Toros + Synthetix V3 Yield
Toros originally made waves with our first Synthetix debt mirror vault, offering hassle-free Synthetix-V2 hedging, but that was only the beginning.
With the launch of Synthetix V3, Toros is bringing auto-compounding yield and debt management in a safe and effective way. Fees received from staking in Synthetix V3 are auto-compounded while Liquidity Providing (LP) debt is monitored and closed automatically for our users.
Toros has launched two vaults utilizing Synthetix V3: Synthetix USDC Yield (sUSDCy) on Base and the Synthetix USD Yield (sUSDy) on Arbitrum. These vaults provide users with efficient and high-yield liquidity strategies on their respective Layer 2 networks.
This article breaks down how Toros is bringing the latest high-yielding liquidity providing strategy to users with a single click.
What is Synthetix V3?
Synthetix is an open source, decentralized finance protocol which allows liquidity providers to delegate collateral to liquidity pools. Derivatives protocols are able to tap into this Synthetix liquidity currently through Perps markets.
Synthetix V3 isn’t a derivatives protocol. Instead, Synthetix is the liquidity layer that empowers other derivative protocols with its infrastructure. This is a new era of Synthetix and a fundamentally new offering.
At its core, the entire Synthetix V3 system is a Collateralized Debt Position (CDP) protocol. Users can take their collateral, deposit it into a smart contract, and then generate a stablecoin. In Synthetix's case, the system-generated stablecoin is sUSD.
The differentiator for Synthetix is that you can instead delegate your entire CDP to a larger basket of collateral called a Pool.
Pools can be considered a collective CDP, with baskets of collateral used to generate sUSD and allocate liquidity to derivative markets for traders to utilize. Pool owners are the deciders of how liquidity is allocated. Because of this, even though anyone can create and manage a pool, most stakers will likely direct their collateral to more ‘trusted’ pools.
Pools then use this collateral and allocate it to derivative Markets. Markets are arguably the most important piece of the entire protocol, as they're the logic that turns LP liquidity into onchain financial instruments.
Provide Liquidity & Earn
Providing Liquidity (aka "Staking") is a vital part of the Synthetix V3 ecosystem, allowing users to earn trading rewards and liquidity incentives. Liquidity providers enable Synthetix Perps and V3 trading.
The new Synthetix Pool and Vault system has two key benefits for LPs:
- Better risk management:
Users can select one of many liquidity pools, which are connected to one or more markets, allowing more fine-tuned control of LP risk.
- Wider collateral range:
The V3 system is oracle agnostic, allowing any governance-approved asset to serve as collateral for borrowing sUSD and delegate to derivative markets.
Flow of Liquidity and Fees
The system operates in a specific flow:
- Liquidity Flow:
- Liquidity Providers --> Pools --> Markets --> Traders
- Fee Flow:
- Traders --> Markets --> Pools --> Liquidity Providers
The Opportunity For You
The Andromeda Release marks a significant milestone for Synthetix, reinforcing Synthetix's position as a leader and innovator in the decentralized perpetual space.
Synthetix LPs have earned upwards of $25 million in profits through protocol fees in just over a year. This stands as a significant opportunity for stakers in V3 to benefit from providing liquidity to the ecosystem.
Chart Source: https://dune.com/synthetix_community/synthetix-stats
Although the newer staking model comes with greater opportunities, it also comes with complexities for users trying to manage their Synthetix V3 positions on their own. Take a look at the ecosystem diagram for Synthetix V3:
How Toros Generates Yield
Toros’ vault strategy is designed to help users earn rewards by providing their assets as liquidity to the Synthetix ecosystem.
In simple terms, users deposit their USDC stablecoin into the vault, then the vault converts it into sUSDC, a synthetic version of USDC, which is used within the Synthetix ecosystem.
Once converted, the vault delegates these funds to the main pool in Synthetix V3. This delegation allows users to earn rewards which are collected and reinvested into the vault periodically for auto-compounding.
Additionally, to manage any negative debt (trading fees) in snxUSD, Toros mints, withdraws, and swaps it into sUSDC, thereby enhancing the vault’s delegation amount.
Direct Benefits for our Users
Passive Income
By depositing USDC into our vaults, users can earn passive income in the form of rewards generated by providing liquidity to the Synthetix ecosystem. This means your money works for you without requiring constant attention.
Diversification
Depositing in our vault allows users to diversify their portfolio with a completely novel strategy, potentially reducing overall risk.
Simplified Process
The Toros vault abstracts away the complexities of directly interacting with the Synthetix V3 platform, making it easier for users to participate in liquidity provision without the headache.
Potential for Growth
As the Synthetix ecosystem evolves and grows, the value of rewards earned through the vault may increase over time, offering a greater potential for capital appreciation.
Overall, the new Toros + Synthetix Yield Vaults provide an opportunity for individuals to participate in the crypto space, earn rewards, and potentially grow their holdings, all while minimizing the complexities and risks typically associated with such activities on their own.
Vault Mechanics
Withdrawal Windows
Due to Synthetix v3 timelocks, depositors cannot withdraw from the vault at all times. A minimum withdrawal window of 72 hours per week will be provided. During this period, exit liquidity will be available.
This is the minimum window:
Days: Saturday, Sunday, and Monday.
Capped Exit Liquidity
Synthetix V3 timelocks prevent un-delegation and withdrawal of USDC in a single transaction. Un-delegation triggers a 24-hour lock. The strategy involves un-delegating a portion of USDC (10%) weekly. After the lock expiry, this USDC becomes available for withdrawal.
Stable Assets Conversion
Three stablecoin types are in the system. Toros pool uses USDC for deposits and sUSDC for delegation due to Synthetix v3 constraints. Trading fees in Synthetix v3 accrue in snxUSD. Conversion involves multiple contract calls, including wrap/unwrap, sell/buy in spotMarket, and mintUsd/burnUsd and depositCollateral/withdrawCollateral in other modules of the V3 smart contracts.Toros has automated this entire process for users.
Risks
Well-designed markets hope to generate delta-neutral fees for LPs - which, in this case, means that the fees earned by liquidity providers are unaffected by perps trader profit and losses, ensuring stable returns regardless of volatility.
Although liquidity providers enable Synthetix Perps V3, it is not without its risks. As liquidity providers underwrite trading, they can experience gains or losses dependent on net trader performance. While the perps system is intended to maintain delta neutrality, this is not guaranteed.
Security
An additional Toros audit was performed specifically for the integration of Synthetix V3, focusing on the smart contracts involved. https://iosiro.com/audits/dhedge-synthetix-v3-integration-smart-contract-audit
Technical
Summary
Toros has significantly enhanced its offerings with the launch of the Synthetix V3, introducing auto-compounding yield and automated debt management for users. The new Synthetix USDC Yield (sUSDCy) and the Synthetix USD Yield (sUSDy) vault simplify high-yield liquidity providing, making it accessible with a single click. By depositing USDC, users can earn passive income, diversify their portfolio, and benefit from the growth of the Synthetix ecosystem without managing complex positions themselves. The vault strategies auto-compound rewards and manage debts, providing a streamlined and potentially profitable experience for liquidity providers.
About Toros Finance
Toros Finance is a dHEDGE incubated protocol integrating Aave, 1inch, Uniswap, Velodrome, Kwenta and Lyra. Toros Finance aims to simplify access to complex automated strategies safely, to maximize your returns.