Synthetix – the sector leading derivatives protocol – has long been known for its variety of passive income opportunities to reward value-added contributors to the wider SNX ecosystem.
Our more frequent readers may recall our sETH & sUSD liquidity incentive and SNX staking tutorials – both geared at helping users with any amount of capital share in the platform’s growth by receiving weekly SNX inflation.
While things have been running smoothly with these incentive programs for quick some time, we’ve seen a number of interesting issues arising which challenge Ethereum’s existing limitations.
For anyone who’s tried to send a transaction in the past week, you’ve likely seen the exorbitantly high gas prices, currently averaging roughly 20 gwei (or roughly $0.10) per transaction.
Now while this might not seem like a lot when processing a basic transaction like sending it an ERC20 token, this cost becomes exponentially higher when it comes to doing something more complex like claiming SNX staking rewards from Synthetix smart contracts.
SNX Staking Profitability
At the time of writing, claiming SNX staking rewards on Mintr is estimated to cost $5.62. This means anyone staking less than ~1500 SNX (or roughly $1000) would be paying more to claim their rewards than the rewards are actually worth. The interesting thing about how staking rewards work on Synthetix today is that fees must be collected once every 7 days. If they are not collected, they are forfeited and rolled over into the fee pool.
This story is quite interesting because of the thought process behind changing the claims cycle. In the past, stakers originally had 4 weeks to claim. That was then changed to 2 weeks and is now down to its current cycle of one week. Looking at it from the Synthetix team’s perspective, the 4-week cycle resulted in many only checking Mintr ~once per month, largely meaning their C-Ratios (the amount of collateral to their sUSD minted when staking) was commonly unattended. By reducing the claims cycle, users would monitor their ratio more actively, providing a more adequately collateralized global debt pool.
While this intention is fantastic (and has been working quite well up until now) many community members are now being boxed out of collecting SNX rewards as it’s simply cheaper to purchase SNX on the open market than it is to claim staking rewards.
What Should I Do?
If you’re one of those community members suffering from this issue, rest assured there are alternatives.
The quickest solution (and our recommendation) is to lend SNX on Aave, currently returning an attractive 7.75% APR at the time of writing.
While this return is drastically lower than SNX staking APR (roughly 50% annually) it does come with a couple of benefits. First off, there is an exponentially lower cost to claim rewards, and those rewards are immediately tradable, as opposed to Mintr’s one-year vesting cycle.
my PSA to small $SNX holders
if eth network gas prices stay elevated, it is almost pointless to stake unless you have a certain size since fees will be so high
in which case, you would want to lend on @AaveAave or take custodial risks with @Poloniex https://t.co/pIFjGJe5Td
— ? G ? ? ?? ?? (@DegenSpartan) May 13, 2020
Seeing as this gas cycle is likely temporary, you could also simply wait out on a few weeks of rewards in the hope that either a) gas price drops naturally or b) Synthetix is able to upgrade the contracts to make claiming rewards less cost-intensive.
This is interesting to note as the shift from manual issuance to automated issuance via smart contracts is a move that we can all agree on plays well into the ethos of decentralized finance. However, situations such as this come with unforeseen consequences as those without huge stakes are suffering from the backlash of scammers crowding the Ethereum network.
When ETH2?
For those who are keeping an eye on the progress regarding Ethereum scalability, there is hope. Just in the past few weeks, we saw Synthetix roll our their new exchange beta, leveraging Optimistic Rollups and the OVM to offer instant L2 transactions at marginal costs.
Paired with the recent deployment of the Prysmatic Labs Topaz testsnet, many are saying that the Beacon Chain and Phase 0 of ETH2 will be launched by the end of 2020. Regardless of where you fall on the side of that discussion, solutions like OVM are providing opportunities for applications to move computation off-chain to expedite the cost and speed for end users.
If one thing is for sure, intricacies such as these are ones that commonly go unnoticed, and it’s important for us to realize that in order for DeFi to become palatable to a global mainstream audience, these income opportunities should not block those with limited capital.
Seeing as I recognize this statement is far far easier said than done, I would like to commend Synthetix for recognizing this issue and doing everything they can to come to their community’s support.
To learn more about the situation and how it pans out, head on over to the Synthetix Discord to join the conversation.
Cooper is the Editor of DeFi Rate. He is an ambassador of Set Protocol and an active contributor to MetaCartel where he seeks to find emerging consumer-facing applications that propel the Ethereum ecosystem. He often works with projects as the Director of Fitzner Blockchain Consulting where he coauthors the weekly publication Token Tuesdays.
Like my writing? Drop me some gwei @ coopahtroopa.eth ??
