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SPIP-105: Wind Down SynthVault

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SPIP-105: Wind Down SynthVault

If you missed out on the SPIP-105 discussions, get up to date via this article. TLDR: SynthVault harvest will reduce, so make sure you harvest before each drop!

SPIP-105: Wind Down SynthVault

As per SPIP-105 to wind down the SynthVault harvest percentage, the plan will be to begin reducing the SynthVault harvest percentage 1% at a time, from 5% to 0% over the course of the next ~10 weeks starting with the first 1% drop most likely in the first week of May. Whilst the community contributors will try to put out rough reminders before each 1% decrease, being a distributed project (and to avoid 'gaming' the drops) there will be no set times/days for each. As always, it is our individual responsibility as DeFi users to ensure we are active and harvest regularly enough to not get caught out by any claim percentage drops.

As we all know, our community harbours in Telegram, who have had about 2 weeks to bring up points and contribute to the discussion. It would appear most are on board with the reasons and good to see some new and old contributors showing up with some good input. If you have any objections, please contribute to the discussion on the GitHub issue as a preference, and in Telegram as a low priority option if you refuse to join the GitHub discussion.

Proposal | Wind down SynthVault Harvest Percentage · Issue #105 · spartan-protocol/spartanswap-contracts
As we all knew with the leadup to V2, Synths require significant TVL to thrive & have any chance of ontop-layer features being available to them. They were probably enabled too early before TVL...
GitHubspartan-protocol

Some reasons brought up by the community to begin reducing the claim percentages:

  • The implemented synths design relied upon deep liquidity for its success and to limit possible economic attack vectors. Unfortunately, the protocol has struggled to achieve its desired TVL levels and thus the synths design isn't delivering much utility to the protocol

This is unfortunately true, but by acting now, we can be in an even better position to take advantage of larger TVL in the future

  • Synths are all at their caps now and only provide ~$250k TVL-value to the protocol

That is only ~5% of the protocol's TVL. The majority of that 95% remainder can be attributed to the DaoVault which receives the same portion of reserve claim percentage but provides ~100x more value to the protocol based on current numbers (ignoring the other extra utility the DaoVault weight also provides in the form of security & governance)

An appropriate weighted target for the SynthVault percentage (using DaoVault as the normaliser) would be to go from 5% down to 0.05% to incentivize synths according to their current value in the protocol

An option of course is to do exactly that (drop it down from 5% to 0.05%) but there are other reasons to consider winding it down to 0% proactively and having SynthVault members leave at a responsible rate to:

  • Open the protocol to an easy migration if the pool contracts are upgraded from V2 to V3 in the future (Synths cannot be melted at a reasonable rate if the liquidity has already migrated, removing this migration headache proactively makes sense)
  • Leaving the contributors free to explore not only building out existing work and ideas but allowing the possibility of building them without any limitations of the current designs

One such idea is a decentralised stablecoin. If integrated into the current pool + synth design would give us fairly narrow options (as the protocol suite was not designed to harbour specifically a stablecoin design).

However, with the protocol in an easier position for migration, contributors will feel open to exploring designing/changing the pool design to set the protocol up to be in the best position to integrate any cool ideas that come up (in fact a GitHub repo has already been set up in reaction to this SPIP and contributor feedback has been overwhelmingly in support of this being a better road to any improvements and additions to the protocol)

We should all by now understand and appreciate the core and most important aspect of the protocol is the liquidity sensitive fee model and common settlement asset. The pool design is what the protocol is all about. Clearing the road for a V3 design of pools means we can bundle in some improvements that otherwise would have been off the table. It would be good to see gas reduced even more for swaps & friendliness of integration for aggregators increased even more as a part of a new design. As mentioned in the past, rip out all the metrics related stuff that are in the contracts and just rely on Subgraph + events for that sort of thing.

With the Bond phase officially ended and some other code no longer relevant there is an opportunity to rip out a lot of code and simplify the protocol a bit too.

Some reasons brought up by the community to leave the claim percentages:

  • Makes the project less marketable because one of the features is essentially being wound down/held back

Whilst absolutely true, the rebuttal to this was that it's a feature that already is not marketable as they are already held back by low TVL. We shouldn't hold back the future (or sustainability) of the project based on arrogantly sticking to previous ideas or statements, if something isn't good for the protocol in its current state, we should always feel free to do something about it and not feel locked into old thoughts. Noone is right 100% of the time, but we can iterate towards always improving.

  • Individual SynthVault members will have their projected future earnings reduced

Again, whilst absolutely true, by the time the SynthVault harvest percentage is first dropped by 1%, every single minter of synths will have had more than a month worth of harvest time with ZERO decreases in weight to contend with. In fact, synths have been melted since then which only serves to increase individuals' weight & rewards.

This means that as long as every SynthVault member harvests before the first 1% drop, they have harvested more than the combined fees for minting/melting synths and will at least not be at a loss. The majority will still be in a decent overall positive position ignoring any asset price movements of course. We are overdue to balance the vault harvest percentages according to their value to the protocol anyway, so everyone has had the opportunity to reap the rewards already combined with this 30 day+ period in between.

Important to also note, with the ~10-week wind down (including a guarantee that no extra weight will come in to dilute existing members' weights) people will naturally melt synths gradually in between increasing the individuals' weights who stay longer, which will offset the percentage drops.

There have been a number of contributors firmly in support of dropping the percentage in one go to 0% or a proportionate 0.05% but this ~10-week wind down gives every member more than enough time to harvest and feel good about their time spent in the SynthVault even with the high melt fees at current TVLs.

Keep your eyes peeled for future updates and as always don't miss the weekly articles to keep on top of all things Sparta!

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