Founder of DeFi platform Synthetix proposes capping token supply at 300 million; Here’s why

The founder of popular decentralized finance (DeFi) platform Synthetix has proposed capping the supply of its native SNX tokens at a fixed 300 million as the protocol derives revenue from newer products.

Kain Warwick, founder of Synthetix, said in a governance proposal on Friday that the original rationale for maintaining an ever-inflationary supply for SNX has lapsed as the protocol now earns “significant” returns from its atomic swap and perpetual products achieve

“Inflation should boot the network. It has done this extremely effectively,” said Warwick. “The fact that we are just a few weeks away from that very memorable 300 million mark is reason enough to make this change now.”

DeFi stands for lending, trading, and other financial activities conducted on a blockchain without traditional intermediaries.

Synthetix, an Ethereum-based exchange and synthetic asset platform, is one of the first DeFi applications. It specializes in minting and creating synthetic tokens and recently launched an atomic swap product that saw its daily trading volume surge to over $200 million shortly after launch.

Atomic Swaps’ offering has helped generate over $158,000 in weekly fees on the platform, data shows. A part of these fees is distributed to the users.

The synthetic assets are created by users who stake collateral with SNX and mint a synthetic asset against it, earning rewards for the volume SNX stakes on Synthetix for its bespoke products or other liquidity pools.

But the continuous creation and release of SNX to the platform’s users created sales pressure, Warwick pointed out.

“On the one hand, inflation spreads ownership of the network among those who invest, but at the same time it reduces the dollar-denominated fee return (paid out in sUSD) per SNX over time. The problem with this is that it creates constant downward pressure on the price of the SNX token,” he added.

Such selling pressure persists despite the fact that SNX rewards are locked for a year before they are released to users – as holders with SNX-tracked futures have been able to short crypto exchanges or bet against SNX prices.

SNX’s current circulating supply is over 293 million tokens, with the proposal calling for approximately 674,873,920 tokens to be issued each week until total supply reaches 300 million while being “capped”.

Any further change to the offering would require the unanimous support of SNX holders should future market conditions change.

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