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Jul 29, 2020
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Synthetix revokes the foundation and will use DAO to manage $150 million in assets

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On July 28th, the DeFi project Synthetix officially released a blog post stating that the Synthetix protocol will be jointly managed by three DAO organizations: protocolDAO, GrantsDAO and SynthetixDAO, and the original foundation has now withdrawn from management. In addition, Synthetix officials also mentioned that the 30,000 ETH it raised in the initial token sale has been converted into $150 million (or about 450,000 ETH) through market making and other activities, and these funds will be taken care of by synthetixDAO Management, it will continue to help the network grow.

The following is the blog translation:

Since the end of the Australian fiscal year (June 30, 2020), the liquidation of the Synthetix Foundation has begun, and we are very excited about this. In the past six months, we have gradually reduced the role of the foundation, and in the past few weeks, the last part of the transition has been completed.

This is an important milestone for the Synthetix project, and we gave a more detailed overview of last year’s article. In that article, we mentioned that relying on non-profit foundations to manage projects may have negative effects, and we believe that for many projects, this governance framework will eventually be replaced by the DAO model. We are working hard to achieve this transformation and, with the help of some projects in this field and our community, take the next step in the governance of token holders.

As of the publication date of this article (July 2020), the agreement is now jointly controlled by three different DAOs:

  1. protocol do is responsible for controlling protocol upgrades and variable configurations;
  2. GrantsDAO is responsible for funding public products in the Synthetix ecosystem;
  3. synthetixDAO is used to manage and deploy funds to meet the needs of contributors and other projects;

This article will provide updates on the status of each DAO and future plans for Synthetix governance.

protocol does

the protocol does is the owner of all Synthetix contracts and uses 4/8 multi-signature to modify and upgrade the protocol. This means that the protocol does is responsible for implementing SIPS and SCCP approved by our rough consensus process. It is also responsible for the operational security of the protocol, which means all monitoring and supervision of the mainnet contract and the oracle. The main changes will be the introduction of timelocks, token holders’ veto rights, system suspension functions, and decentralized circuit breakers in contract upgrades.

The Synthetix protocol relies heavily on external oracles to provide information about real-world prices, but it is also a complex smart contract suite, and despite multiple audits, it may still contain software defects. This requires that when we detect an abnormality, we can automatically or manually suspend the agreement to protect the Synthetix agreement and the funds in the connection agreements such as Uniswap and Aave. The problem with the contract suspension function is that it introduces a dangerous attack vector to review the agreement. The system we implemented is designed to reduce the risk of protocol capture or review while maintaining the maximum security of funds and reducing the possibility of user interruption.

The contract can be suspended automatically and manually at the system-wide level and the individual synth level.

Due to the reasons listed above, implementing this function can significantly improve the security of funds, but it greatly reduces the resistance to review. The solution is to introduce token holders’ control of these states. Let’s look at a few examples to illustrate how to use it.

Any member of protocolDAO can unilaterally suspend individual Synth or the entire system to ensure a quick response in the event of an outage or accident. However, this unilateral suspension is limited to n hours (defined by community input through the SIP process), and this suspension function may be abused to disrupt the system. In this case, the remaining protocolDAO members can vote to cancel the suspension of the contract and restore the system, if necessary, the malicious members can be deleted from the DAO. If protocolDAO does not perform any operation, the system will automatically re-enable after two hours.

Now we look at an example, it is not a single protocol do member, but all members colluded to destroy the system em. protocol can suspend the contract indefinitely by continuously submitting suspend transactions. If all members of protocolDAO vote to suspend the system indefinitely, and this operation is malicious, token holders can vote to re-enable the system and overwrite protocolDAO. This ensures that the power is ultimately in the hands of the token holder, not protocolDAO. In future iterations, we will enable the token holders to remove members of the agreement to ensure that the wishes of token holders are maintained. There is an additional component of this mechanism, which is the threshold of veto rights for token holders. Initially, we hope it will remain at a low level, but if a controversial change is repeatedly rejected by a few token holders, even though it is supported by the community consensus, then an upgrade process can be initiated to resolve the dispute. In the worst case, a split in the community may lead to a fork of the agreement. Although this is unlikely in the short term, in the long term, we must ensure that a just, fair, and legal form of governance is provided to ensure that the community does not divide.

The decentralized circuit breaker function ensures that if the contract detects an abnormality in the oracle, the system will automatically shut down. Similarly, even if protocol members are unable or unwilling to re-enable the system, token holders can vote to re-enable the system directly to ensure that they maintain ultimate control over the system.

The timelock function ensures that token holders have the ultimate right to supervise protocol upgrades. Any token holder can propose an upgrade through the delegated migrator (an automatic system that is used to publish and execute protocol changes on the chain) contract owned by protocolDAO. This means that without the supervision of token holders, the agreement cannot be modified, because each proposal must wait at least 48 hours before it is confirmed and implemented. If a token holder or a member of the agreement submits a proposed contract change without the unanimous consent of the community, it can be rejected by the token holder by voting before implementation. This is essential to resist the censorship system, which is essentially governance by exception. As long as protocolDAO is implementing the community consensus, every proposed upgrade should be passed, but if protocolDAO or community members try to execute a contract change that goes against the interests of token holders, it will be blocked, forcing the community to debate the proposed changes And strive to reach a consensus.

grantsDAO

grantsDAO is responsible for the funding of public products, which includes encouraging the community to participate in the SIP process by rewarding SIP advocates and fundraising programs such as six.tools and SNX Link. These initiatives provide an alternative interface for displaying key information to stakeholders.

synthetixDAO promises to provide funding for GrantsDAO with 1 million SNX per year in the next three years to ensure continued funding for public products and programs.

GrantsDAO is managed by community members to ensure that it is an independent force in the ecosystem and provides grants in line with the interests of the community. Crucially, it also plays a role in ensuring that there are alternative interfaces to interact with the network, so even if core contributors fail to provide dApp upgrades and other enhancements, the community will still have a robust interface to interact with the contract.

The decentralization of the interface is a key component to ensure that the network is not affected by censorship. In the coming months, one area of ​​focus will be funding for the deployment of front-end interfaces and branches to IPFS and other permanent hosting solutions. This also requires permissionless mechanisms to access data on the app’s chain.

synthetical

synthetixDAO was originally created as a simple multi-signature contract during the token sale period. Its purpose is to ensure that the funds raised by the agreement are safe and deployed in a way that best suits the interests of the network through community consensus. synthetixDAO has provided operating funds for foundations in Australia and many other entities that promote network development in the world. synthetixDAO will continue to provide funding for the growth of the network, while the foundation used to be the main recipient of funds, now many smaller entities will apply directly to synthetixDAO for contributor funding. Importantly, this is an open process, and any entity can apply for funding from SynthetixDAO. This is usually done through the GrantsDAO review. If the scope of the proposal exceeds the scope of GrantsDAO’s authorization, it will be transferred to synthetixDAO for review. As the foundation gradually improves, synthetixDAO must evolve to ensure that all stakeholders in the network are represented and funds can be used for any entity that can contribute. The current synthetixDAO has three members, representing the main stakeholders in the network, core contributors, and large token holders. We expect that in the next three to six months, we will be able to transfer the entire fund library to the chain under the control of synthetixDAO. Prior to this, the existing custodian will manage off-chain funds on behalf of synthetixDAO.

At some point in the future, membership will be open to token holders and they can register to join synthetixDAO. As long as a sufficient number of token holders support their proposals, these proposals will be added to synthetixDAO. Eventually, we will move to a mechanism in which all financing options are public and voted by members of synthetixDAO, but during the transition period, the current operating procedures will continue. Based on the liquidity of cryptocurrency, cash, and the current value of SNX’s fund library, we can run for many years at the current consumption rate. The initial token sale raised approximately 30,000 ETH. After the sale, The funds were divided into 3 parts, of which 1/3 has been liquidated into cash, and has been providing funds for the operation and development of the network and the cost before its launch. The other 1/3 were allocated to market makers, most of which were used to stabilize the price of SNX during the 2018 bear market. So far, market-making activities have resulted in unrealized gains of approximately 100,000 ETH. In view of our long-term cooperation with Ethereum and our confidence in the prospects of the Ethereum network, the remaining 1/3 of the funds are still retained as ETH. Currently, the value of assets in the treasury is approximately US$150 million, or approximately 450,000 ETH. We also raised a small number of additional funds through the sale of approximately US$6 million in the treasury, which promoted the performance of the treasury. In the past three years, we have ensured that operating costs are as low as possible and maintained a small but dedicated team.

The above changes mark a phased shift in Synthetix’s governance, and this shift will give more power directly to token holders. More critically, it provides a mechanism to protect token holders from collusion and scrutiny. These changes will make the agreement more robust and reduce trust in core contributors. Synthetix’s goal has always been to provide a censorship-proof protocol for the exchange of synthetic assets, and these changes are an important step in achieving this goal. As always, the Synthetix community will continue to iterate and test these changes to ensure that they meet our long-term goals. 

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