Abandoning L2 to return to the Mainnet, Synthetix V3 ignites the Perp DEX war.

On October 13, after the avalanche in the crypto market, Synthetix began a strong recovery, with the token SNX breaking through the key price level of 2 dollars in a short period, reaching a high of 2.53 dollars, setting a new annual high, and the 24-hour rise exceeding 100% at one point.

The recent surge of SNX is a reassessment by the market of the future value capture ability of the established DeFi infrastructure Synthetix after its fundamental reconstruction. The main driving force comes from the decentralized perpetual contract exchange (Perp DEX) that Synthetix is set to launch on the Ethereum mainnet in the fourth quarter of 2025. Whether it can regain vitality in the trillion-dollar derivatives track still requires the test of time.

CEX reserves continue to flow out, whales double their holdings

The surge in SNX prices is accompanied by strong on-chain trading activity, demonstrating the overwhelming buying power in the market, and the capital inflow structure is also changing.

Within 24 hours of the SNX price explosion, its trading volume surged over 500%, proving that market attention and liquidity influx reached a recent high point. Coinbase's trading insights show that the buyer ratio is nearly 80%, with market sentiment extremely strong, and bullish pressure far exceeding short-term selling pressure.

Nansen data shows that the CEX reserves of SNX have dropped to the lowest point in a month, with only 73.41 million coins remaining, down about 16% from September. The decline in CEX reserves limits immediate liquidity, further amplifying price upward volatility in an environment of heightened market sentiment.

In addition, from October 1 to 13, the holdings of whale wallets with over 1 million SNX doubled, indicating that the large-scale and organized accumulation behavior suggests that the incremental funds are not driven by retail investors chasing high prices, but rather that institutional capital or professional traders are actively positioning themselves in anticipation of the explosive protocol revenue brought by the launch of V3.

The L2 Tragedy Prompts Synthetix V3 to Return to the Ethereum Mainnet

The reason for the price fluctuations of SNX is the significant adjustments in strategy and architecture of Synthetix V3, with core initiatives including migrating back to the Ethereum mainnet from L2 in Q4 2025 and building a brand new high-performance trading infrastructure.

In the context of fragmentation in the L2 ecosystem and the development being caught in a divide, V3's choice to return to the mainnet is both a reluctant move and a bet on a potential revival opportunity.

In April 2024, Synthetix V3 launched on Base, officially initiating the deployment of the L2 network. However, after more than a year of observation, the fragmentation of liquidity caused by multi-chain deployment has led to low capital efficiency and decreased trading depth for the protocol; the instability of the infrastructure has triggered frequent outages and other practical challenges, prompting Synthetix to abandon the L2 solution. Furthermore, multi-chain deployment also carries higher risks for asset cross-chain bridging.

The migration of Synthetix V3 to the L1 mainnet will integrate fragmented liquidity. This transformation allows for the integration of the highest level of native security and trust while having a massive amount of liquidity from Ethereum. Users can directly use mainnet assets without cross-chain transactions, thus reducing bridging and re-staking risks. It can also seamlessly combine with leading DeFi protocols on the mainnet, such as Aave, further enhancing liquidity and capital efficiency.

Currently, the market value of stablecoins on Ethereum is nearly $160 billion, making it the deepest liquidity pool in the crypto market. However, this massive capital has not yet been fully utilized in derivatives trading and is almost in a “dormant” state. Synthetix V3 plans to directly leverage this enormous liquidity.

Synthetix will vote to terminate L2 deployment in the second half of 2024. Since early 2025, it has been gradually phasing out the L2 network, shutting it down completely by September and fully transitioning to Ethereum. Synthetix announced that the Perp DEX will go live on the mainnet in Q4, and to coincide with the launch of V3, it will hold a trading competition with incentives of up to $1 million, further stimulating community engagement and trading activity.

Before officially phasing out the L2 deployment, Synthetix also acquired Kwenta through a governance proposal and exchanged all KWENTA at a ratio of 1:17 for SNX. Kwenta was the main Perp trading front end of the Synthetix ecosystem, with a cumulative trading volume exceeding $120 billion, and it was also the main driving force behind the growth of Synthetix Perp trading, contributing over 95% of the trading increment. This acquisition means that Kwenta will be further deeply integrated with Synthetix, and in the future, its users and trades will transition to a brand new mainnet product.

New V3 Product Update: CLOB and Multi-Collateral Support

In order to achieve efficient trading on the L1 mainnet, Synthetix V3 uses a centralized limit order book (CLOB) combined with an on-chain settlement hybrid model, where order matching runs on an off-chain high-performance system, while clearing and settlement are executed on the Ethereum mainnet.

The hybrid architecture of Synthetix V3 aims to address the inherent issues of high slippage, low capital efficiency, and impermanent loss in DeFi AMM models. It ensures that users can enjoy a low-latency trading experience close to that of centralized exchanges (CEX), while retaining the transparency brought by decentralized settlement.

In addition, to ensure the fairness of transactions, V3 has also deployed an anti-MEV (Miner Extractable Value) mechanism, which prevents the liquidation positions from being outpaced by MEV arbitrageurs through the use of technologies such as account data privacy and progressively configurable liquidation, thereby enhancing the system's risk resistance and user trust.

It is worth mentioning that perpetual contract trading on the mainnet can achieve atomic composability, which means that traders can interact derivative positions with other L1 DeFi protocols to implement on-chain arbitrage or hedging strategies, a core advantage that independent App Chains or L2s find difficult to provide.

The architecture upgrade of Synthetix V3 also includes support for multiple collateral types. The protocol will accept highly liquid assets as collateral, including sUSDe, cbBTC, and wstETH. The introduction of multiple collateral types significantly broadens the sources of liquidity, lowers the entry barrier for traders, and enhances the capital efficiency of the protocol.

Currently, the main products of Synthetix will be mainly divided into 3 types:

1. Perp DEX (launching on mainnet): The hybrid CLOB architecture can provide trading speeds and bursts similar to CEX, and has composability, supporting multiple collateral margins, without the need for cross-chain bridging;

2. Synthetix liquidity provider ( SLP, launching on the mainnet with ): passively market making through sUSD deposits, profiting from spreads, fees, and liquidation fees, with the protocol's stability increasing as TVL rises.

3. Synthetix staking (Pool 420): Staking SNX or sUSD can earn rewards. As of now, the circulating supply of SNX exceeds 343 million coins, of which approximately 169 million Tokens have been staked, with a staking rate of 49.27%. The launch of the V3 mainnet may further enhance the deflationary effect.

Growth challenges, the issue of stablecoin depegging remains to be resolved

Despite the shift in Synthetix's prospects, the frequent risk of decoupling of the core stablecoin sUSD within its ecosystem undermines users' trust in the protocol's products.

Regarding the de-pegging issue of sUSD, the community has discussed two potential solutions. One is to suspend the SNX buyback and burn plan, and shift towards sUSD debt destruction to reduce the supply of sUSD to help it regain its peg. The tokenomics model needs to be updated only after V3 is successfully launched on the Ethereum mainnet and sUSD performs stably.

In December 2024, the official announcement will implement this plan, but the results are not very ideal. sUSD has still experienced two major decouplings in April and July of this year, and it even set a record for the largest decoupling amplitude, falling below 0.75 dollars.

The second option is to introduce the native interest rate of sUSD after the migration to V3 is completed, which has not yet been implemented, and the effects remain to be seen. However, the long-term success of the protocol will depend not only on a high-performance trading system but also on the reliability of its management of ecological assets.

As of now, DeFiLlama data shows that Synthetix TVL is approximately 243 million USD, all concentrated on the Ethereum mainnet. The protocol's cumulative Perp trading volume is 62.72 billion USD, with an average daily trading volume of about 42 million USD.

Additionally, the profit and loss statement of Synthetix shows that the peak of protocol revenue was in 2023, but since the focus shifted to the L2 deployment strategy, its revenue has significantly shrunk by about 38%, even falling below that of 2022. The substantial discount in revenue may be one of the important motivations for Synthetix to return to the Ethereum mainnet.

It is especially important to note that since Synthetix V3 has not yet launched on the Ethereum mainnet, its annual fee income and perpetual contract trading volume are zero, indicating that the price explosion of SNX is mainly based on the market's valuation expectations for the future.

As a well-established DeFi project, the market expects this breakthrough to be an early reassessment of Synthetix's strategy of returning from L2 experimentation to L1 core infrastructure. Once V3 is successfully launched and effectively captures perpetual contract trading fees, the current valuation of SNX may be undervalued.

For investors, verifying the actual captured perpetual contract trading volume and fee revenue data after the launch of the V3 mainnet will be key indicators for assessing the growth potential and valuation of SNX. In addition, whether the protocol can provide a low-latency, high-performance trading experience and the stablecoin sUSD's anchoring performance will be important factors influencing its long-term competitiveness and user acquisition.