This crossed my Twitter feed a couple of days ago, and it gave me a bit of a shock as I hadn't really checked in on my SNX collateralisation since before the craziness that made contract interaction a pain in the arse on Ethereum.
SNX stakers assume the risk for printing sUSD on the Synthetix platform (Mintr) and in return they are rewarded in sUSD and SNX (escrowed for a year). However, to mint or to claim your rewards you need to keep a collateralisation rate of at least 600% (value of SNX staked to sUSD printed). This was done on a weekly basis, with the rewards disappearing after a week if they weren't claimed. I'm not entirely sure why it was done like this, but I guess it was to retain interaction with the platform and not just set and forget...
That was easy enough during the days of lower gas fees. However, as the gas fees started to spike it became quite untenable, as the contract interaction is much more complex than a simple token transfer and would thus require a higher gas limit (resulting in potentially a much more expensive transaction). Doing this on a weekly basis with the rewards being not liquid until one year later made this quite a bad experience. Basically, you would need to burn around 10-30 USD worth of ETH to claim you rewards which would be paid out in a year's time at an unknown (possibly zero) USD value. If your collateralisation was under 600%, you would also need to fix that... resulting in another heft ETH fee whack. Plus, you wouldn't be able to dynamically print and burn sUSD to keep a tight collateralistion ratio without taking a nice fee hit every time!
Needless to say, many small-mid SNX stakers either quit or just put everything on hold. Combined with the drop in SNX over the last year against USD, it meant that some people were fast approaching the 200% liquidation level.... and it turns out that some of them were actually liquidated last week!
The Twitter account gave a couple of days heads up that liquidations were about to happen and I quickly jumped onto Mintr to check if I was in danger... I hadn't been following the mainnet of Synthetix as it was pointless as the high fees made it too costly to interact with on a multiple times a week basis. Thankfully, I had last fixed my collateralisation when the price of SNX was really low... resulting in a stupidly high overcollateralisation ratio of 4800%! I'm very safe... as far as you can say that in the volatile crypto world!
Still... I'm not going to fix it to give me a better ratio. There just isn't any point at the moment as I would rather preserve the buffer against any swings in SNX price. However, I have been playing with the Layer 2 (Optimistic Ethereum) versions of Mintr... and let's just say that that is an unbelievably better experience. Fast, responsive and near zero fees... it is what DeFi needs if it is to more than just a plaything for whales.
So... ETH 2.0... or the rollout of OVM! One or the other... they can't come soon enough!
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