SYN/ETH Liquidity Enhancement Proposal

Moses

Background

With the successful transition to RFQ/CCTP-based bridging and the accompanying emissions optimization, Synapse Protocol is entering its next phase of development. While these improvements have allowed for significant reductions in emissions across chains, maintaining deep and efficient SYN liquidity remains crucial for protocol health and token holder value.

Current State

SYN/ETH currently maintains ~$2-3M in liquidity on Ethereum mainnet
Recent emissions optimization reduces total protocol emissions by 66%
Lack of dedicated SYN/ETH liquidity venue, particularly outside of the Sushi SYN/ETH pool.

Proposal

This proposal suggests allocating 50,000 $OP tokens towards establishing and incentivizing SYN/WETH liquidity on Optimism. This initiative would:

Create a new SYN/WETH liquidity venue on Optimism (specific venue to be evaluated by the DAO, with Velodrome as a primary consideration)
Distribute incentives over a 3-month period to bootstrap initial liquidity
Target $3-5M in TVL to ensure efficient price discovery and trading

This proposal directly supports key objectives from the original Optimism grant:

Token Holder Value: Enhances accessibility of SYN trading by providing a gas-efficient L2 venue
Ecosystem Integration: Strengthens Synapse's presence on Optimism as we transition to the next protocol phase
Long-term Sustainability: Creates persistent liquidity infrastructure that benefits both ecosystems

After the 3 month period, emissions here should be re-evaluated based on pool volume, total TVL. If the pool has not reached the TVL target, we should reassess the venue and incentive strategy, while if the TVL target is reached and/or available liquidity achieves effective pricing for swaps on optimism, the incentive program should be continued.

Benefits

For Synapse Protocol
1. Enhanced Token Economics
-Provides efficient price discovery during reduced emissions period
-Creates additional utility for SYN holders through LP opportunities
-Supports protocol sustainability by maintaining deep liquidity
2. Strategic Positioning
-Strengthens presence on a key L2 ecosystem
-Aligns with protocol's evolution toward RFQ/CCTP focus
-Prepares foundation for future protocol developments

Implementation Timeline

In the month following this proposal, the following should be executed:

Venue selection
Whitelisted Pool deployment
Rewards deployed

Conclusion

As Synapse Protocol optimizes its emissions and evolves its bridging architecture, maintaining robust SYN liquidity becomes increasingly important. This proposal represents a strategic investment in both protocols' futures, creating sustainable infrastructure that benefits both ecosystems while supporting Synapse's evolution toward its next phase.

Gallium

OP is the one of the cheapest L2 and slippage in Velodrome Finance is really low. I support this.

But most of the users keep SYS's in other L2s. With this proposal, please make SYN bridge between L2's cheaper. Current bridge slippage for SYN is not affordable in most cases.

Moses

Adding some additional feedback from various channels.

Community members have also suggested the following

decreasing SYN min fee
using DAO POL in a new Base pool to subsidize liquidity.

Additional thoughts (my own):

Using POL on Base may be inefficient, because unless the position is actively managed, a smaller party could manage liquidity in a much tighter range, and disproportionately absorb emissions/fees.

IMO: deploy with incentives on Velo (optimism) + pair with fee reductions on SYN bridging. This should enable max composibility, and in the ensuing 2-3 months the DAO should revist the liquidity on optimism, if subpar, can look into actively managed DAO POL. The short term changes also allow the DAO to create an Aerodrome pool easily (its permissionless, and SYN is already a whitelisted asset there). A user driven initiative to increase liquidity on base would be simple.