Overview:
In a Snapshot in late march, the Synapse DAO voted to advance the protocol’s liquidity model by working with Nima Capital, an experienced crypto market maker, to be the first liquidity partner to participate in actively managed concentrated liquidity pools. Over the past few months, the firm has successfully reduced quotes on many crucial stableswap bridge routes [Tweet].
By active liquidity providers quoting tight prices, the DAO no longer needs to incentivize passive liquidity pools and can create a long term sustainable model for the protocol.
Nearly one month later after evaluating the success of the manual management, a more formalized path to turning off emissions on stableswap pools is necessary to follow through on the March proposal.
In the short term, Synapse should reduce all stableswap emissions by 50%, and outline a clearer path to 0 emissions on the mentioned pools.
Summary:
Reducing stableswap emissions is crucial for Synapse to maintain a sustainable liquidity model. Protocols with consistently high emissions face threats from poor token economics, fleeing communities, and no path to a profitable model. This shift can lead to a more robust ecosystem with a larger user base, higher liquidity, and increased revenue for the protocol.
In addition, reducing emissions can also help to ensure the long-term viability of the protocol. If emissions are too high, it can lead to a situation where the protocol becomes dependent on them to attract liquidity and users. This can create a situation where the protocol is not sustainable in the long run and may face significant challenges if the emissions are ever reduced or eliminated.
Synapse currently emits 100,000 SYN on a weekly basis to LPs in nUSD pools [Link]. The suggested cut reduces weekly emissions by 50k SYN per week which annualizes to a decrease in 2.6m of SYN over the course of the next 12 months. This change decreases the annual inflation of SYN from 5.5% annually to 4% (a 25% reduction).
Further Actions:
Given the material benefits outlined above, it is obvious that SYN emissions should be trimmed, but how much and when still deserves discussion. To do so the following should also be prioritized:
- Creating better infrastructure for active liquidity providers to automate concentrated liquidity
- Better frameworks to judge the success of the program
- More discussion around a path to zero emissions for Synapse
All discussion is welcomed
