Synthetix: Can Revenue > Token Emissions?

Synthetix is moving its token economics towards a revenue and earnings model (i.e. fundamentals model). Can SNX earn more in revenue than it issues in tokens?

Synthetix is earning a significant amount of revenue... but issuing even more in token incentives.

Synthetix earned $68M in fees over the last 12 months and is earning a run-rate fees of ~$33M during the slow 2023 Summer. The business trades at 10x LTM fees and 20x run-rate fees — a good valuation for a blue chip defi business without too many costs.

Synthetix has done impressive work growing revenue. Synthetix initially relied on Atomic Swaps (i.e. cheaper transactions combining Synthetix and Curve) but this revenue stream sizzled out when it stopped being the low cost option on DeFi.

Undeterred, Synthetix launched PerpsV2 and now most of the protocol's revenue comes from perps volumes — almost $100k per day to the protocol ($33M per year) and nearly all of that perps volume comes from Kwenta, a front end for Synthetix.

Synthetix is earning a significant amount of revenue... but issuing even more in token incentives.

Revenue less SNX issuance is still quite negative — Synthetix issued $230M of incentives over the past 12M on revenue of $68M. This issuance is going to SNX stakers — the LPs of the protocol — so the question is whether the model can work without incentives.

And Kwenta's volumes are partly driven by Optimism OP incentives. You can see a sharp increase in Kwenta volumes when OP incentives were turned on. The impact is even more pronounced if you look at market share since mid-April when OP incentives started.

Can Synthetix reliably generate revenue above token incentives? We will soon find out as the team is attempting to move SNX off an emissions model. 42M SNX (~$85M) tokens are set to vest over the next year versus $230M in the L12M. Current OP incentives end on Sep 9, 2023.

Synthetix has a phenomenal team working to transition SNX to a fundamentals "revenue and earnings" token. The first step was to achieve sustainable revenues. The second step is to reduce token emissions so revenue > emissions.

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