Basically, Synthetix (SNX) is a protocol DeFi allows traders to issue aggregated versions of various coins, traditional financial assets, and commodities on the network Ethereum and Optimism. Means synthetic assets (Synth) – collateralized by SNX tokens, allowing users to benefit from holding an asset without actually owning them directly.
According to the mechanism of action of Synthetix, users will lock SNX to stake and receive SNX rewards. They are then allowed to issue Synths at the specified rate and use them on DEX Synthetix. When users want to unlock their SNX, they have to burn the Synth according to the percentage of the original mint they issued. Transaction fees are generated when users perform Synth transactions with each other through DEX Synthetix.
In a Synthetix Improvement Proposal (SIP) on August 25, project founder Kain Warwick announced a proposal that could stop providing very high returns on SNX staking investments.
Just proposed a SIP to end SNX inflation at 300m tokens in ten weeks. After informal discussions today, it seems like it has a decent chance of passing. A formal presentation is planned for next week. Inflation was designed to bootstrap the network and it has done the job.— kain.eth (✨🔴_🔴✨) (@kaiynne) August 25, 2022
This proposal is called SIP-276. Whereby:
- The total supply will be fixed at 300 million SNX tokens.
- The rewards for the current period will be further distributed over the next 10 weeks only, or 675,000 SNX per week. After these 10 weeks, Synthetix will stop printing more tokens to reward investors who stake SNX.
- The total supply of SNX will be controlled by metagovernance.
If the proposal goes into effect, Synthetix will more closely resemble a traditional business by simply generating fee revenue and distributing the fee proceeds to SNX holders. For some Twitter users, the news looks like it will have a positive impact on Synthetix as SNX is about to become a “scarce” token with inflation gradually falling to zero.
However, some other opinions are the opposite. For example, an analytics company blockchain Well-known Delphi Digital thinks that with Synthetix soon stopping releasing more SNX will face the challenge of maintaining the existing user base and attracting new users. Because fee revenue is not enough to meet the demand in a large DeFi space.
Still, it will take time to assess whether Synthetix can attract enough investors by relying solely on fee revenue or the end of SNX inflation. However, project founder Kain Warwick revealed that a formal presentation of SIP-276 will take place next week and the proposal will quickly be incorporated into Synthetix's governance process if approved.