The founder of the decentralized finance protocol (DeFi) Synthetix, Kain Warwick, has put forward a proposal that would shut down very high returns for SNX players and limit the total supply of Synthetix (SNX) to 300 million.
The Synthetix protocol allows traders to issue synthetic versions of crypto-native assets, traditional financial assets and commodities on the Ethereum and Optimism networks.
In a Synthetix Improvement Proposal (SIP) Thursday, Warwick explained that the SNX reward inflation was originally intended to “boot the network.” However, he believes this is no longer necessary as they can earn sustainable fee income with Atomic Swaps.
monthly trading volume on @synthetix_io pic.twitter.com/QCWYbB5Xu4
— Token Terminal (@tokenterminal) August 25, 2022
A sharp spike in fee income comes as DeFi protocols 1inch and Curve have started using the Synthetix platform to perform atomic swaps, bringing more traffic to the protocol. In June, the protocol surpassed $1 million in daily fees, four times Bitcoin’s earnings.
According to Cryptofees, Synthetix is currently taking a seven-day moving average of $158,857 in fees, which is slightly below Bitcoin’s seven-day moving average of $222,651.
Stakers receive all sUSD stablecoin fees from users of the protocol. Currently, the annual percentage return for stakers due to SNX premiums and sUSD fees is around 67%, but this is likely to fall closer to 15% to 20% based solely on the “real return” from sUSD fees.
In a Twitter post Thursday, Warwick — also known as the “father of modern agriculture” for popularizing DeFi yield farming — revealed that after informal discussions, he believed that “SIP-276: Shut Down Money Printers” had a “decent chance.” becomes. A formal presentation of the proposal is scheduled for next week.
I just proposed a SIP to end SNX inflation at 300M tokens in 10 weeks. After informal discussions today, it seems like it has a good chance of passing. A formal presentation is scheduled for next week. Inflation was designed to boot the network and it did its job.
— kain.eth (✨_✨) (@kaiynne) August 25, 2022
If SIP-276 is passed by the Synthetix governance community, ten periodic installments of 675,000 SNX tokens will be added to the current total supply of 293 million tokens to reach the 300 million mark before inflation ends indefinitely .
Twitter user Synthaman found the news particularly optimistic, saying “#SNX is about to become a rare commodity as inflation goes to ZERO…” while others aren’t so sure what SIP-276 means for the record long-term would.
Related: Income generation on DeFi, explained
Analyst house Delphi Digital tweeted that Synthetix will soon stop issuing SNX tokens and that the protocol faces challenges in maintaining its current user base and “attracting new users with organic revenue in a market with ample returns.”
The #Synthetix protocol token, #SNX, is about to become a rare commodity as inflation goes to ZERO… pic.twitter.com/QtqAX1QYtW
— SynthaMan (@SNXified) August 25, 2022
It remains to be seen whether DeFi protocols like Synthetix can attract enough players solely by relying on fee income, or how an end to SNX inflation could impact the SNX token price, currently at $3.04 and is up 10.5% over the last week.
Warwick also noted that there will be a formal SIP-276 presentation next week, which if approved will be incorporated into the Synthetix governance process.
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