Our last Synthetix report gave an in depth overview of the state of Synthetix, detailing its mission and roadmap heading into the year and beyond. This included highlighting the achieved product-market fit of their perps product, the transition to Synthetix V3 and Perps V3, improvements to SNX tokenomics, the migration to new chains such as Base and Arbitrum, and other potential developments like L1 perps and even a Synthetix chain for SNX staking and governance purposes.

Six months later, Synthetix has made significant strides in pursuit of these items. The Base deployment is firing on all cylinders as it ramps up liquidity and trading volume, the Arbitrum deployment is beginning its first stages and shows promise, and they are inching closer to launching perps on Ethereum mainnet. This is in addition to many other developments that weren’t initially forecasted but have come along to help enhance the experience of the trader and the LP.

While the team has made great strides on ramping up this cross-chain strategy, trading volume on their primary OP Mainnet deployment has seen a sharp decline in recent months. This is likely due to the attraction of traders to seek short-term incentive and airdrop opportunities elsewhere. 

In particular, Hyperliquid has been capturing market share among traders as many perceive their lack of VC capital to suggest a very fruitful airdrop, amongst a growing ecosystem as we’ve written about extensively. 

However, as we’ve seen time and time again in crypto, once the airdrop goes live or the incentives run out, projects cannot typically sustain a large level of market share. Synthetix is certainly betting on its ability to provide the best trade execution from both a liquidity and fee perspective that other perps DEXs cannot offer due to their design. In addition, their deployment on Base, a chain directly tied to a CEX with over 300 million users, could prove to be extremely fruitful as there is surprisingly very little competition in the perps space on this chain. This, tied with Optimism's focus to expand the Superchain rather than focus their efforts on OP Mainnet itself likely represents a shift in attention for users as well. The expansion to Arbitrum also represents a great opportunity to capture market share, test new forms of collateral, and set the stage for other cross-chain deployments.

Base Deployment

Synthetix has placed a large majority of its efforts this year on making its deployment to Base a success, with an emphasis on ramping up the amount of USDC collateral users are able to provide as liquidity for the perps market, expanding the amount of assets and available open interest for users to trade, and working with existing and new front ends and ecosystem partners to integrate trading for their users. This ramp up has resulted in a strong uptrend of trading volume on Base alone. 

Even in its infancy, Base’s deployment has recently reached 50% of all Synthetix volume, matching that of OP Mainnet.

In particular, USDC as collateral has seen very steady growth over time, with around $21.5M in TVL currently. Given the demand for users to trade, this has been very lucrative to LPs, with the yield for providing liquidity peaking at around 60% before slowly converging to around 8-10% from June 2024 to present.

This Synthetix deployment on Base also has its own set of rules for how trading fees are handled and distributed. 20% of fees are shared with integrators (other platforms that utilize Synthetix liquidity and perps trading) as a way to directly incentivize these teams to focus on distribution and bring in traders and volume, 40% is sent to LPs, and 40% is used to buy back and burn SNX. This is separate from OP Mainnet where all fees accrue directly to LPs.

Synthetix has bought back and burned over 140K SNX (~$250K) since the Base deployment launched in April. If we assume the current 7DMA for volume persists, this would result in over 600K SNX ($1M) bought and burned per year, around 0.2% of the supply. While these numbers now will not have an immense impact on the market, as trading grows on Base, as well on other new deployments that incorporate this form of tokenomics, we should see this number grow and make SNX more deflationary. 

Arbitrum Deployment

On June 18, Synthetix officially deployed to Arbitrum, opening the gates for users to start providing liquidity prior to perps trading going live. To begin, there are currently four whitelisted assets that can be used to provide liquidity: USDC, Ethena’s USDe, WETH, and ARB. This allows for much more potential liquidity than the current state of its other deployments, as OP Mainnet is collateralized by only SNX and Base is collateralized by only USDC. So far, Synthetix has managed to attract $28M in TVL in this short period of time.

Synthetix was also the beneficiary of a grant from the Arbitrum DAO as part of their Long-term Incentive Program (LTIP). They received 2M total ARB and are distributing 1M as LP incentives, 900K as trading fee rebates, and the final 100K for stablecoin liquidity. Those LP incentives are a large driver in incentivizing users to provide liquidity in these early stages and will ensure a smooth transition for liquidity to be available when trading goes live. The team provided a schedule for using these incentives, but it is subject to change under the Treasury Council supervision in order to make sure the timing is optimized.

Synthetix is also looking to create multi-collateral perps to give traders the ability to use assets that aren’t sUSD to collateralize their trading positions. This will include native ETH, WBTC, and even yield bearing stablecoins like sUSDe. While this SIP has passed a governance vote, the team is currently working on implementing this feature across all deployments including Arbitrum. This, along with preparing frontend integrations, is the biggest roadblock for Synthetix to push trading live.

Another interesting initiative Synthetix is attempting with its Arbitrum deployment is the use of more experimental assets as collateral for pools. There are a few approved but not yet implemented SIPs that look to add yield-bearing collateral as options for LPs. This includes Ethena’s sUSDe, EtherFi’s weETH, Lido’s wstETH, and many Aave pool tokens. This will allow for much more capital efficiency for LPs and helps Synthetix easily absorb the TVL of these other yield bearing ecosystems. With Base’s USDC LP providing lucrative returns on its own, LPs on Arbitrum should enjoy even more yield from other sources.

Given Arbitrum’s history in cultivating a solid DeFi ecosystem when compared to other rollups, and the very quick TVL growth despite the lack of trading revenue, signs that prioritizing a deployment to Arbitrum may prove to be fruitful for Synthetix trading activity and revenue potential. Fee rebates should also help provide a bit of a temporary boost, but as discussed earlier, the real adoption will be shown with the metrics following this period of incentivization.

Other Developments

Alongside the continued growth and adoption of Synthetix across multiple chains, there are plenty of other developments within the ecosystem this year that are beneficial to both SNX holders and perps traders.

The first of the developments has to do with the unlocking of vested and escrowed SNX from past stakers. SNX emissions were previously given out to SNX stakers but with a required escrow of one year. On Dec 17 of 2023, the Spartan Council voted to end SNX inflation, but due to the escrow the market has been continuously feeling the impact of this unlocked SNX hitting the market. As we inch closer to Dec 17 of this year and trading on Base continues to ramp up, flows are starting to favor the SNX token as it finally becomes effectively deflationary. There are currently only 7.5M SNX tokens left under escrow.

This is an extremely important dynamic as the market expresses its distaste for “low float high FDV” tokens that have yet to create meaningful cash flow or product-market fit. As Synthetix begins to eradicate any supply overhang and continue to ship on their cross-chain vision, alongside a potentially positive regulatory environment following this year’s US election cycle, it could make SNX an attractive bet as part of a DeFi and cash flow resurgence.

In April, Synthetix also decided to completely wind down spot synths on Ethereum Mainnet, which includes sETH, sBTC, sEUR amongst others. These were once the primary focus of Synthetix, as they were ERC-20 tokens that followed the price of a given asset and whose liquidity was created by SNX stakers. While the perps markets on Synthetix incorporate a dynamic funding rate, which has done an incredible job keeping open interest and therefore market exposure in line, spot synths do not have this kind of mechanism. This meant that SNX stakers were directly exposed to the market direction of these spot synths and acted as direct counterparties for an indefinite amount of time. For example, if ETH’s price rose, the subsequent value to sETH was taken from the SNX debt pool. With this risk, Synthetix often encouraged users to hedge their staking position to the debt pool using platforms like dHedge, which was complicated for many users. As a result of the passing of SIP-2059, users no longer have to worry about being exposed to this debt pool (ETH exposure is only 1%) and now have much more dampened volatility through the perps and their dynamic funding rate mechanism.

Synthetix is also inching closer to their deployment of perps on Ethereum Mainnet. While this may not be the most optimal place to trade perps given the 12s blocktimes and high gas fees, this is a great place for large protocols or whales to take perps positions on Mainnet where their current inventory resides as a way to reduce bridge risk and increase speed. The biggest example of this would be Ethena, as it holds their ETH collateral on Mainnet and would prefer a venue like this to take their large positions. While Synthetix used to call this initiative “Carina”, core devs are now referring to this project as BFP (Big [Expletive] Perps). With the target of large protocols like Ethena, this could prove to be a very large market for Synthetix to tap into. Synthetix is also working on an order book style perps market built on the Superchain, another potentially lucrative deployment, with more details to come out soon.

Synthetix also has some exciting upcoming developments related to the perps trading experience. One of these uses the design of Synthetix V3 to create a brand new perps market specifically for the trading of long tail assets. This includes political memecoins like TRUMP and BODEN, as well as assets that are not yet qualified to be traded on primary Synthetix perps because they lack another perps venue for hedging, such as AERO and VELO. The pool will separate from the primary Spartan Pool and take its own separate USDC as collateral. The title for this pool is called “Degenthetix” and is meant as a playground to test new assets people want to trade before they make their way to the bigger Spartan Pool.

In a similar vein, Synthetix has also implemented a mechanism to help solve the issue of open interest monopolization, where one trader takes up a majority of the allocated open interest for a given asset. This crowds out other traders, makes it difficult to achieve neutral market skew for LPs, and has proportionally negative effects on the trading of long tail assets. Synthetix is using an Asymmetric Funding mechanism, which is an additional interest rate charged on a position that does not affect traders with a minority of open interest but scales up for those taking on a significant portion. The mechanism is very similar to those of lending markets, where there is a particular kink where interest rates ramp up in order to heavily incentivize against the full utilization of a pool. 
 

Lastly, external to the efforts of Synthetix core contributors, there has been a growing number of projects utilizing Synthetix liquidity and perps trading to create “leverage tokens.” These are ERC-20 tokens that represent a leveraged position on a given asset where the leverage and exposure are constantly rebalancing as the price moves. This type of strategy has a lot of benefits to the user beyond its simplicity. First, the user cannot get liquidated because the leverage rebalancing works to reduce exposure as price falls. In the other direction, it allows you to get far more upside because as the price rises the rebalancing adds more leverage. This means that in a trending market in either direction, you are better off with a leverage token than a perps position. The downside to holding this position would be moments of low volatility as the funding and rebalance fees eat into the underlying balance. However, in many scenarios, they can be a great way for users to get leveraged price exposure to a given asset, both long and short. TLX and Toros are two projects utilizing Synthetix to provide leverage tokens, and these projects are direct contributors to Synthetix perps revenue.

Risks

While the largest risk to Synthetix previously was its over-reliance on the native token as the collateral, these new deployments do not utilize SNX and provide many options for providing liquidity. Now, a majority of the risk for Synthetix comes from increased competition within the perps space, particularly from Hyperliquid. Given the fact that perps trading has achieved clear product market fit and spit off incredible cash flow for protocols, there will likely continue to be immense competition in this space.

Another specific protocol risk we highlighted in our last report was the risk of listing low quality assets to the primary Spartan Pool. If an asset is too illiquid or is at risk of price manipulation, this could lead to malicious actors taking advantage of SNX liquidity as we saw in Dec of 2023 where the price of TRB was being heavily manipulated, leaving SNX stakers with $3M in losses. Since this event, the Spartan Council has been even more stringent around which assets are approved and the parameters set for each of these assets, and SIP-2048 gives select CCs the ability to pause markets during emergencies. Synthetix also relies heavily on the uptime and reliability of oracle price updates. Mispricing or delayed oracles could lead to bad debt for LPs or unjustified losses for traders. Synthetix uses Pyth as its primary oracle, but there is a current governance vote for adding Chainlink oracles to the Arbitrum deployment.
 

Final Thoughts

Synthetix is diving head first into its cross-chain strategy, very quickly shipping on promised roadmap items. However, this period of transition from a focus on OP Mainnet to these brand new deployments has reduced some of the volume metrics that may take some time to see life as liquidity and trading pick up on these new venues. This, along with increased competition within the perps DEX space present the biggest roadblocks for Synthetix. However, deployments to Base, Arbitrum, and Ethereum Mainnet present opportunities to steal back market share due to the unique distribution possibilities of each network.

It also does not help that the market has focused its attention away from DeFi as it sits in a regulatory gray zone within the US. However, given the recent change in posture of the current Democrat controlled political landscape and the extremely positive crypto sentiment from the Republican presidential nominee, 2025 could provide some much needed regulatory clarity that opens up the floodgates for DeFi adoption. As the market starts to come back to DeFi tokens, Synthetix is well positioned as a project generating revenue and a token that is very close to completing its unlocks with deflationary tokenomics.
 

This research report has been funded by Synthetix DAO. By providing this disclosure, we aim to ensure that the research reported in this document is conducted with objectivity and transparency.  Blockworks Research makes the following disclosures: 1) Research Funding: The research reported in this document has been funded by Synthetix DAO. The sponsor may have input on the content of the report, but Blockworks Research maintains editorial control over the final report to retain data accuracy and objectivity. All published reports by Blockworks Research are reviewed by internal independent parties to prevent bias. 2) Researchers submit financial conflict of interest (FCOI) disclosures a monthly basis that are reviewed by appropriate internal parties. Researchers may participate on Synthetix DAO governance council.