Synthetix plans to shut down the SNX money printer once and for all

If the proposal is accepted, Sintetik will look more like a traditional business that will simply be generating fee revenue and distributing the proceeds to SNX holders.

The founder of decentralized finance (DeFi) protocol Synthetix, Kain Warwick, came up with a proposal that would turn off very high yield returns for SNX stakers and cap the total Synthetix (SNX)) supply at 300 million. 

The Synthetix protocol allows traders to issue synthetic versions of crypto native assets, traditional financial assets, and commodities on the Ethereum and Optimism networks.

In a Thursday Synthetix Improvement Proposal (SIP), Warwick explained that SNX reward inflation was initially intended to “bootstrap the network.” Due to the high increase in expenses, DeFi protocols 1inch and Curve started to use the Synthetix platform to conduct atomic swaps, bringing in more traffic to the protocol. In June, the protocol surpassed $1 million in daily fees, which was four times the amount Bitcoin was making.

According to cryptofees, Synthetix is currently taking a seven-day average of $158,857 in fees, which is a little bit below Bitcoin’s seven-day average of $222,651.

Stakers receive all the sUSD stablecoin fees from users of the protocol. Currently the annual profit rate for stackers is around 67%, but this is likely to fall closer to 15%-20% if it’s based entirely on “real yield” from sUSD fees alone.

In a Twitter post on Thursday, Warwick — also known as the “father of modern agriculture” for popularizing DeFi yield farming — said that he believed following informal discussions that æSIP-276: Turn off the money printer” had a “decent chance” of being passed. The official presentation of the proposal is scheduled for next week.

If SIP-276 is approved by the Synthetix governance community, ten periodic installments of 675,000 SNX tokens will be added to the current total supply of 293 million tokens in order to reach the 300 million mark, before inflation ends.

Twitter user Synthaman was particularly positive about the news, stating “#SNX is about to become a rare commodity with inflation going to ZERO…” while others are unsure what SIP-276 would mean for the protocol over the long term.

Analyst firm Delphi Digital tweeted that with Synthetix soon putting a stop to the issuance of SNX tokens, the protocol faced the challenge of maintaining its current user base and “attracting new users with organic revenue in a market where yield is abundant.”

It remains to be seen whether DeFi protocols like Synthetix can attract enough stakers by relying on fee revenue alone or how an end to SNX inflation may impact SNX token price, which is currently $3.04, up 10.5% over the last week.

Warwick also noted that an official show on SIP-276 will take place next week, which is inroducedinto Synthetix’s governance process if passed.