SIP 128: Adding sCOIN Synth Source

AuthorFarmwell, CryptoToit
Discussions-Tohttps://research.synthetix.io/
StatusImplemented
Created2021-04-03

Simple Summary

This SIP proposes to introduce sCOIN, the synthetic asset that tracks the price of the shares of Coinbase, Inc.

Motivation

sCOIN enables traders to profit from bullish or bearish bets on the price of Coinbase shares traded on public markets.

sCOIN is privately valued at $100 billion, according to press reports. While COIN is expected to be available for public trading on the NASDAQ exchange on April 14, accordin to the company, physical shares (not pre-IPO futures as FTX and Deus implemented) started trading in batches on Nasdaq private markets in January, according to press reports.

COIN shares have already traded in the $200 - $373 range as of time of writing. The batch of shares that traded at $373 puts the market capitalization of Coinbase at $100.23 billion. Secondary share offerings on private markets facilitated by Nasdaq should markedly improve liquidity of the stock when it trades on public markets in mid-April. Why? Shares have traded hands already, and market participants have begun to test what a fair price might be.

Such activity renders COIN less susceptible to price manipulation in public markets. The goal of the private market sales was to find a fair price at which COIN should launch, since the stock will go public via a direct offering instead of an initial public offering. (The difference is a direct offering does not rely on an investment bank to sell shares to the public. The direct offering enables the company to sell shares directly to the public.) See more.

Specification

Overview

These Synth will be implemented in much the same way as the other long crypto Synth. The main idea is to use an iterative approach.

Upon initial release, sCOIN 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
    • There could be a SNX liquidity incentive for a sCOIN/sUSD pool that ensures that deep liquidity persists during periods of market closure

In later iterations the following features will be also considered for inclusion in stages:

  • Situations involving of Stock Splits and reverse-Stock Splits. Supporting stock splits needs to be iterated on, with more research required into the mechanisms that permit the synth to continue providing exposure to holders without additing too much friction. Potential approaches could take one of the following forms:
    • The ampleforth rebasing multiplier approach that splits tokens when they occur. Need to consider the tradeoffs for integration of the stock synth, in different defi projects
    • Deploying a new stock synth that holders need to migrate to, similar to the LEND AAVE migration, with the old stock synth price being frozen while the new stock synth is initiated at the post-split price
    • The use of the index rebalancing approach for stock splits on a single stock. Under this approach a divisor is used after a split event which guarantees price continuity between pre and post stock split. Therefore the stock synth will always track the performance of the underlying in percentage change, but not necessarily in US Dollar terms. This approach is already being utilized by Synthetix when sDEFI/iDEFI rebalances.
  • Dividends need careful consideration as the price is negatively impacted by the ex-dividend date, allowing arbitragers to assume a position that profits from the decline in the price between the dividend declaration date and ex-dividend date.
    • One solution is to track the price of a stock synth that removes the impact of dividends on the price. So it provides the same exposure to the underlying but without the price impact of dividends.
    • Another solution is to freeze trading through the contracts shortly pre-ex-dividend and unfreeze on ex-dividend date, after the price reflects the dividend allocation among existing stock owners (similar to the strategy used to deal with period of market closures).

Rationale

Additional crypto and stock Synths will add further utility to the Synthetix protocol. While there are complex mechanisms to have the protocol implement such as splits and dividends which are being omitted for this initial release, it will start the public discussion and research for handling splits and dividends in order to bring on more synthetic stocks. Otherwise the listing framework might need to include stocks that don’t pay dividends.

Test Cases

N/A

Configurable Values (Via SCCP)

N/A

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