Updated Proposal: Deploy Synonym V2 with Improved Tokenomics

Update This is an updated proposal based on the feedback from the community. We have decided to update the fee split between vlSYNO and sSYNO to favor vlSYNO even more.

Tokenomics: Tldr:

Current Structure:

$SYNO as a liquid governance token, vlSYNO as a locked LP token with reward multipliers. Current issues include complexity in reward estimation, unattractive fee distribution for small participants, and difficulties in targeted reward allocation. Proposed Structure:

Elimination of BIPS and governance power from $SYNO. Introduction of sSYNO, a single-sided staked token with simple staking/unstaking mechanics. Revised emissions and fee distribution with separate pools for sSYNO and vlSYNO. Benefits:

Clearer and more straightforward incentive structures. Flexible staking options with sSYNO for lower rewards but quick access. Higher rewards through vlSYNO with more risk and lock-in. Improved growth and user experience with simplified and predictable emissions and fee structures. Our goal is to better align stakeholders to drive growth, improve liquidity, and reward active participation. We acknowledge that the current tokenomics are complicated and can sometimes be difficult to understand and visualize. To deal with this issue and support the above goals, we are proposing a simplification and overhaul of the $SYNO token system, specifically the introduction of sSYNO and adjustments to reward distribution mechanisms.

The proposed changes aim to:

Offer long term token holders a less volatile option of participating in Synonym via sSYNO, a simple single-sided staked token accruing revenue and benefiting from reduced fees Make the tokenomics simple to understand aiding in discoverability and distribution Remove existing cooldown period and complicated “5% Value” BIPS logic as its difficult to visualize and for users to comprehend Introduction of new buyback and distribution model to direct protocol revenue back to the most aligned participants Current Structure Existing tokenomics structure is made up of $SYNO and vlSYNO:

$SYNO - Liquid governance token vlSYNO - Locked balancer liquidity pool (80SYNO - 20WETH) token. The LP token can be locked for 1 - 12 months accruing 2x - 25x multipliers on rewards respectively Value attribution & emissions distribution:

Emissions are currently governed by the BIPS points system, where rewards are distributed based on the pro-rata share of BIPS Emissions are distributed based on money market activity and vlSYNO locks vlSYNO and Money Market activity is interconnected via the 5% rule, where 5% of deposits have to be locked in vlSYNO to receive a boost to the emissions allocation.

Fees are distributed in wETH in the following allocation:

40% of fees are distributed back to Money Market Suppliers 40% of fees are distributed back to vlSYNO 10% of fees are distributed back to tSYNO 10% of fees are distributed back to the treasury for operational needs Current Issues There are several key issues with the current tokenomics:

The 5% threshold required to activate vlSYNO BIPS incentivizes users to withdraw money market positions during times of volatility 5% to activate vlSYNO BIPS introduces complexities in estimating rewards & APY’s for users The only way to have productive long-term exposure to Synonym is via vlSYNO, which carries risk with a 1 - 12 month time lock The current fee distribution is not attractive enough given the IL risk and opportunity cost of capital Utilizing a global BIPS system makes it very difficult to allocate rewards to specific pools/strategies, as the design assumed global distribution of rewards

Proposed Structure Remove BIPS as a distribution mechanic Remove the governance power from plain $SYNO Keep vlSYNO as a staked balancer LP with multipliers and timelocks Update the cooldown period for vlSYNO from 7 days to 3 days Note that while plain SYNO will not have governance power that sSYNO and vlSYNO will both have it Introduce sSYNO Token

sSYNO is a single-sided staked token. It takes 0 days to stake and there is a cooldown of 3 days to unstake. 1 $SYNO = 1sSYNO. sSYNO is eligible for a percentage of emissions and fees (numbers below) in $SYNO via buyback & distribute

Update emissions distribution methods

Remove the 5% boost requirement. Emissions are distributed between money market positions, vlSYNO and sSYNO positions via separate pool allocations. A set of emissions is directed towards Money Market Positions. A separate set of emissions is distributed among sSYNO and vlSYNO participants. 20% of the pool is distributed among sSYNO 80% of the emissions pool is distributed among vlSYNO Updated fee distribution

50% of fees are distributed back to money market suppliers; 15% of fees are distributed to treasury for operational expenses; 35% of fees are distributed among vlSYNO and sSYNO: For fees distributed to vlSYNO and sSYNO:

20% of the fees are distributed among sSYNO 80% of the fees are distributed among vlSYNO tSYNO & rCT

Given the above fee distribution, tSYNO will no longer accrue fees. rCT will be kept as is.

Benefits Simplification and clear incentives flows are the key advantage of the above proposed changes. Users ultimately have clearer and more beneficial choices:

Stake $SYNO and receive sSYNO: The user will be getting a lower set of emissions and fees, but they will be able to get in & get out after a brief cool down. Key advantage here is that it is single sided & fast - no more LP requirements for base level staking. More users will opt in. Lock Balancer LP Tokens and receive vlSYNO: The user will be getting a much higher set of fees and emissions, but they will be exposed to IL and have to stay locked for at least 1 month. We foresee the following improvements given the updated protocol tokenomics & design:

Emissions will be straightforward and predictable, with users able to view their real-time rewards and fees. Fees will be distributed using a buyback and distribute method, with an expected increase as we roll out upgrades like optimistic finality and cross-VM lending. We’re simplifying tokenomics to support Synonym’s growth. tSYNO holders can convert to vlSYNO for protocol participation and larger fees at any time. We believe this change better incentivizes growth, with rCT remaining unchanged. Conclusion We propose to deploy the above protocol and tokenomics upgrades over the next 12 weeks to significantly improve the core Synonym product. These changes will ultimately make it easier for users to lend, borrow and earn across countless chains and VMs in the future.

It is critical that we enter this new period of capabilities of cross-VM credit and Optimistic finality with a clear and concise token model that users understand and can immediately engage with.

The above proposal is designed to treat all activities within the Synonym economy fairly while directing valuable liquidity and incentives to our core cross-chain markets.

Timeline Discussion: 17th of September, 2024 - 20th of September, 2024 Snapshot: 20th of September, 2024 - 27th of September, 2024 Implementation if approved:

Tokenomics Update: October 2024 Optimistic Finality: October 2024 Solana Spoke: November 2024