SIP-384: Synthetix OP SNX Appchain

Author	Jackson Chan, Asian0x, LayerLabs
Status	Draft
Type	Governance
Network	Optimism
Implementor	TBD
Release	TBD
Created	2024-04-28

Simple Summary

This SIP proposes for Synthetix to create an App-Chain called Synth Superchain with Optimism, the Layer 2 rollup chosen as the base for Synthetix Superchain. It will be a priority chain for DeFi Traders and users offering fast transaction finality, fee rebates for traders, and interoperability.

Abstract

Synth Chain is the dedicated appchain where Synthetix state changes must be pushed for settlement. Make Synth Chain the home of the central Synthetix system, with other chains becoming satellites, and using cross-chain messaging for synchronization.

Motivation

Synth Chain is a step towards a unified, efficient, and economically promising ecosystem for Synthetix. By creating this appchain, the chain can maintain a better execution environment during high price volatility and liquidations which is crucial for finality and trade executions for perpetual traders on Synthetix.

Rationale

By deploying an appchain Synth Chain would profit ~13 ETH + a month after paying for the sequencer costs from margin of transaction fees. For data availability, we propose using the ETH DA layer and for an oracle, we propose using Pyth to prevent any execution lag for traders. To ensure the best trader UX, we propose to use it for cross-chain liquidity deposits.

By selling blockspace on Synth Chain to process all Synthetix transactions, the ETH transaction fees collected by the App-chain sequencer are redistributed to SNX stakers or utilized in a traders fee rebate program offering low or no on-chain transaction costs.

In ETH terms	ETH DA (Pre 4844)	ETH DA (Post 4844)	Alt DA (Post 4844)
Assumptions	All 15k Transactions a day on OP migrate to SNAX Chain.	10.5k transactions per day (over last 30 days)	10.5k transactions per day (over last 30 days)
Monthly Earnings	80.4 ETH	36.48 ETH	19.14 ETH
Monthly DA Costs	75.52 ETH	10.68 ETH	0.67 ETH
Monthly Sequencer Costs	12 ETH	2 ETH	2 ETH
OP Collective Contribution	N/A	3.87 ETH	2.77 ETH
Monthly Net Revenue (Deducting sequencer and DA costs)	-7.12 ETH	19.93 ETH	13.7 ETH

Competitive Landscape

The competition within the specialized DeFi and Finance blockchain space is very competitive. Synthetix is currently competing for users and traders attention from multiple Perp AMM Dexes and specialized DeFi chains.

A great case study for a Perpetuals App-Chain is Dydx V4 which is Cosmos SDK based. There were concerns that when Dydx moved away from Ethereum, it might struggle to recoup the same level of activity. V4 launched in November 2023, the total trade volume since launching V4 is 17.8$ billion. By transitioning to a Cosmos SDK App-Chain, Dydx improved its trading throughput, reduced transaction costs, and customized its user experience for high-frequency traders.

Chain	Block time	Avg Transaction Cost	Consensus	Interoperability
Optimism	2s	0.06	EVM Rollup	OP Superchain
Arbitrum	0.25s	0.09	EVM Rollup	Arbitrum
Mode	3s	0.06	EVM Rollup	OP Superchain
Dydx	1.8s	0.006	Cosmos	IBC
Sei	0.42s	0.006	Cosmos	IBC
Injective	0.9s	0.01	Cosmos	IBC

Technical Specification

Execution Layer

We propose utilizing Optimism's Superchain stack to tap into the Superchain which will include permissionless fault proofs coming to OP in June, Interopability layer with Superchain ecosystem L2's via OP Plasma.

Data Availability

Utilize ETH DA, Optimism’s span batching, and 4844 for maximum security and decentralization benefits.

By utilizing ETH DA, we can retain future Superchain composability.

Oracle

We propose to utilize the Multi-Chain oracle provider Pyth to help Synth Chain access reliable and low-latency market data for prices. Synthetix uses Pyth benchmarks in an innovative way for delayed settlements which prevents any execution lag for customers. The same would be true for Synth Chain products.

Pyth provides over 400 price feeds across crypto, FX, equities, and more. All feeds are available for use on any blockchain integrated with Pyth and this would apply to SynthChain as well.

Stats since Synthetix started using Pyth:

75+ markets supported
40$B trading volume on Synthetix

Transaction Execution Speed

Currently, Synthetix Perpetual trades confirm/finalize within 3 seconds with Pyth pricing oracles. Traders want this to be reduced ideally to within < 2 seconds for arbitrage trading between DEXes and CEXes.

During periods of extreme volatility in the market, we have observed that gas prices spike due to congestion on the OP mainnet. There are liquidations that are not “profitable” for liquidation bots to execute because the gas costs are too high on the OP rollup.

We want to ensure that Synthetix Perp trades are executed in a timely manner and liquidations are executed during extreme volatility in the market.

L2 Appchains enable ultra cheap transactions on EVM

In order to onboard as many users as CEXes have, our architecture needs to scale to support 100,000’s of users and potentially algo trading bots executing simultaneously during periods of volatility.

With Infinex focusing on providing CEX user experience and account abstraction, a Synthetix L2 would support the option to provide gas-less transactions for traders.

Paymasters: Tools like ThirdWeb, Alchemy, Biconomy already support account abstraction and gas-less transactions, subsidizing user’s transactions on your app with smart accounts.

Other use cases for SNX token could be developed, for example, staking SNX tokens for sponsored gas transactions for users on Infinex / Kwenta.

The gas subsidies of this would be in theory covered by the sequencer fees that the SNX sequencer is collecting.

Trailing 90 days OP Chain Base Gas Fees:

Rebated Sequencer Fees for Perps Traders

As a priority chain for DeFi Traders and users offering low congestion on OP Stack, Synthetix Superchain will provide liquidity and rebated sequencer fees for perp traders on the Appchain.

Synthetix Chain Ecosystem

Opportunities to support a DeFi ecosystem with Synthetix’s liquidity layer as the underlying basis for many other protocols to build on top of Synthetix perp markets. Synthetic AppChain will have partner applications like Uniswap, Curve, and other Defi partners to help boost the ecosystem's users, transactions, and growth.

User Interfaces:

Infinex
Kwenta
PolynomialFi

DeFi Protocols

Thales / Overtime
Lyra Finance
Dhedge
Ethena
Amphora
TLX leverage tokens
Atlantean
Liquidity DEX on Appchain > Curve / Uniswap / Velodrome

Bootstrapping Liquidity

Liquidity that is on Ethereum L1 and other major chains where SNX deposit contracts will be present. Infinex recent launch has shown ability to take deposits of USDC from EVM chains, Polygon sidechains and Solana.

Interoperability - Cross-Chain Messaging for Liquidity Deposits

We propose utilizing cross-chain messaging to create the best trader UX.

Trader UX:

User deposit margin on any EVM L1 or Solana chain Give them a “loan” on Synthetix Chain for the deposited margin to trade with and take a small amount of the margin to give them gas to trade with on the destination chain for a smoother experience. Settle the margin amounts after PnL and withdraw on the source chain they deposited on.

Technical Requirements:

Cross-chain messaging and validators need to confirm the margin amount to be settled is correct. Nuances with different blockchain security and limits on each to prevent infinite mints.

App-Chain Strategy

We want to incentivize:

Traders using the new Synthetix Superchain to trade to generate fees and activity.
Liquidity providers on the appchain to provide assets for sufficient liquidity.
Users can create a new LP and long tail markets on Synthetix V3 that are supported by Pyth price feeds.