Synthetix V3 has been successfully deployed on Ethereum Mainnet and Optimism after a thorough security audit from Open Zeppelin, Iosiro, and Macro. Though this is certainly a big milestone for Synthetix, it should be considered a beginning and not a conclusion. We’ll be progressively enabling functionality and rolling out upgrades from here, as Synthetix has too many real-world considerations that can’t be anticipated in a laboratory setting.
First off, I want to to acknowledge the amazing work of all the Core Contributors. Ensuring that Synthetix remained secure through the unprecedented market conditions of 2022, rolling out a new implementation of perpetual futures markets earlier this year (which has already seen over $300 million in volume while averaging practically delta-neutral for liquidity providers), and getting Synthetix V3 to this point have all been major accomplishments. I’m constantly humbled by the talent of everyone contributing.
So, what is it exactly? Synthetix is a protocol (a suite of open source smart contracts) that can be deployed on blockchains and integrated with decentralized oracle networks to create an “API for liquidity”. This liquidity can be used by markets, implemented with smart contracts, to create derivatives collateralized by ERC-20 tokens.
While use cases for crypto-native assets are still in relatively early stages of development, the utility of derivatives is undeniable. (The size of the market for derivatives is estimated in orders of magnitude upwards of the trillions.) The question is whether it’s possible to create derivatives that are more secure and scalable through engineering greater decentralization into the systems that power them—similar to the internet—rather than less.
This diagram provides a high-level overview of the Synthetix V3 architecture:
Zooming out, the migration plan entails the ability for the Synthetix V3 system to back the Synthetix V2 system via the “legacy market”. Liquidity providers in the V2 system will be able to drop their position into the V3 system with a single transaction and continue to collateralize the existing spot synths and perpetual futures markets.
The V3 deployment does not have any markets attached to it yet, so currently its primary functionality is generating a collateralized debt position as a dollar-denominated stablecoin that will be used in integrated markets. We can begin to deploy tooling and analytics related to debt positions immediately. The legacy market has completed audit and our spot market implementation will enter audit tomorrow. Since Perps V2 has shipped, development will begin on perpetual futures markets integrated directly with V3. Synthetix’s governance, Core Contributors, and broader community are considering the best sequencing and timeline for the roll out of these markets.
In addition to markets, cross-chain functionality and scaling will become a focus of the Core Contributors in future upgrades of the V3 core system. We’re prepared to integrate with Chainlink’s CCIP for cross-chain stablecoin transfers and have already completed some successful transfers across testnets. Ideally, we will be able to implement a solution for cross-chain pool synthesis (like that of V2) by relying on an ERC-3668 compliant solution for cross-chain reads. This, paired with our deployment tooling, will allow us to create a layer of liquidity that spans across an arbitrary number of chains (including L1s, L2s, L3s, and appchains).
As we prepare to open up the system for integrators, you can start building right away. Use the Synthetix Sandbox to spin up a local development environment for front-end or smart contract development. You can build an integration with our spot market implementation or build your own market implementation for spot synths, perpetual futures, insurance, sports betting, options, or anything else. You can also build integrations with the
setPoolConfiguration() function to automate how a pool should distribute its liquidity across markets. Liquidity provisioning among pools can be automated with the
delegateCollateral() function. See the documentation for more information.
If you’re building on Synthetix V3, tag me in the #dev-portal channel on the Synthetix Discord server or find me at ETHDenver. I’m excited to see what creativity will come from the DeFi community.