Syncus: Mastering Treasury-Token Dynamics
The bullrun of 2020 to 2021 marked a pivotal era in the crypto market, significant innovation happened in DeFi. New territories of decentralised finance were discovered with a lot of experimentation happening while protocols were in active production. Unfortunately, a lot of mistakes were made and a lot of game theory had not proven the test of time.
A prime example is OlympusDAO. It promised high yields on staking, funded by unsustainable bonding activities and a dilutive staking process, leading to the DAO's decline as these mechanisms proved inadequate. It stands as a classic case of a great concept facing the challenges of execution.
A Retrospective on OlympusDAO
OlympusDAO emerged as a groundbreaking project in DeFi, aiming to create a decentralised reserve currency protocol with its native token, OHM. The concept was to offer a digital currency, not directly pegged to fiat currency but backed by a basket of hard assets like DAI and ETH in the treasury.
Olympus had a couple of obstacles in growing their reserve-backed currency: How to increase the total amount of OHM tokens while making sure each one is backed by the treasury, and how to distribute these tokens. The founder, Zeus, devised an innovative solution: Olympus would distribute new tokens to stakers as the treasury grew, offering a high APY from the treasury’s surplus to make sure each token was backed by exactly $1. For instance, if there were 100 OHMs worth $1 each, and the treasury had $200, the extra $100 would be distributed to stakers as OHM, resulting in a 100% APY. Using this APY, the protocol could garner attention to the token. However, as the APY depends on the treasury’s surplus, the treasury would need a way to grow, raising the question for Olympus and its forks: “How do we grow the treasury?”
Bonds
Olympus opted for bonds. OHM often traded at a premium above its real value due to the demand for the APY. Bonds allowed direct OHM purchases from the protocol with the premium acting as a profit for the treasury, which was distributed as yield to stakers. However, to incentivise bonding over market purchases, bond discounts were introduced. Now you could purchase bonds at a discount and sell them on the market. This would cause the price to crash as bonds could always be bought for cheaper and sold on the open market, therefore, a locking period was implemented.
As a consequence to all this, a flywheel effect occurred: Sell bonds to grow treasury -> Higher yield -> More demand -> Bonds earn a higher premium -> Sell bonds to grow treasury, and so on.*
*The flywheel is actually not complete, as an increased demand for tokens doesn't necessarily mean more bonds are sold, one of Olympus’ big mistakes.
The problem was that Olympus’ staking was so profitable that the demand for bonds was low. Why bond when you can just stake? Ironically, staking necessitates bonding, thus bonding discounts increase until people are willing to bond. Although a locked period prevents instant arbitrage, it still leads to price suppression, albeit stealthily. More importantly, the value extracted through the price suppression was taken from holders and given to bonders. Zeus explains how this mechanism stunted Olympus' growth and created an unstable protocol and ultimately brought about their downfall.
Yet, Olympus was stuck giving this discount to bonders to keep the yield going because of the fact that the only demand for OHM in the beginning came from the APY. Most users did not realise that bonds were extracting value from them, essentially acting as hidden tax. Most of the forks did not even understand the intricacies behind their protocols.
The mechanics of Syncus
Learning from these Olympus and its predecessors, there’s still one truth that holds: Before we reach a significant market share, the demand for SYNC will come from the APY being high.
As we learned in the first chapter, the way to grow and sustain the APY is to grow the treasury. So the ultimate question for Syncus also becomes:
How do we grow the treasury?
We have shown that bonds are dilutive and cause issues for holders, however, If we remove bonding we can’t sustain a high enough yield to offer an attractive APY. Investments wouldn’t be possible in the beginning and don’t sustain a high enough yield to grow the market share of SYNC. Liquidity provision is also a low revenue activity. Ideally, we would have a mechanism that captures value from the demand on SYNC, whilst not letting it be extracted by third-parties.
What we came up with will change the DeFi landscape:
Combining the mechanisms of taxation with Olympus' treasury distribution, we have created a revolutionary token that will grow its underlying treasury in the most efficient manner. Syncus will introduce protocol taxes for each action such as buying and selling, using them to fund the treasury, in order to produce real yield to stakers.
SYNC will fully capture the value of the attention the token garners, creating a flywheel effect similar to that of OlympusDAO, only this time it is a more sustainable one: High yield -> More demand -> Volume -> Treasury growth -> More yield -> More demand.
While Olympus’s flywheel effect halts at more demand, as this does not equate to more demand for bonds, Syncus’ continues as a more demand automatically means the treasury grows. This makes it far more effective than Olympus' systems –which at its height had $4 billion in market capitalization– to guarantee that each token has actual worth. To put it simply, we employ taxation revenue to replace Olympus’ bonds in order to ensure that the treasury develops sustainably and does not artificially lower the token price to let third parties extract value.
Rethinking success metrics in Syncus.
Success in Syncus is determined by the benefits given to stakeholders, not only by the value of the token. This strategy guarantees that stakeholders will consistently receive a return and a profit that corresponds with the token volume and participation of the protocol, whatever price volatility. This means that even if price decrease but you stake for a long enough period of time you are guaranteed your safety, rather than worrying about the price of SYNC, which may increase in addition. The concept calls for a change in perspective on success, one emphasizing sustainability. We will make sure that holders understand this by displaying the rewards that have been given out over time, providing a more precise indicator of success. Long-term goals
While the short-term goal for Syncus is growing its market share and generating value for holders, the long-term goal is a decentralized treasury-backed protocol. Once Syncus has reached a significant market cap the treasury will make investments in the zkSync ecosystem as well as build out Syncus' own ecosystem of products on zkSync. This is to create a real auto yield-generating stablecoin on zkSync; a token which you simply hold to earn revenue from, similar to what we have seen with yield generating chains like Blast.
SYNCUS represents a new era in DeFi - one that learns from the past and builds towards a more stable and sustainable future. It stands out in the DeFi landscape due to its emphasis on rewarding stakeholders, sustainable treasury growth, and innovative self-marketing mechanics. As the protocol evolves, it aims to redefine what success means in the world of decentralized finance.
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