Create a ySNX vault with integration into Mintr and Curve to maximize return on investment and save on gas costs.
Should this proposal be implemented, a ySNX vault will be created. Users would deposit their SNX to the vault for deployment into both Mintr for the weekly claims and Curve with the generated sUSD. With the proposed strategy, the current APY is roughly 60% for users. Deployment of this vault would act symbiotically to improve the value of yearn, Synthetix, and Curve ecosystems together.
The entire Synthetix ecosystem relies on the staking of SNX into Mintr to provide the liquidity for the generation of their synthetic derivatives. Depositors are given a weekly distribution of inflation in the form of SNX and sUSD from user trading fees. However, with the current high gas costs this is not capital efficient for smaller SNX holders, and the gas cost for their weekly claims may be greater than the claimed value. If users do not execute the claim, this reward is lost to them and paid out to other holders the following week. Furthermore, the sUSD that is generated by the minting process is instrumental for the rest of the ecosystem. This sUSD is theoretically pegged to the USD, but it is frequently valued at less than other stablecoins like USDC. By deploying the generated sUSD to Curve, this would improve the health of the sUSD peg and deliver value to all three ecosystems. Value would also be driven to YFI holders in terms of increasing governance share in Curve and Synthetix as the vault matures.
The strategy for this vault at its heart centers on Mintr. When users deposit SNX to the vault, they are given ySNX tokens in return. From here, the value will be split into two distributions: 90% as gSNX (the share deployed in the Mintr/Curve loop per the graphic), and 10% as sUSD. The SNX in gSNX would be deployed to Mintr, and sUSD would be generated which in turn would be deposited to the sUSD Curve pool and staked in their DAO. Every week, the contract would claim the SNX and sUSD from Mintr, which will be reinvested in Mintr and Curve respectively. By deploying the sUSD into Curve, users will extract swap fees, SNX from Synthetix, and CRV from the Curve DAO. CRV tokens will be staked in the DAO up until the maximum boost is achieved - afterwards, all CRV will be sold for SNX and redeployed into Mintr. This core loop will generate notable returns for the vault’s users.
The 10% sUSD held outside the gSNX loop serves a few key functions. The first function is to ensure that the vault is overcollateralized. Since sUSD is essentially worth 6x SNX in terms of collateralization (through it’s burning power), this would give the vault approximately 1000% collateralization ratio. If the vault needs to burn sUSD either to unlock SNX for a user’s withdrawal or to fix the collateralization ratio, it will come from this pool first. The second function the sUSD serves is to account for the valuation of the SNX that is timelocked from the weekly claims. Each week, when the contract claims the SNX, the value of gSNX will increase accordingly - therefore, more value would be moved to this 10% sUSD partition to balance the ratio. In effect this means that the average depositor will not need to wait a full year to withdraw the value of their claimed SNX. This sUSD will also be deployed to Curve and will follow the same logic as the gSNX. The CRV and SNX tokens generated will be staked in Mintr and will become part of the gSNX wrapper.
The main risk for this strategy would be in the case of a run on the vault. Should an overwhelming majority of the value of the vault be withdrawn, the timelocked SNX will become an increasing percentage of the value of the vault. At a certain point, the withdraw transactions would end up failing, as there would not be any unlocked value that could be withdrawn. The value of this vault would not be lost, it would merely be time gated. Those vault holders would in effect have their withdrawals frozen until more money is deposited into the vault, or until more SNX is vested. This risk is largest during the first year of the vault’s life, and will be drastically reduced following, as there will be a weekly cadence of unlocking SNX.
At current rates, the APY on this strategy is approximately 60%. This strategy should unlock significant value in all three protocols it interfaces with.
For: Create a ySNX vault with the attached strategy
Against: No change