Decentralized finance, or DeFi, protocol Synthetix (SNX) has announced that the rollout of their debt pool synthesis feature will occur on Thursday from 21:00 to 23:00 UTC, which is expected to impact staking participants in two different categories: inflationary rewards for SNX staking and debt hedging.
Synthetix currently manages debt pools on two chains: the Ethereum mainnet and the Ethereum level 2 scaling solution Optimism, which have accumulated a cumulative locked total value of $930 million and $157 million, respectively.
The company has stated its intention to move to an “optimism-based protocol,” with one of their board members, kain.eth, advocating the path, stating that there is huge upside potential for optimism.
In terms of debt hedging, a derivative investment method designed to reduce asset exposure, it has been calculated that the combined value of the two pools after the merger is sETH: 31% Short, sBTC: 25% Long, sUSD: 27%. Long, other assets: 11% Long and sEUR: 7% Long.
Cointelegraph reached out to a Synthetix representative to get a deeper understanding of the specific method of merging an L1 debt pool into an L2 debt pool, as well as the benefits and challenges that may arise during the process.
Using Chainlink oracles as the main consensus component for overall debt accumulation, they stated that “the amount of debt for all synths released is calculated off-chain, and then the value is passed on-chain using Chainlink’s decentralized oracle network, which is read by Synthetix contracts on both L1 and on L2.
“Bundling debt pools ensures maximum liquidity in the protocol and [возможность] efficiently transfer synths between multiple chains via cross-chain messaging, instead of relying on automatic market makers… Debt pool synthesis allows the protocol to have interchangeability on both L1 and L2.”
Happy Debt Pool Synthesis Day! Starting today, March 24 at 21:00 UTC, the debt pools on L1 and L2 will be merged into one. This paves the way for Synth Teleporters where synths can be instantly moved to any chain and are interchangeable b/w by @optimismPBC and mainnet. Get ready. https://t.co/JfcsR4DYEH — Synthetix ⚔️ (@synthetix_io) March 24, 2022
In addition to the improvements for debt hedging, Synthetix is also implementing a long-awaited functionality – originally proposed through governance in SIP 80 (Synthetix Improvement Proposal) in May 2020 – to create pooled synthetic futures contracts with the SNX network’s native asset financial instrument.
Later in our conversation, a Synthetix representative commented on the asset diversification that Synths is currently copying, to which they stated that “Synthetix has synths for several financial assets, including cryptocurrencies and Defi tokens, forex and commodities” before revealing:
“We can use synths for any asset or instrument where we can deliver a solid delivery. This opens the door to synthesizers based on stock price action, volatility measures, interest rates, or other new mechanisms such as our own debt pool.”