The DeFi Holy Grail: Synthetix Dissolves Foundation, Hands Platform Control to DAOs
Also, Augur V2 launch, Mainframe acquires Sablier, FTX launches DEX.
|Jul 28, 2020||4|
Hello Defiers! Here’s what’s going on in decentralized finance,
Synthetix is now run by DAOs in quest for DeFi Holy Grail
Augur launches V2 in crowded decentralized prediction market space
Mainframe pivots to lending with Sablier acquisition
FTX launches Solana-based DEX Serum
and more :)
The open economy is taking over the old one. Subscribe to keep up with this revolution. Click here to pay with DAI (for 70 Dai/yr vs $100/yr).
[NEWSLETTER UPDATED AT 8:23 PM EST: To include Augur comment on early traction]
🙌 Together with DeversiFi, a professional-grade, self-custodial exchange.
Synthetix is Now Controlled by Three DAOs
Synthetix, the third-largest DeFi platform by assets locked, is now under the control of community-owned organizations, or DAOs.
The Synthetix Foundation, which since the project’s 2018 launch has largely controlled the direction of the synthetic assets platform, is winding down and three DAOs are taking over; protocolDAO, grantsDAO and synthetixDAO, the team said in a blog post last night.
Synthetix is holding almost $460 million in assets in its smart contracts, up more than 20x from a year ago, according to DeFi Pulse, and its token SNX is up more than 10x in that time to $3.2.
Image source: blog.synthetix.io
“The changes above mark a phase shift in Synthetix governance,” the post said. “While we have been governed through rough consensus for some time now, this shift puts significantly more power directly into the hands of token holders.”
Power to the Token Holder
The move highlights just how different startups building open-source protocols are to traditional ventures. While in the “old world” founders usually seek to hold as much power as possible (Mark Zuckerberg alone controls 60% of Facebook), in the new world of decentralized finance and Web3, the end goals for many of these projects is to give power away so that ultimately, the project’s community will have a full control.
Two big reasons for this: 1. What’s known as “antifragility.” By decentralizing power and dissolving any centralized entity linked to the project, it will be harder for regulators to shut down and censor them (at least that’s the theory). 2. Token-based systems are opening up entirely new business models, where users are also owners. Tokens act as voting ballots, as fuel to incentivize activity, and ideally, their appreciation will reward founders and contributors, and lead to self-sustaining systems.
Flavors of DAO
ProtocolDAO controls Synthetix’s smart contracts using a multisig which requires four of eight signers to agree on protocol upgrades (4/8 multisig). Signers have the ability to pause contracts at a systemwide level and at an individual synth (synthetic token) level, to make sure funds are kept safe in the case of an incident, with some backstops put in place like token holders vote to override signers’ decision.
SynthetixDAO, a structure that’s already in place, will provide funding for the network’s growth. While the Foundation itself was previously a major recipient of funding, now any entity contributing to Synthetix can apply for funding. The current synthetixDAO has three members representing key stakeholders in the network, managing a treasury of ~$150m USD or ~450,000 ETH, according to the post.
The Synthetix Foundation, which holds over 6% of SNX, is expected to transfer its tokens to synthetixDAO, according to SNX investor who goes by the online pseudonym of “SNX Professor.”
“We expect within the next three to six months we will be able to migrate the entire treasury on-chain within the control of the synthetixDAO,” according to the post. “Until that point, existing custodians will manage off-chain funds on behalf of the synthetixDAO.”
GrantsDAO is a 4/5 multisig, whose signers decide on public good funding. Grants proposals can be made by anyone in the community, and token holders can vote to replace signers, according to SNX Professor, who is one of grantsDAO’s signers.
“Everyone serves at the pleasure of the DAO. Do a bad job, no grants for you. Do a good job, more grants,” Synthetix founder Kain Warwick said in a Twitter thread last night, which was not specifically about this announcement.
Shades of Decentralization
While DAOs are meant to increase community participation in governance, it will ultimately be up to the small group of people controlling the DAOs’ multisigs whether they’ll take into account the broader token holders’ preferences —they stand to be replaced if they don’t.
Also, core team members will continue holding large stakes in SNX, and therefore, will continue to hold power over the protocol. The Synthetix team’s SNX holdings are expected to increase from just under 10% today to about 18% in 2023, according to a July 9 report by Binance Research.
Image source: Binance Research
Of course, it’s only fair that early team members and those who have helped shape and grow the protocol get a relatively high stake. The system simply wouldn’t work otherwise.
“We want to set up a new game and everyone needs to contribute something,” Warwick said in the previously mentioned thread. “Some contribute upfront effort to organise the game, some contribute capital, some contribute technical knowledge and all kinds of other stuff. So we slice up the initial allocation (…) most founders get low single digits tokens.”
Augur Debuts Long-Awaited V2 Release
Augur, the first permissionless prediction market in the world, has had trouble scaling to the mainstream since its July 2018 launch, while competitors mushroomed. Co-founder Joey Krug is planning to change that with the upgrade unveiled today.
The long-awaited V2 revamp includes dollar-denominated bets, an upgraded UI, which focuses on mobile-first trading experience, and deeper liquidity.
Uncompromising on Decentralization
Krug told The Defiant that V2 “will capture the majority of ‘decentralized’ prediction market share,” adding that Augur features a “ruthless focus on the user and an uncompromising view on decentralization.” Citing past trading and betting experience prior to crypto, the Augur team “knows exactly what traders and bettors need, and we're not cutting any corners”
Augur V2, will have no admins, owners, or keys with elevated authority over the protocol.
V2 comes at a much needed time as Augur market creation has been in stand-still after the V1 cutoff in September, with Dapp Radar reporting just $6.5k in volume in the past 30 days. Now, Augur will battle new prediction market contenders like Omen, Polymarket and Flu, with Omen aggregating nearly $800k in total bets since it’s launch in June.
However, Augur core dev Peter Vecchiarelli told The Defiant this not something they’re concerned about, as “V1 had more volume in first two weeks than Omen and Polymarket have had combined over their whole life”
The wider vision of Augur is to create a more social betting experience, taking the odd denominated features of legacy prediction markets like Betfair and incorporating market-specific chats to make markets more interactive among participants.
The upgrade includes odd-based orders (2 to 1 odds or 75% chance of Yes) rather than the old format of simply displaying a bid and ask value (0.3ETH/outcome) with no clear indication as to what the chances of winning (and the resulting payout) would be.
This comes in tandem with username logins and an “Invalid” market outcome, ensuring there will be far fewer unresolved markets by allowing REP holders to stake to Invalid. In V1, invalid markets were commonly not reported as REP holders stood to be slashed if a market resolved as unresolved, regardless of whether they were on the would-be correct side of the outcome.
Syncing to V2 will also be less intensive on the user thanks to a variety of protocol upgrades.
Underpinning V2 is a migration for the platform’s native token REP, which is used to stake on outcomes to determine the winning side of any market. The new token - REPv2 - will replace all previous functionality and allow for migration direction in the Augur Client.
REP price has climbed since V2’s announcement in April, up 25% in the past month alone. The price of REP peaked at $24 over the weekend - the highest price for the native token since 2018.
Augur V2 aggregates liquidity from popular automated market makers using 0x Protocol to allow for deeper order books. Other features include iceberg orders, or the ability to ‘hide’ the size of a large order on the front-end, and instant payouts, automatically distributing winnings for a small fee immediately after a bet is settled.
While the launch does not feature a liquidity mining program, Augur has cited trading fees and referrals as incentives for target users to get involved. Behind the scenes, it’s rumored that Augur-based AMM’s are being developed, offering different onramps to prediction markets using fan-favorite interfaces resembling the likes of Uniswap.
In today’s DeFi many speculated V2 would need to feature liquidity mining to compete, but as Krug said “(liquidity mining) doesn’t make sense yet for Augur given that it's an order book model which can be easily gamed.”
Mainframe Pivots to Lending With Sablier Acquisition
Mainframe today announced it acquired payments platform Sablier, rebranding its decentralized communications platform in favor of a new fixed-rate tokenized debt market. The relaunch offers DeFi’s first no-coupon bond protocol.
Much like Yield Protocol, Compound and Maker, Mainframe borrowers deposit collateral to mint tokenized debt obligations. Lenders purchase these obligations at a discount and redeem them at face value at maturity. In the event of default, collateral is auctioned off to so-called Guarantors who provide extra float in exchange for trading fees.
Image source: Mainframe
Sablier is a money streaming platform which allows two parties to enter into agreements that transfer value in real-time. Mainframe will use Sablier to "explore token streams as an innovative way to lock-up and release tokens from the circulating supply as part of a broader token economic system,” according to Sablier blog post.
Sablier founder Paul Berg told The Defiant he will be working full time on the new venture bringing his expertise with fixed-rate payments, while Mainframe will also obtain all of Sablier’s cash flows.
Mainframe is making a big push to capture DeFi market share, highlighted by an ongoing MFT token liquidity mining program for both Uniswap and Balancer liquidity.
FTX Announces Solana-Based DeFi DEX Serum
FTX , the 5th largest derivatives exchange according to CoinMarketCap, is playing their hand at DeFi through the advent of a cross-chain DEX called Serum.
SBF @SBF_Alameda1) This is my fifth and final post about The State of DeFi: PROJECT SERUM Previously: How is DeFi? https://t.co/pk0681kgls Trust and Centralization: https://t.co/64p8EBdV78 Tonight We are Young: https://t.co/sB3KmhykOI Doing It Right: https://t.co/5OMzSeEQaN
Built on Solana, Serum is said to process 10,000 times as many transactions per second as Ethereum while being 1,000,000 times cheaper. Serum will be directly interoperable with Ethereum and will be completely permissionless at launch with “over 100 validators,” according to FTX CEO Sam Bankman-Fried’s original Tweets.
The DEX is driven by a native token - SRM - which is staked by validators and held by users for trading discounts. 100% of Serum’s trading fees are used to buy and burn SRM off the open market, while node operators stand to earn rewards by processing transactions.
Citing high transaction costs making Ethereum unusable, Bankman-Fried suggests that Serum will drastically alter DeFi’s coveted DEX landscape with an order-book based trading experience which he argues is superior to AMMs like Uniswap.
Blockchain project Polkadot, a challenger to Ethereum, has raised $43.3 million in a private token sale, The Block reported. Through the sale, which lasted for three days from July 24 to July 27, investors grabbed Polkadot's native DOT tokens, which were reportedly available for $125 apiece. Residents of the U.S., Japan and some other countries were restricted from participating in the sale.
The open interest, or total value of contracts that have not yet been settled, on Ethereum futures has passed the $1 billion mark, an all-time high, according to market analytics firm Skew, Decrypt reported. The milestone comes as the price of ETH increases and Ethereum 2.0 progress give investors confidence about the long-term potential of the decentralized protocol. Futures contracts are the domain of more sophisticated traders, indicating that the smart money is feeling good about where Ethereum may be headed next.
Check out Kain Warwick’s Twitter thread mentioned above on capital formation for crypto protocols.
The Defiant is a daily newsletter focusing on decentralized finance, a new financial system that’s being built on top of open blockchains. The space is evolving at breakneck speed and revolutionizing tech and money. Sign up to learn more and keep up on the latest, most interesting developments. Subscribers get full access at $10/month or $100/year, while free signups get only part of the content.
Click here to pay with DAI. There’s a limited amount of OG Memberships at 70 Dai per annual subscription ($100/yr normal price).
About the founder: I’m Camila Russo, financial journalist and author of The Infinite Machine. I was previously at Bloomberg News in New York, Madrid and Buenos Aires covering markets. I’ve extensively covered crypto and finance, and now I’m diving into DeFi, the intersection of the two.