Synthetix, the cryptocurrency derivatives liquidity protocol, has witnessed a remarkable surge in its governance token, $SNX, which has soared by nearly 30% over the past week. This surge stands out, especially given the overall cooling off observed in the major tokens across the cryptocurrency industry. The primary catalyst for this increase appears to be linked to a specific governance vote – Synthetix Improvement Proposal 2043, or SIP-2043.
While the voting on SIP-2043 is slated to conclude on December 17, the current unanimous support among voters suggests a foregone conclusion. The proposal’s objective is clear and concise: to halt the inflation of the $SNX token. Implementing this would simply require an update to a parameter, suggesting a swift post-vote execution.
Since its inception in 2019, Synthetix has employed inflation as a strategy to incentivize stakers for providing liquidity, contributing significantly to the protocol’s growth in Total Value Locked (TVL). The protocol’s TVL peaked at nearly $3 billion in early 2021 and stands at around $880 million currently. However, SIP-2043 points out that the minimal level of inflation now serves as an insufficient motivator for staker behavior, warranting its elimination.
Kain, the author of SIP-2043, emphasized the need to introduce buyback and burn mechanisms for the $SNX token. These mechanisms are aimed at providing an attractive reason for investors to retain their $SNX tokens. The proposal argued that the existing inflationary model of the token undermines the potential benefits of the proposed buybacks and burns. By eliminating inflation and focusing on these new strategies, the proposal aims to realign incentives to favor passive token holders.
As the governance vote continues on the Snapshot platform, the crypto community’s overwhelming support for the proposal is already evident. This development indicates a significant shift in Synthetix’s strategy, potentially enhancing its appeal to a broader investor base and impacting the cryptocurrency market at large. The final outcome of the vote and its implications on the Synthetix ecosystem and its stakeholders are highly anticipated.
