Power Index ecosystem participants: Synthetix (SNX)
The Baby Power Index was successfully launched in Ethereum mainnet. In this article, we start to describe index participants in terms of Defi value proposition and meta-governance opportunities.
Introduction
The Power Index is a liquidity mined Defi ETF-like product, constructed and weighted according to a community vote, which implements meta governance for the composite protocols (including layer 2). The index is entirely community-curated: CVP holders can add, remove GTs, or change their shares in the index via governance proposals.
The Baby Power Index is an MVP developed to demonstrate the future Power Index features and engage the community in testing, bug fixing, and other product development activities. It is not audited yet and has a certain liquidity cap.
Baby Power Index is composed of eight governance tokens: YFI LEND SNX COMP MKR UNI WNXM CVP. Each token has a 12.5% share in the index.
At the moment, the index attracted ~$300k in governance tokens hitting the current liquidity limit (cap).
Check out the Baby Power Index: https://app.powerpool.finance/#/mainnet/pools/shared/0xb2B9335791346E94245DCd316A9C9ED486E6dD7f
In the series of articles “Baby Power Index participants,” each protocol included in the Index will be observed from the value proposition and governance points of view.
This article is devoted to the first PowerPool ecosystem partner and Power Index participant — Synthetix (SNX).
First Baby Index Participant: Synthetix (SNX)
Synthetix is a decentralised synthetic asset issuance protocol built on Ethereum. The Synthetix Network Token (SNX) enables the issuance of synthetic assets (Synths) being locked in the contract. Synthetix currently supports synthetic fiat currencies, cryptocurrencies (long and short), commodities, and offers seamless conversion between them.
Currently, Synthetix leads the derivative market with ~$600m TVL, which peaked up to $1B in late August. The Synthetix token — SNX plays a crucial role in the Synthetix ecosystem, being used as collateral for various synthetic assets and acting as a governance token for the Synthetix protocol.
Synthetix governance
Synthetix is a community-owned protocol and has an active governance system. SNX token holders govern ecosystem variables such as fees, synths, collateralization ratio for certain products, and many others, affecting the ecosystem as a whole.
The most resonant SNX governance proposal was related to changing the token supply curve. The SIP (Synthetix Improvement Proposal) process worked through the disagreements, and changes were implemented after community debate in the Synthetix Discord. These changes were consequential, and in hindsight, the team’s original view on it was incorrect. Finally, the community united and voted on even though the team didn’t support these changes. You can read more about this event and applied changes here.
So, SNX looks like a perfect fit for implementing the meta-governance system, currently being developed by PowerPool.
SNX token as member of Power Index
There are two main sides of Power Index membership. The first one is related to the financial product — a basket of 8 GTs, and the second one to the meta-governance protocol.
Being inside this basket, SNX, first of all, contributes to index composition. Currently, SNX is one of the most capitalized and traded Defi tokens with real use cases. Without the Synthetix token, any serious Defi index would be incomplete by design.
An additional benefit of SNX membership in the Power Index is the integration of the future SNX governance system into PowerPool’s meta-governance. Currently, SNX governance is based on non-binding polling in Discord to signal community consensus, limited to members who have been active in community discussions. But, the Synthetix team is currently working on a governance system, based on SNX.
Including SNX into the Power Index, the PowerPool community would be involved in decision-making regarding the future of the major Ethereum-based derivatives protocol when the new governance system will go live. All necessary integrations would be done preliminarily to allow pooled SNX tokens to participate in voting on proposals once this feature would be available.
Benefits for Synthetix community from Power Index membership
Synthetix, as a protocol and community behind it, has certain benefits based on SNX membership in Power Index.
New utility for SNX holders and opportunity to multiply voting power across Defi protocols, continuing owning SNX tokens
Each SNX token holder can supply it into the Power Index*. This activity is rewarded in CVP according to the CVP LM program.
Thus, SNX users continue to own SNX and receive rewards in CVP at the same time. As CVP tokens have meta-governance utility (it can be used to vote in different Defi protocols using GTs, pooled into the Power Index), SNX holders receive a share of the inter-protocol voting power.
Suppose the SNX holder is a minority token holder. In that case, CVP rewards are an additional source of income for him and a possibility to participate in other protocols’ governance.
If the SNX holder is a whale, it is an opportunity to become an inter-protocol whale in terms of the voting power.
*Currently, Baby Power Index requires 8 GTs for liquidity provision, including SNX. This limitation will be removed soon.
Accumulation of SNX tokens previously distributed across the wallets in one place
Currently, a lot of SNX tokens are distributed across the users’ wallets. Power Index incentives would bring a certain share of these tokens to the Power Index contract, accumulating their voting power and also providing the possibility to mint a lot of Synths based on decisions of CVP holders**. An additional, locking a share of SNX circulation supply into the index contract will support the SNX market price.
**implementation of this option is a part of ongoing research
Fighting Voters’ Apathy and increase participation in Synthetix votings, improving the Synthetix governance in general
Note: mentioned functionality would be available for SNX tokens once the new Synthetix governance system will go live
The basic issues of on-chain governance are Voters’ Apathy, whales’ domination, and high cost of participation (especially last months). Ordinary minority token holders cannot change anything using their token stake and cannot pay huge gas fees regularly. So, they mainly avoid votes.
Power Index would pool a lot of SNX, which will be used in every SNX vote. All tokens, pooled into the Powerpool, have to vote every time voting occurs based on incentives applied to CVP holders.
The Power Index accumulates SNX owned by minority token holders (and whales), and all these tokens would participate in voting, increasing governance participation.
The high cost of participation in governance is also solved by implementing L2 voting. Participation in such voting costs ~$0 for voters. Its operation was recently tested in xDAI mainnet during voting on a real PowerPool Improvement proposal.
