# Synthetix V3 Tokenomics, Fee Structure and Financial Stability Alignment

## Simple Summary:
In Synthetix V3, the Synthetix Synth system acts as a core engine that enables other dapps to create new unique `markets`, markets can be any abstract implementation of logic that is allowed to mint `$snxUSD` against a collateral position.

The goal of this SIP is to align the different interests of these markets in a unified fee structure.

## Abstract:
In Synthetix's V3 model anyone can create a market to hook into issuing `$snxUSD` market logic can be perps, spot, loans, AMMs or just about any system, so long as the market has sufficient collateral to back the `$snxUSD` that is used.

In this pivot to focusing on P2P (protocol-to-protocol) mechanics rather than P2C (protocol-to-consumer) Synthetix needs to align the fee interests of a few distinct parties:

1. SNX Stakers - who take on governance responsibility.
2. Pool/Market LPs - who stake their debt against a market opportunity.
3. Synthetix Treasury - who pays inflation, stipends, grants and core contributors.

And, in considering this we must balance:

1. Long term inflation.
2. Near term rewards to drive volume.
3. Long term financial stability of the project.

In order to achieve these goals, Synthetix V2 token model, the fee structure for pools and rewards systems that balance risk with long term ecosystem health must be carefully intertwined.

To that end, this SIP aims to make the following changes outlined in the specification below:

A) A minimum fee tier for each market that must be shared with Synthetix in order to be approved.

B) A secondary fee tier for each market that must be shared with Synthetix in order to be granted rewards from any SNX inflation.

C) Preferrential rewards for the primary SNX pool that fosters diverse collateral.

D) A set minimum amount of fees going to each of the Synthetix Treasury and SNX Stakers

E) A set minimum amount of fees being used by Synthetix to purchase voting power in other protocols, and long term staking assets.

F) Remaining inflation rewards and veLocking

## Motivation & Specification

### A) A minimum fee tier:

Markets can be created and implement any fee logic they desire. At current, a market could design its logic to only repay the $snxUSD debt and not take or share any fees.

This doesn't adequately reward the ecosystem risk that stakers take on in authorizing new markets.

To offset this, there will be a minimum required 30% of fees collected paid to Synthetix in order for a market to be approved.

It will also be at the judgement of the Spartan Council as to if the fee model in general is high enough to offset the risk. For example, if the protocol implemented a 1 Gwei flat fee and shared 30% of this with Synthetix, that protocol would not be sufficient at meeting the minimum fee tier.

### B) A Secondary Fee Tier:

Markets are responsible for designing their own fee model and splitting that fee between the market creators and their LPs, with each market needing to have an economic model that sufficiently motivates LPs to participate in staking their debt against that market.

However, Synthetix has the ability to encourage rewards by providing `$SNX` rewards via inflation.

In order to be eligible for inflationary $SNX rewards, at least 60% of the fee from a market must be paid to Synthetix, with the remaining 40% divided between LPs and the market operator as they see fit.

### C) Prefferential Rewards:

The primary Spartan Council designed market is the main market for `$snxUSD` and must be robust in its liquidity and diverse in its collateral.

In order to encourage reward diversity, this pool will have outsized rewards, but will also cap non-ETH collateral to a fixed number amount or percent of OI (to be determined in future SIPs).

This will force users to stake multiple collateral types in order to get their rewards, as one collateral type will quickly reach its cap.

This pool should recieve at minimum 2/3rds of all SNX inflation rewards.

### D) Set fees for stakers and treasury:

When fees are recieved from any market, a minimum of 56% of those fees must go to SNX stakers as direct rewards, and 1/3rd must go to the Synthetix treasury.

The treasury should target a reasonable operation runway from this fee collection, and then redirect any exccess fees split 50/50 between SNX stakers and the purchasing outlined in section E.

It shall be the responsibility of the treasury council to determine if they have reasonable runway compared to expenses before implementing those additional payments.

### E) Purchasing Voting Power and Staking:

In order to maintain our long term health, we have two goals:

1. Getting voting power in other emission rewards protocols so we can use their emissions as rewards for Synthetix markets/pools and be less dependent on inflation.

2. Acquire yield bearing assets and stakes within our own ecosystem, that allow us to generate stable revenue and growth overtime without being concentrated in SNX.

To achieve this, 1/3rd of the fees collected from markets will be directed to this asset buying program, with the initial program being:

- 33% buying ETH (stETH, fxsETH, cbETH or another staked derivitive)
- 25% buying CRV
- 10% buying CVX
- 10% buying YFI
- 10% buying Synthetix Ecosystem tokens (Kwenta, Lyra, Thales, etc)
- 5% buying LDO
- 5% buying FXS
- 2% discrential to current Spartan Counil

Each Spartan Council moving forward may revise these percentages in any given cycle but 33% must remain ETH (or an ETH derivative) and 10% must remain Synthetix Ecosystem Tokens.

These assets will be used to stake, vote, direct rewards and earn yield but they will be held long term and should not be sold.

They will generate a core nest egg for Synthetix moving forward.

### F) Remaining Inflation Rewards and veLocking:

While the primary pool recieves 2/3rds of the inflation rewards, other eligible markets that pay at least 60% fees into Synthetix are elgibile for inflation rewards.

The specific amount of these inflation rewards they recieve will be voted on via a gauge system based on locking `$snx` in a `$veSNX` model.

While most veLocking models are gamed to low value pools, ours will have two advantages:

1) Since only Spartan Council approved pools that pay 60% of fees can recieve inflation, there will be no low value pools to vote for.

2) The amount of inflation rewards available will be directly inversely proportional to the amount of veLocked SNX.

As users lock their SNX into the veSNX model, the total % of inflation rewards will decline, meaning that users who want to end inflation are motivated to lock up their SNX and take part in voting, and whales who try and game the rewards system by bulk locking SNX would just be lowering their own rewards.

## Summary:

To summarize:

Markets:
- Markets will require at least a 30% fee for Synthetix to be approved, and a 60% fee to earn inflation rewards.

Inflation Rewards:
- The main Spartan Council operated market will get 66% of all inflation rewards.
- The remaining 33% of inflation rewards will be split among other eligible markets based on veLock voting.
- The total % of annual inflation will decline in proportion to the amount of SNX locked as veSNX.

Fees:
- Of the fees collected from markets 56% will go to stakers directly.
- 10% will go to the treasury, who can then decide to give additional rewards to stakers once they've met their budget obligations.
- 33% will go into a long-term token buying program.

Token Buying Program:
- The token buying program will buy assets that give us the ability to vote on emission rewards in other protocols, so we can use those to drive liquidity instead of being dependent on SNX inflation.
- The program will also buy tokens that provide yield generation to help sustain Synthetix funding overtime in a diverse manner.
- Lastly the program will invest in the Synthetix ecosystem tokens, and Ethereum for shared prosperity.
- Whenever a new council is elected they can modify the percent values in this program, but 33% must be spent on ETH and 10% must be spent on the Synthetix ecosystem.

veSNX:
- Users can lock SNX as veSNX to vote on gauges for inflation rewards.
- veSNX counts as staking your SNX and can be used as collateral and get staking rewards.
- The more veSNX that is staked the lower total inflation is, so users are motivated to stake to prevent further dilution.