SIP 125: Create synths for top traded US stock index etfs Source

AuthorFinanceGuy82415
Discussions-Tohttps://research.synthetix.io/
StatusProposed
Created2021-03-23

Simple Summary

Adding the top 3 traded US stock ETFs to Synthetix (S&P 500, Nasdaq 100, Russell 2000)

Abstract

This SIP proposes to add 3 new synths sSPY, sQQQ and sIWM, consisting of the top 3 US Stock ETFs’: S&P 500, Nasdaq 100, and Russel 2000.

Motivation

Given the importance of the US stock markets in the world financial markets, offering on a comprehensive set of top traded US ETFs is a unique proposition which could bring synthetix exchange volume and provide traders with a unique offering on ethereum as well as allow provide risk management benefits for investors who want to hold a diversified portfolio.

The current available equity synths TSLA, FAANG and MSFT offer exposure to some of the most popular US tech stocks, but they do not constitute a comprehensive offering from an investing or risk management perspective. These stocks are all under the same category of “growth”/”tech”/”momentum” and lack diversification into different types of risks that may be preferred with changing market conditions and/or risk appetite.

Overview

These Synth will be implemented in much the same way as the other long crypto Synths.

Upon initial release, sSPY, sQQQ and sIWM will take into account periods of Market Closures:

  • Trading will be stopped when markets are closed, halted or otherwise do not provide a valid price feed, as laid out in this tweet for sXAG, sXAU and other synths.
  • A privileged keeper with a feed to market opening, closing times and holidays will be able to suspend the synth for trading during that period
  • Secondary markets could be created with an AMM such as Uniswap or Balancer, which allow trading to continue on those platforms

In later iterations dividends would need to be taking into consideration as well, in case shorts are based-off of these price feeds.

Rationale

The main rational on adding these ETF’s in particular are as follows:

  1. SPY is the most traded stock etf in the world tracking the S&P 500 index (widely used benchmark of large cap US companies)
  2. QQQ is the most traded stock etf tracking the NASDAQ index (widely used benchmark of US tech stocks)
  3. IWM is the most traded stock etf tracking the Russell 2000 index (widely used benchmark of small-cap US companies)

Even though these are US stocks, it should be emphasized that investors/traders around the world speculate and hedge risk with US equities given the maturity of the market as well as the influence of the US economy globally.

I think this will prove to be a significant step for Synthetix in growing its equity offerings not just for retail, but for institutional users as well. This will benefit both stakers (increased volume & more diverse flows -> debt neutrality) and traders (more comprehensive exposure to US stock markets for speculation/hedging)

Key Liquidity Figures

The table below the showcases the average daily volume exchanged for the different indices proposed:

Period SPY $ADV QQQ $ADV IWM $ADV Total $ADV
2018 $26B $7B $3B $37B
2019 $20B $5B $2B $28B
2020 $30B $11B $4B $46B
2021* $25B $11B $5B $42B

*For the months of January and February

Test Cases

N/A

Configurable Values (Via SCCP)

N/A

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