Synthetix Latest Developments Analysis: Are DeFi Derivatives Still a Good Business?

Compiled by: Scof, ChainCatcher

Original Author: Troy Harris, Messari

Original Title: 《State of Synthetix Q4 2024》

This article is a compilation and analysis of Synthetix's performance in the fourth quarter of 2024, based on original materials published by Messari, covering its major developments in governance structure, product layout, trading activity, market data, and financial status.

The article aims to provide readers with a concise, data-driven reference to help understand Synthetix's performance and trends in the current market environment.

Key Insights

• In Q4 2024, Synthetix implemented governance reforms, adopting a single Spartan Council model to streamline processes.
• Acquired Kwenta and TLX for $13.2 million and $4 million, respectively, to expand its derivatives product line.
• On November 21, open interest reached an annual peak of $6.71 billion; the quarterly average was $195.4 million, a 45% increase quarter-over-quarter.
• Launched 68 new perpetual contracts, 24 of which are assets supported for the first time on the platform.
• Average daily trading volume for perpetual contracts reached $71.7 million, a 29% increase quarter-over-quarter.

Key Metrics

Protocol Analysis

Perpetual Contracts

The average daily trading volume for perpetual contracts in Q4 was $71.7 million, a 29% increase from Q3, but a 50% decrease year-over-year.

Usage of V3 perpetual contracts slowed, with trading volume decreasing by 38% quarter-over-quarter.

Total trading volume in Q4 was $6.6 billion, accounting for 0.9% of the total on-chain perpetual trading volume ($740.5 billion).

Quarterly trading volume for SOL perpetual contracts increased by 53%, surpassing BTC to become the largest market on the platform. BTC ranked second, while ETH's trading share declined.

Other perpetual markets saw a 74% increase in trading volume.

The platform added 68 new perpetual contract markets, with 24 being assets supported for the first time, launched per SIP-387 requirements.

User Activity

After a decline throughout 2024, Synthetix's overall activity metrics rebounded in Q4.

The average daily number of trades for perpetual contracts increased by 25%, rising from 1,400 in Q3 to 1,700 in Q4. This quarter's growth was primarily driven by Synthetix V2, which saw a 59% increase in trade count quarter-over-quarter.

However, year-over-year, the average daily trade count decreased by 33% compared to 2,500 in Q4 2023.

The average daily active users (DAUs) increased by 14% in Q4, rising from 207 in Q3 to 236. However, this is a 47% decrease compared to 445 in Q4 2023.

Both Synthetix V2 and V3 saw increases in average daily active users, with growth rates of 12% and 19%, respectively. This indicates that core users are taking a larger share of trading on Synthetix.

It is important to note that Synthetix V3 has not yet been deployed on the OP Mainnet and is currently only operating on the Base and Arbitrum execution layers, so its activity data comes from different Layer 2 network environments.

Total Value Locked

Total Value Locked (TVL) is an important metric for measuring the available liquidity on Synthetix at a specific point in time.

In Q4, Synthetix's TVL remained relatively stable, with only a 1% increase quarter-over-quarter. TVL peaked at over $600 million during the quarter, ultimately closing at $378.9 million.

Although TVL is an important reference for measuring the scale and liquidity of the protocol, it is not the only standard for assessing the success of a perpetual decentralized exchange (perp DEX).

Open Interest

Open Interest (OI) represents the total value of derivative contracts that are still active and have not been settled at a specific point in time. For Synthetix, OI indicates the total dollar amount of all unsettled perpetual contracts. A higher OI signifies both a higher risk exposure (more funds locked in positions) and reflects strong demand for Synthetix perpetual contracts, as it indicates that users are actively opening and maintaining positions.

As of the end of Q4, Synthetix's OI was $67.5 million, a 60% decrease from $166.7 million in Q3. However, on November 21, due to increased market volatility, OI reached an all-time high (ATH) of $376.1 million. The average OI for the entire fourth quarter was $195.4 million, a 45% increase quarter-over-quarter, up from $134.8 million in the previous quarter. OI showed an upward trend leading up to the U.S. presidential election, peaking at $208.9 million on November 5 (election day). Following Donald Trump's election, the crypto market experienced a rally. As prices rose, investor risk appetite increased, driving the activity of leveraged trading and contributing to the rise in open interest.

In the perpetual contract market, SOL became the asset with the highest average open interest this quarter for the first time. Its average open interest in Q4 was $84.9 million, a 115% increase from $39.4 million in Q3. SOL accounted for 43% of the total average OI in Q4. BTC ranked second in average open interest for the quarter, with an average OI of $77.6 million in its perpetual contract market. Together, SOL and BTC accounted for 83% of the total average open interest in Q4. In contrast, ETH's perpetual contract market saw a decline in average open interest for the second consecutive quarter, partly due to ETH's relatively weak price performance compared to other crypto assets in Q4. ETH's average OI was $15.2 million, down 27% from $20.7 million in the previous quarter.

Transaction Fees

When traders' orders reduce market slippage, alleviating the imbalance between long and short positions, they incur maker fees; when orders exacerbate market slippage, taker fees must be paid. Maker and taker fees are set according to specific markets and can be viewed on the trading interface. These fees are collectively referred to as exchange fees. Additionally, if a trader's collateral value is insufficient to maintain their perpetual contract position, they may also face liquidation fees.

Synthetix's deployment on the OP Mainnet remains the core source of nearly all perpetual contract trading fees and liquidation fees generated across all deployments. On the OP Mainnet, trading fees are not directly distributed as dividends but are instead realized by burning sUSD, thereby reducing the debt of SNX stakers. However, according to the update from proposal SCCP-373, the distribution mechanism for Synthetix perpetual contract trading fees has been adjusted to:

• 20% for V2 debt burn
• 20% allocated to integrators, such as Cyberdex
• 60% allocated to liquidity providers (LPs) of Synthetix V3

In Q4 2024, the total trading and liquidation fees for perpetual contracts on the OP Mainnet reached $2.8 million, a 64% increase from $1.7 million in Q3. In contrast, fees on the Base network decreased by 47% quarter-over-quarter, totaling $268,100 in Q4. As for Synthetix's deployment on Arbitrum, since its launch at the end of August 2024, fee income has been low, accumulating a total of $69,100 in fees by Q4.

Overall, the average daily fees across all Synthetix deployments were $34,400, a 42% increase from the previous quarter. However, year-over-year, the average daily fees decreased by 67% compared to $104,900 in Q4 2023.

If we only observe the trading fees for perpetual contracts: the SOL perpetual contract market generated the highest revenue in Q4, with trading fees of $988,900, a 52% increase quarter-over-quarter. The BTC perpetual contract market ranked second with $748,900, a 22% increase quarter-over-quarter. Meanwhile, ETH's trading fees decreased by 31% quarter-over-quarter, reflecting that Synthetix's perp users gradually preferred trading in other asset markets in Q4.

Financial Analysis

Market Capitalization and Supply

During the overall market rally, SNX's circulating market capitalization rebounded in Q4, increasing by 26% from $517.6 million to $649.8 million. Additionally, the price of SNX tokens rose from $1.58 to $1.91, a 21% increase quarter-over-quarter, indicating that the market successfully absorbed about 4% of the SNX issuance this quarter. The newly issued SNX this quarter was primarily used to fund two strategic acquisitions completed by Synthetix DAO (details below).

Other Developments

• Supported mobile trading in December, integrating fiat deposits and withdrawals with a gas-free experience.
• Synthetix Exchange upgraded in December, enhancing interface and fee efficiency.
• Introduced one-click gas-free trading functionality.
• V3 perpetual contracts support multiple collateral assets.
• SNX was included in the Coinbase 50 index.
• New official website launched, providing a unified access point and product aggregation.

Summary Review

This quarter marked a significant transformation in the governance of the Synthetix protocol. The DAO has officially transitioned to a governance structure consisting of a single Spartan Council, composed of partially elected and partially appointed members. The new council is dedicated to addressing past inefficiencies in governance and promoting the long-term development of the protocol under a unified vision. The new governance structure quickly began work, facilitating and completing the token swap acquisitions of Kwenta and TLX. These acquisitions help Synthetix achieve vertical integration and expand its product matrix.

The total open interest reached an annual high this quarter, peaking at $376.1 million on November 21, and closing at $67.5 million at the end of the quarter. Perpetual contract trading volume grew by 29% this quarter, reaching $6.6 billion, while TVL remained relatively stable, with only a 1% increase quarter-over-quarter.

On the other hand, average open interest increased by 62% to $195.4 million. The average daily active users (DAU) grew by 14%, and the average number of trades increased by 25%. By introducing a new, simplified market creation process, Synthetix successfully launched 24 new perpetual contract markets in Q4. The circulating market capitalization of SNX increased by 26% this quarter, reaching $649.8 million by the end of Q4.