Neutral debt pool incentive trial

Neutral debt pool incentive trial

There’s been a number of discussions in Discord over the last six months about balancing the debt pool, which is currently skewed long in ETH. We have looked at shifting liquidity incentives from the sETH pool in Uniswap to Curve as one example, and while this has had an impact the skew is still present in the debt pool. While SNX stakers can and should hedge their exposure to the pool, it is still important to optimize for a balanced debt pool.

We will thus run a trial incentivising people to hold iETH to balance the debt pool and reduce long bias.

How it works

This method will attempt to replicate as closely as possible the structure of dynamic funding rates used with synthetic futures planned for Q3 where longs will pay shorts and vice versa depending on the skew. This trial will help gather data around how sensitive Synth holders are to various incentives to balance the debt pool.

The expectation is people who are currently holding stablecoins will construct a market neutral position using iETH and ETH while generating an SNX yield for balancing the debt pool. Because iETH moves dollar for dollar against ETH, constructing this position simply requires holding an equal number of iETH and ETH. For example someone could take USDC and convert to 5 iETH and 5 ETH and be market neutral.

Here are the details:

  • The trial will run for 4 weeks, and will involve distributing SNX to anyone holding iETH each week.
  • We’ll start with 32,000 SNX a week, but we will adjust the amount each week depending on how successfully it is balancing the debt pool.
  • The trial will begin at block 9933399.
  • There is the risk of iETH getting frozen (due to reaching its price limits), so we will aim to purge any holders into sUSD and restart it within a few hours during the trial.
  • The current limits are $90 and $270, if Ether hits either price bound iETH will be frozen and will need to be rebalanced.
  • We’ll take a continuous measurement of balances throughout the week, work out the average holdings over the course of the week, and airdrop the pro-rata SNX rewards at the end of each week.

We are looking at implementing a simple zap mechanism to allow users to easily go from any stablecoin into a iETH/sETH position to capture this incentive. In the meantime, you can use the Curve pool to acquire sUSD and then Synthetix.Exchange to trade it for iETH.

If you’d like to discuss this or any other aspect of Synthetix, please come join the conversation in Discord.

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