchange such as Synthetix.Exchange and kwenta.io go to SNX holders/Synth minters, rewarding SNX stakers for taking on the debt obligation of backing a share of the total debt owed to synth holders. This innovative and mutually beneficial solution to the long tail liquidity problem faced by most DEX implementations has catapulted SNX into a consistent spot in the top 10 and at times top 3 Defi projects.

SNX token sets itself apart from most Defi tokens in that the expected value of staking increases during periods of market contraction, as minting sUSD from staked SNX is fundamentally a short position against the value of all non stable synths. This has repeatedly shown to create demand and thus relative price stability or even increase for SNX value while the rest of the market is trending down.

SNX token is very liquid, with a higher market cap and 24 hour volume than both MKR and DAI.

  1. Provide a brief history of the project.

Born as stablecoin project Havven, Synthetix rebranded and expanded its scope prior to launching on mainnet in February 2019. Since Mainnet launch, the project has steadily grown at an accelerating rate. As of February 2021, the Synthetix platform supports 54 Synths representing fiat currencies, commodities, indices, and cryptoassets. Synthetix is the largest Defi derivatives protocol by an order of magnitude, with $2.7B in total locked value backing $750M in synths held by more than 7.7k unique traders, with $62M in daily trading volume through the Synthetix Exchange at time of writing. The protocol boasts over $3B in historical trading volume which has generated over $11M in fees for SNX stakers. Many more derivatives such as stocks are planned upon the launch of trading on L2 solution Optimistic Ethereum.

  1. Link the whitepaper, documentation portals, and source code for the system(s) that interact with the proposed collateral, and all relevant Ethereum addresses. If the system is complex, schematic(s) are especially appreciated…

Live Synthetix System Dashboard:

Original Synthetix Whitepaper:

Synthetix Research Forum:

Synthetix Governance Portal:
https://gov.synthetix.io/#/

Synthetix Github:

5) Link any available audits of the project. Both procedural and smart contract focused audits.

Synthetix Audit History (21 and counting):
https://docs.synthetix.io/contracts/audits/

  1. Link to any active communities relating to your project.

Twitter:
https://twitter.com/synthetix_io

Discord:

Blog:

Research Forum:

  1. How is the applying collateral type currently used?

SNX holders can stake it as collateral backing newly minted synths, which are freely tradeable ERC20 tokens. Instead of a predictable or DAO controlled interest rate for this loan against one’s own assets, the cost of minting synths is in the form of a debt obligation to back a fraction of all synths proportional to the minted value. The primary motivator to purchase and hold synths is to trade between them without slippage using the Synthetix Infinite Liquidity Mechanism provided by the Synthetix Exchange. Transaction fees from Synths traded through one of multiple interfaces for the exchange such as Synthetix.Exchange and kwenta.io go to SNX stakers, rewarding them for taking on the debt obligation of backing a share of the total debt owed to synth holders. About 45% of the total fully diluted SNX supply is currently staked.

  1. Does one organization bear legal responsibility for the collateral? What jurisdiction does that organization reside in?

Synthetix has taken an aggressive approach towards decentralisation and is now fully governed by a number of decentralised governance bodies and elected representatives of token holders.

  1. Where does exchange for the asset occur?
    Coinmarketcap markets list:
    Synthetix price today, SNX marketcap, chart, and info | CoinMarketCap

SNX is very liquid and traded on most major CEXes including Binance ($76M 24h), OKEx ($51M 24h), Coinbase Pro ($47M 24h) and Huobi ($25M 24h). SNX is also a leading token on many DEXes and liquidity protocols including Uniswap ($8M 24h), 1inch, Kyber Network, and Balancer.

  1. (Optional) Has your project obtained any legal opinions or memoranda regarding the regulatory standing of the token or an explanation of the same from the perspective of any jurisdiction? If so, those materials should be provided for community review.

Synthetix has taken an aggressive approach towards decentralisation and is now fully governed by a number of decentralised governance bodies and elected representatives of token holders.

  1. (Optional) List any possible oracle data sources for the proposed Collateral type.
  1. (Optional) List any parties interested in taking part in liquidations for the proposed Collateral type.

SNX stakers looking to buy SNX at a lower price, as well as arbs looking to resell what they can buy at a discount on the very liquid open market for short term profit.

Thank you for your consideration,
Kevin

11 Likes

Finally! Thank you for doing this.

5 Likes

@LongForWisdom @Davidutro

2 Likes

@kevinwildenradt Great proposal. I’m fully behind adding $SNX as collateral. It’s a very large, liquid market, and will finally open the doors, giving SNX bagholders access to much needed DAI liquidity. If we give it a sizeable enough debt ceiling, SNX as collateral will greatly expand the DAI supply.

The only concern I see right now is that running these oracles, with gas as high as it is, is costing us an arm and a leg. Adding another price feed is costly, but probably worth it in this case.

4 Likes

Congrats on the move to Optimism – this move alone show the first mover advantage, and bright knowledge of the SNX community. Looking forward to adding SNX as a collateral type.

1 Like