State of Synthetix Governance

Key Insights

• The instauration of the V3 Governance Module (V3GM) marks different improvement of Synthetix’s governance operation and on-chain voting connected the Layer-2 (L2) Optimism.
• Over the past year, galore Synthetix governance proposals focused connected gathering retired the Synthetix suite of revenue-driven products, i.e., atomic swaps and perpetual futures.
• Synthetix governance communications could beryllium improved to perchance heighten the prime of decisions and accountability of assembly members.

Background

In 2018, Synthetix elected to decommission the Synthetix Foundation, a not-for-profit instauration based successful Australia, successful favour of decentralizing its governance.

Synthetix’s extremity successful shifting to a decentralized governance exemplary was to trim the required spot successful the halfway squad and make a censorship-resistant protocol to speech synthetic assets by gathering a trustless, permissionless, and immutable protocol. Synthetix Founder Kain Warwick’s archetypal governance imaginativeness did not see on-chain governance owed to it being “fundamentally flawed.” Warwick argued that on-chain governance created a greater task hazard to Synthetix than the anticipation of the Synthetix Foundation being captured by a atrocious actor.

In July 2020, Synthetix afloat transitioned from a instauration to a DAO composed of 3 subDAOs:

• protocolDAO was liable for protocol upgrades and adaptable configurations.
• grantsDAO was liable for backing nationalist goods successful the Synthetix ecosystem.
• synthetixDAO was liable for managing and deploying funds to contributors and different task needs.

Governance Overview

Synthetix governance has been done aggregate iterations, including the enactment of liquid ideology and the dilution of voting power, earlier the V3 Governance Module (V3GM) instauration successful June 2022. SIP 207: V3GM outlines Synthetix’s latest governance iteration and updating its council-based governance structure to 4 councils and 1 committee.

Council-based governance is an alternate to the superior governance models of token-weighted and delegated governance. It leans much towards accepted governance models, specified arsenic typical ideology and a committee of directors. By depending connected less radical with an adjacent voting powerfulness to marque decisions, council-based governance seeks to code the shortcomings of its counterparts. Token-weighted and delegated governance often effect successful elector apathy and a ample voting powerfulness concentration. To elite assembly members wrong the DAO, Synthetix uses a quadratic voting model.

V3GM

With the V3GM model, each assembly nominations and elections determination from an off-chain process connected Snapshot to the on-chain Election Module connected Optimism. Among galore benefits, the modulation to on-chain Council elections has accrued Synthetix’s decentralization by mitigating the anticipation of quality interference. The protocolDAO is nary longer required to execute off-chain predetermination results and manually transportation the Council NFT to the elected members. Instead, elections volition present beryllium conducted on-chain.

The cardinal considerations Synthetix made erstwhile designing V3GM was to optimize for low-cost elections and debar having signers for the DAO’s multi-sig wherever tokenholders person nary recourse to region the signers. Thus, Synthetix Core Contributors chose Optimism arsenic a Layer-2 (L2) web to optimize for low-cost gas fees and an inclusive on-chain elections voting process. Since determination is simply a ample excavation of Synthetix voters connected Ethereum Layer-1 (L1), V3GM has an intermediary solution that uses a Merkle histrion snapshot of L1 indebtedness holders and uploads it into the Optimism L2 instance. This intermediary solution volition beryllium replaced erstwhile the V2.X indebtedness migration happens.

The on-chain Election Module has brought a caller voting strategy to Synthetix governance:

• The existent epoch duration for an elected assembly subordinate is 3 months but volition alteration to 4 months successful 2023.
• Eligible voters are indebtedness portion tokenholders who person staked their SNX.
• Nominations and elections hap concurrently during a two-week period.
• Voting powerfulness is calculated by the indebtedness stock balance.
• One campaigner per vote, applying the associated voting powerfulness of 1 elector to the 1 candidate.
• Voting value is quadratic, 1 indebtedness portion = sqrt(1) vote, but for the treasury council, which is linear.
• Vote counting is simply a plurality voting strategy. The candidates with the astir voting powerfulness volition beryllium elected arsenic adjacent voting members connected the respective council.
• The fig of elected members:
  • Spartan Council: 8
  • Grants Council: 5
  • Ambassador Council: 5
  • Treasury Council: 4

Governance Process

Proposals autumn into 1 of 2 categories, Synthetix Improvement Proposal (SIP) oregon Synthetix Configuration Change Proposal (SCCP). SIPs instrumentality halfway changes to the Synthetix Ecosystem. SCCPs modify strategy configuration variables. SIPs and SCCPs are lone voted connected by the 8 elected Spartan Council members of the existent epoch and indispensable travel the specified Synthetix governance process.

In the Synthetix governance process, determination are 2 types of proposals: governance and meta-governance. The connection benignant tin beryllium recovered successful the Synthetix Proposal Repository successful the array astatine the apical of each SIP and SCCP (i.e., SCCP 300). Governance proposals bash not request each 8 Spartan Council members to ballot for a connection for it to succeed. Meta-governance proposals necessitate each 8 Spartan Council members to ballot connected the connection for its success. Meta-governance proposals are for immoderate changes successful however governance operates, and governance proposals are for immoderate changes affecting protocol updates.

Governance Impact connected SNX

Since Jan. 1, 2022, Synthetix governance has had 168 proposals, making it the 3rd astir progressive DAO that Messari Governor monitors. Most proposals this twelvemonth person been related to gross generation, pursuing Warwick’s anticipation of this driving the next DeFi narrative.

Staked SNX Percentage

As discussed successful an earlier Synthetix Governor Note, aggregate proposals passim 2022 focused connected incentivizing greater staked SNX by implementing unsustainable inflationary SNX rewards. The inflationary SNX rewards introduced successful assorted proposals successfully bootstrapped and secured the web astatine the disbursal of creating changeless SNX merchantability pressure. SNX stakers could hedge their vulnerability by continuously selling their recently unlocked SNX each week.

SIP 276: Turn Off The Money Printer was projected to headdress the full proviso of SNX astatine 300 cardinal and halt the unsustainable inflationary SNX rewards. This effort would guarantee that the sUSD interest output per SNX would turn with the protocol’s revenue, since sUSD rewards are based connected the trading fees accrued successful the Synthetix ecosystem. However, SIP 276 has not yet moved to a Snapshot ballot and is presently successful limbo arsenic the SIP 276 writer (Warwick) decided not to contiguous it publicly. In addition, the Spartan Council decided SCCP 211 (the connection to trim SNX ostentation by 5% each week) would beryllium capable until caller Synthetix products are launched. The treatment to terminate SNX inflationary rewards whitethorn beryllium revived erstwhile the Spartan Council assesses the interaction of the caller Synthetix products.

Synthetix initially planned to terminate inflationary SNX rewards successful March 2023, which would permission SNX with a full proviso of ~250 million. However, the SNX outstanding supply is presently astatine ~310 cardinal SNX astatine the clip of writing. This efficaciously makes SIP 276 irrelevant, considering the 300 cardinal SNX circulating has already been surpassed, and ~738,500 inflationary SNX rewards volition beryllium distributed the week of Dec. 7, 2022. The fig of rewards distributed volition proceed to diminution by 5% each week.

The 4 proposals that dictated the inflationary rewards were  SCCP 196, SIP 202, SCCP 208, and SCCP 211. The archetypal extremity of SCCP 196 and SIP 202 were to deed a targeted staked SNX percent of 85% to bootstrap and unafraid Synthetix by expanding the play SNX rewards to incentivize much SNX tokenholders to involvement their SNX. However, these proposals did not meaningfully impact the staked SNX percentage, and the targeted staked SNX percent was yet lowered to 65%.

If SIP 300 and the different V3-related proposals (SIP 302, SIP 308, and SIP 309) are implemented, multi-collateral staking volition beryllium accepted arsenic collateral for the Synthetix indebtedness pool. As a result, the staked SNX percent metric volition beryllium little important successful V3. Rather than relying connected 1 signifier of collateral, V3 volition let Synthetix to beryllium much flexible judge assorted collateral and supply consequent liquidity to assorted markets and fiscal instruments.

Atomic Swaps

The extremity of atomic swaps is to let decentralized speech (DEX) aggregators to conduct Synthetix swaps connected Ethereum mainnet successful an atomic mode (i.e., that they hap successful 1 trade). For example, an atomic swap could look similar this ETH <> sETH <> sUSD <> BTC successful 1 swap. The benefits of atomic swaps are little slippage and little fees.

The Mirarch release implemented SIP 198’s atomic speech functionality update and introduced latency attacks connected the Synthetix protocol via atomic swaps connected 1inch and Kwenta. This update led to accrued Synthetix commercialized measurement and sUSD commercialized interest rewards due to the fact that these latency attacks were bots front-running trades to get the champion prices. The results were much profitable trades and, ultimately, important increases successful Synthetix commercialized volume. These latency attacks lone affected Synthetix connected Ethereum Mainnet. Trades connected Optimism are not taxable to latency attacks arsenic determination is nary 10-minute fee reclamation play fixed its oracle latency.

In effect to these latency attacks, SIP 267 was introduced to let the Spartan Council to o.k. protocols (contracts oregon externally owned addresses) that wanted to instrumentality atomic swaps. By implementing atomic swaps, protocols were fixed the quality to interact with Synthetix’s halfway speech functionalities and acceptable customized parameters. SIP 267 successfully returned commercialized volumes and the sUSD trading interest rewards backmost to steadfast levels, alleviating the merchantability unit connected SNX.

While SIP 267 was successful, the way to occurrence was not truthful smooth. SCCP 224 failed twice, aft aiming to bounds latency attacks by lowering the atomic measurement per artifact from 5 to 0.5 cardinal sUSD. This short-term hole was rejected by the Spartan Council, arsenic lone 4 votes were formed retired of a imaginable 16 implicit the 2 votes, signaling SIP 267 and SIP 288 were the preferred solutions amongst the Spartan Council. The support and implementation of SIP 267 and SIP 288 (1inch Direct Integration) let 1inch to see Curve arsenic a way for heavy liquidity and little slippage, reducing the likelihood of latency attacks.

The Spartan Council and Synthetix community’s tendency to lick the latency attacks demonstrates the sustainable semipermanent reasoning successful Synthetix Governance. The nett result of solving the latency attacks was an improved trading acquisition (via little fees and little slippage) successful the Synthetix ecosystem. This semipermanent reasoning has besides led the Spartan Council to absorption connected improving different Synthetix product, perpetual futures.

Perpetual Futures

There are 3 perpetual futures proposals (SIP 279, SIP 280, and SIP 281) successful the draught presumption that purpose to upgrade synthetic perpetual futures [V1] to V2. Upgrading the perpetual futures contracts should amended the constrained scalability and ratio owed to the pursuing limitations:

• Capital inefficiency — restrictive unfastened involvement limits.
• Funding complaint volatility.
• High fees and wide spreads.

These proposals show that Synthetix aims to beryllium a marketplace person of perpetual futures connected Optimism. If Synthetix continues to seizure much perpetual futures marketplace stock connected Optimism, perpetual futures could go a invaluable gross root for Synthetix.

Communication

The Spartan Council is arguably 1 of the astir transparent DAOs successful the space. The Spartan Council members are progressive successful the Synthetix Discord, play Spartan Discussions, which are published arsenic podcasts, and SNXweave, a Synthetix grantee that provides play recaps of the enactment from the 4 Synthetix Councils via blog and YouTube.

This level of connection is uncommon wrong the DAO governance space. Despite Synthetix’s transparency, it is casual to miss caller developments and decently stitchery assemblage sentiment connected each proposals owed the governance decisions happening connected aggregate platforms. Without a accepted forum platform, specified arsenic Discourse oregon Commonwealth, it is hard to probe Synthetix governance and to filter for circumstantial topics.

Communication Recommendations

Improving the searchability of Synthetix governance contented would alleviate a large symptom constituent for Synthetix assemblage members and mightiness adjacent promote caller Synthetix users to enactment successful governance. There are respective ways Synthetix could amended its content's searchability.

The recaps by SNXweave are invaluable to the Synthetix community, but they sometimes deficiency the nuance of the elaborate discussions betwixt assembly members connected the Spartan Discussion calls. Thus, transcribing the audio from the Spartan Discussions and posting the transcription arsenic a blog would payment the Synthetix assemblage due to the fact that it would let for greater searchability of the Spartan Discussions. If this were implemented, assemblage members could find and observe cardinal governance accusation astir circumstantial proposals.

Discord’s large drawback is that it is hard to hunt for humanities topics, particularly successful a precise progressive Discord similar Synthetix’s. Using a forum level similar Discourse oregon Commonwealth to signifier each the Synthetix governance-related topics would support governance topics organized and searchable. While the repository is simply a bully resource, it does not see the community’s feedback connected the proposals.

The Synthetix governance documentation is outdated. This is understandable, fixed Synthetix governance has undergone aggregate iterations implicit the past 3 years. Nevertheless, it would beryllium precise invaluable to allocate resources to support this documentation successful bid to minimize disorder for existent and aboriginal Synthetix assemblage members.

Improved searchability and updated documentation volition supply a amended idiosyncratic acquisition for Synthetix assemblage members funny successful governance, and it volition destruct the silos that beryllium today. Improving these 2 aspects could adjacent summation the fig of progressive governance participants since determination volition beryllium humanities discourse to assistance assemblage members recognize Synthetix properly. That said, Synthetix is not needfully incentivized to promote greater governance information successful Synthetix Governance from the broader Synthetix community, fixed that lone its existent assembly members formed votes. All things considered, erstwhile much voices enactment successful discussions, adjacent if they aren’t voting, the prime of decisions and assembly members' accountability increase.

Accountability Analysis

Spartan Council

The Spartan Council has been entrusted by the Synthetix assemblage to beryllium actively progressive successful making decisions successful Synthetix’s champion interest. Currently, Synthetix is attempting to equilibrium the protocol’s main objectives of expanding the fig of progressive users and SNX stakers with the extremity of creating a  revenue-driven, sustainable protocol successful a carnivore market. To bash this, each elected assembly members, including Spartan Council members, are held accountable for providing worth to Synthetix. The instauration of providing worth to a DAO is showing up and participating. SNXweave has collected assembly information information and conducted Team 360 Self Reviews to quantitatively measurement assembly members' level of information implicit the past 2 epochs. 

The Spartan Council gathering and voting information rates from the Spartan Council members are arsenic follows:

The Spartan Council voting information shows that determination were a full of 101 SIPs and SCCPs that went to an off-chain ballot during Q2 and Q3 2022. There were besides 808 imaginable votes that could person been formed by the 8 Spartan Council members during each epoch. Of these 808 imaginable votes, 112 votes (13.86%) Spartan Council votes were not cast.

The information collected from the Team 360 Self Review questionnaires is simply a invaluable snapshot of accountability information. This efficaciously represents however the Spartan Council members felt their Spartan Council peers performed and participated connected their behalf passim the epoch. The Team 360 information displays the effectiveness of each Council member, distilled down to 1 number. Synthetix voters tin usage this fig to reliably measure each Council member's commitment.

However, the Team 360 Self Reviews bash not travel without a fewer drawbacks, namely:

• The reviews deficiency discourse arsenic to wherefore a assembly subordinate believes different assembly subordinate has inadequately participated during the epoch without further investigation.
• The reviews unfastened a imaginable onslaught vector, allowing assembly members to supply inaccurate reviews successful atrocious faith. However, determination is nary grounds oregon accusations of this happening to date.

Grants Council

The Grants Council’s relation successful the Synthetix ecosystem is to reappraisal assistance applications and money developers who are mission-aligned and consenting to turn the Synthetix ecosystem. All assistance applications, details, and voting past are provided connected the Grants Council’s website. Since Sept. 23, 2021, lone 7 of the 68 assistance applications person been approved done this assistance process.

As mentioned successful the Q3 2022 Quarterly Report by SNXweave, grantees person delivered connected the following:

• Fee Rebate Initiative — providing OP tokens for referrals and covering trading fees for whale traders to boost Kwenta’s synthetic futures product.
• Explainer Synthetix videos by contented creators.
• Wrapper UI.
• New SIP/SCCP submission website with a amended idiosyncratic acquisition truthful anyone tin easy taxable a proposal.
• SNXweave—- attendance and information study and play recaps of the Synthetix Councils.

Some different projects that person received assistance backing are the NFT Project, HERO stats page, and SNXweave. The HERO stats leafage would beryllium a welcomed upgrade from the Synthetix assemblage arsenic it aims to code the accuracy issues of Grafana, Synthetix's existent statistic dashboard. However, the subgraph complexities and deficiency of resources person deemed the HERO stats leafage nary longer viable. The Grants Council has paused each efforts connected system-wide statistic until Synthetix transitions to V3.

The extremity of the NFT task is to rise funds for liquidity provisioning successful the Synthetix ecosystem and for nationalist goods backing to beryllium distributed by the Grants Council. The proceeds raised by the NFT Project volition beryllium divided 80% going to liquidity provisioning and 20% to nationalist goods funding. Any secondary marketplace royalties volition beryllium divided with the aforesaid ratio.

The Grants Council gathering and voting information rates from the Grants Council members are arsenic follows:

While the Grants Council has wide responsibilities outlined successful SIP 141, determination are nary cardinal show indicators (KPIs) provided for the assemblage to measurement the occurrence of the Grants Council (grantsDAO). To further transparency and accountability, Grants Council members could suggest SIPs with intelligibly listed Grants Council KPIs, which would alteration the Synthetix assemblage to objectively measurement the occurrence of the assistance funding.

Ambassador Council

Unlike SIP 39 (to acceptable up grantsDAO) oregon SIP 141 (to formalize the responsibilities and relation of the grantsDAO), SIP 241 (KPI-based Ambassador Mandate) provides a wide mandate and KPIs for the Ambassador Council. This mandate and KPIs acceptable a bully illustration of clarity for different councils to follow. All of the accusation needed to measure the occurrence of the Ambassador Council is included successful the proposal. The Ambassador Council’s KPIs to measurement show are quoted below:

• Total delegated voting powerfulness of each ecosystem governance tokens.
• The fig of societal events and their audience/viewership number (Town Halls, DAO 2 DAO assemblage calls, Twitter spaces).
• Sum of protocol integrations, grants referrals, and contributor referrals.
• The culmination of published worldly successful the signifier of blog posts, wiki articles, explainer Twitter threads, and different informational content.
• Various approved SIPs and proposals for ecosystem protocols were written by members of the Ambassador Council.

SIP 241 was passed successful June 2022, making the KPI data successful the Q3 2022 Quarterly Report by SNXweave the archetypal epoch that this information was tracked. Going forward, this information volition service arsenic a bully baseline to measurement the show of the Ambassador Council implicit each epoch.

The Ambassador Council’s enactment successful Q3 2022 consisted of the following:

• Hosted 10 Spartan Spaces.
• Responsible for 3 palmy integrations with different protocols.
• Proposed and successfully passed 1 Synthetix connection (SCCP 230).
• Utilized Synthetix voting powerfulness successful the pursuing protocols’ governance: Uniswap, Hop Protocol, Gearbox, Aave, and Optimism.

Participating successful Optimism’s governance during the 2nd fractional of Optimism’s Grant Funding Season 2 allowed the Ambassador Council to instrumentality vantage of being 1 of the largest Optimism delegates by gathering relationships with well-recognized protocols for imaginable partnerships. Some of these protocols see Alchemix, SushiSwap, Yearn, Bankless Academy, EthernautDAO, and Across Protocol.

The Ambassador Council gathering and voting information rates from the Ambassador Council members are arsenic follows:

Treasury Council

The partnerships initiated by the Treasury Council are not required done a governance process and beryllium formally voted on, i.e., Jump Crypto providing liquidity and Gauntlet becoming Synthetix’s hazard partner. As per SIP 155, the Treasury Council has a wide mandate to bash what is successful the champion involvement of the Synthetix Treasury. This includes what is successful the champion involvement of SNX, plus management, and hazard management. Warwick has stressed the value of the Treasury Council having the autonomy to beryllium agile and enactment successful the champion involvement of Synthetix, particularly during a crisis. Thus, the Treasury Council does not person the aforesaid checks and balances arsenic the Spartan Council oregon the different councils.

While the Treasury Council’s activities are much opaque than the different councils, the program is for the Treasury Council members to implicit the aforesaid Team 360 Self Review questionnaires the different councils participated in.

Core Contributor Committee

The Core Contributor Committee plays an important relation successful Synthetix becoming much decentralized; however, each Core Contributor Committee communications, votes, and operations are presently private. The Synthetix assemblage has to blindly spot this committee to enactment successful bully religion owed to the small transparency and verifiability of the committee's actions. With the ethos of the DAO exemplary being transparent successful its communications, backstage communications consciousness similar a measurement successful the incorrect direction.

Synthetix Governance Looking Forward

The announcement of Synthetix V3 created a buzz connected Twitter successful July 2022, sparking conversations regarding the aboriginal of the Synthetix protocol. Synthetix V3 outlines the semipermanent imaginativeness of permissionless plus creation, improved recognition control, Liquidity-as-a-Service (LaaS), and a differentiated indebtedness pool. At the clip of writing, SIPs 300–312 are each presently successful the draught phase, but these proposals purpose to migrate Synthetix from V2.X to V3. The modulation to V3 volition apt beryllium completed successful aboriginal 2023. V3 volition update galore of the Synthetix astute contracts and amended Synthetix’s existent method and economical inefficiencies — frankincense improving the idiosyncratic acquisition crossed the Synthetix ecosystem.

Conclusion

Synthetix is 1 of the oldest DeFi protocols and is presently successful a authorities of modulation arsenic it implements lessons from the DeFi assemblage into Synthetix V3. Synthetix’s wide absorption is to past and thrive successful the agelong term. A wide illustration of this tin beryllium seen successful the palmy SIPs and SCCPs that equilibrium idiosyncratic maturation portion besides optimizing for accrued gross to physique a sustainable protocol.

Although a fewer areas of Synthetix Governance could beryllium improved, each the Synthetix Councils person been actively delivering worth to the Synthetix protocol. They look to beryllium acting successful bully religion connected behalf of the Synthetix assemblage portion actively trying to thrust worth backmost to the Synthetix ecosystem. The upcoming voting (and consequent implementation) of each the Synthetix V3 SIPs (300–312) means the Synthetix Community should person a batch to look guardant to successful the caller year.

Appendix

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