Synthetix, a leading decentralized protocol for issuing synthetic assets, has laid out an ambitious vision for 2021. Spearheaded by founder Kain Warwick, the roadmap outlines a strategic shift toward scalability, enhanced user experience, and deeper decentralization. Central to this transformation are two major pillars: the migration to Optimistic Ethereum and the launch of Synthetix V3—a complete architectural overhaul of the protocol.
This article explores the key components of Synthetix’s 2021 priorities, from Layer 2 integration and governance reforms to new financial instruments and structural upgrades. We’ll also examine how these changes position Synthetix at the forefront of DeFi innovation.
Optimistic Ethereum: Scaling with Purpose
One of the most anticipated developments in Synthetix’s 2021 plan is its transition to Optimistic Ethereum, a Layer 2 scaling solution built on optimistic rollups. This move addresses two critical bottlenecks faced on Ethereum’s mainnet: high gas fees and low transaction throughput.
👉 Discover how Layer 2 solutions are reshaping DeFi performance and accessibility.
By shifting core operations to Optimistic Ethereum, Synthetix aims to drastically reduce transaction costs—making synthetic asset trading more accessible to everyday users. Lower fees also improve system efficiency, enabling more frequent interactions without prohibitive costs.
Higher throughput unlocks advanced functionalities, such as:
- Reduced oracle latency through tighter integration with Chainlink
- Introduction of synthetic asset futures with leveraged positions
- Improved trade execution and protocol responsiveness
However, the migration must balance two competing objectives:
- Maintaining a unified synth pool to prevent fragmentation (e.g., separate L1 and L2 versions of sUSD)
- Isolating debt pools on Layer 2 to minimize risk exposure and simplify implementation
A phased rollout strategy will allow Synthetix to reconcile these goals, ensuring continuity while enhancing security and scalability.
Synthetix V3: A Ground-Up Redesign
Synthetix V3 marks the first full contract rewrite since late 2018. Unlike previous upgrades that relied on upgradable proxy patterns, V3 requires users to migrate from old contracts—a decision that sacrifices backward compatibility for long-term flexibility and cleaner architecture.
This migration clears technical debt and enables foundational improvements across the protocol.
Core Upgrades in V3
New SNX Staking Mechanism
The current staking model keeps SNX tokens in user wallets but renders them non-transferable—a confusing experience for many. V3 introduces a model where users deposit SNX into a staking contract, making off-contract tokens freely transferable and simplifying wallet management.
eSNX: Flexible Inflation Rewards
Instead of immediately locking inflation rewards, V3 introduces eSNX—a transferrable token representing future claimable SNX. Users can burn eSNX to receive locked SNX after a one-year vesting period. This offers greater liquidity options and allows the protocol to distribute incentives externally in eSNX form.
Note: eSNX is expected to trade at a discount to SNX due to its vesting nature.
Tokenized Debt Positions
With tokenized debt (similar to Compound’s cTokens), staked positions become transferable. Users can move their staked balance between wallets without unstaking, enabling better portfolio management and integration with other DeFi platforms.
Continuous Staking Rewards
V3 replaces periodic reward snapshots with continuous accrual based on real-time collateral contribution. This deters manipulation and encourages consistent participation in the debt pool.
Ongoing SNX Unlocking
Rather than discrete annual unlocks, earned SNX will flow into a continuously unlocking stream—aligning with industry standards and reducing data storage complexity.
Governance Evolution: Empowering the Community
Decentralized governance remains a cornerstone of Synthetix’s ethos. While 2020 saw progress with the Spartan Council and grantsDAO, 2021 focuses on refinement and expansion.
Key initiatives include:
- Streamlining Spartan Council elections for greater transparency
- Reducing centralization within protocolDAO
- Revitalizing grantsDAO with improved incentive alignment
- Introducing Synthetix Ambassadors—community-elected representatives tasked with participating in external protocol governance (e.g., Curve, Uniswap)
These ambassadors will act as liaisons between Synthetix and other DeFi ecosystems, ensuring coordinated influence over shared infrastructure decisions.
Synthetic Asset Futures and Market Expansion
Leveraged Futures on Layer 2
High oracle latency on Ethereum has historically limited Synthetix’s ability to support leveraged trading. With Layer 2 deployment, Synthetix can offer synthetic futures with up to 10x leverage, rivaling centralized exchanges in speed and user experience.
👉 Explore how next-gen DeFi platforms are competing with traditional derivatives markets.
Broadening Asset Coverage
To fulfill its vision as a universal asset exchange, Synthetix plans to expand beyond crypto and commodities into stock-based synths. While challenges like market closures, dividends, and regulatory scrutiny persist, the protocol’s growing decentralization strengthens its resilience.
Additionally, order matching during market downtime will enable 24/7 trading by switching to peer-to-peer limit order books when traditional markets close.
dApp Modernization and Decentralization
User-facing applications have undergone significant improvements, leveraging decentralized infrastructure like The Graph and IPFS. Future efforts include:
- Separating dApp repositories from core protocol code
- Opening frontend development to broader community contributions
- Incentivizing alternative interface deployment via gDAO
These steps ensure no single team controls user access, reinforcing censorship resistance.
Option DAO: Specialized Derivatives Market
An independent Option DAO is being spun out to build a robust binary options marketplace. Key features include:
- Support for any binary outcome via decentralized resolution
- Layer 2 deployment for low-cost, high-speed trading
- Enhanced liquidity models and price discovery mechanisms
Funded initially by sDAO under value-recapture conditions, this initiative fosters innovation while maintaining alignment with SNX holders.
Strategic Acquisitions for Rapid Growth
As one of the highest-market-cap protocols in DeFi, Synthetix has the capital and influence to pursue strategic acquisitions. By integrating promising teams or protocols as core contributors, Synthetix can accelerate development without overburdening existing resources.
Inspired by Yearn’s successful collaborations, this approach opens doors for symbiotic growth across the ecosystem.
Frequently Asked Questions (FAQ)
Q: What is the main benefit of moving to Optimistic Ethereum?
A: The transition reduces gas fees and increases transaction throughput, enabling faster trades, lower costs, and support for advanced products like leveraged futures.
Q: Do I need to manually migrate my SNX for V3?
A: Yes. Unlike prior upgrades, V3 requires all users to actively migrate from legacy contracts to benefit from new features and improved security.
Q: How does eSNX differ from SNX?
A: eSNX represents a claim on future SNX rewards with a one-year unlock period. It’s transferable but expected to trade at a discount due to vesting restrictions.
Q: Will synthetic stocks pay dividends?
A: Yes, plans include mechanisms to simulate dividend payouts for stock-based synths, aligning returns with real-world equivalents.
Q: What are Synthetix Ambassadors?
A: They are community-elected delegates who participate in external DAOs (like Uniswap or Curve) to represent Synthetix interests and foster cross-protocol collaboration.
Q: Is Option DAO part of the main protocol?
A: No. It operates as an independent entity funded by sDAO, designed to innovate in binary options without affecting core protocol stability.
Final Thoughts
Synthetix’s 2021 roadmap reflects a mature project evolving beyond early-stage limitations. With Optimistic Ethereum, V3 architecture, governance innovation, and product diversification, it’s positioning itself not just as a synthetic asset issuer—but as a foundational layer in the future financial web.
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