SIP-412: Acquire TLX and launch Synthetix Vaults

Author	Fenway
Status	Draft
Type	Governance
Network	Ethereum
Implementor	TBD
Release	TBD

Simple Summary

Synthetix is seeking to acquire TLX, a Synthetix leverage token protocol, as the foundation for launching an integrated vault strategy.

This strategic acquisition marks a significant milestone in Synthetix’s commitment to expand its capabilities, generate alternative revenue streams for SNX tokenholders and become the premier decentralised derivatives and earnings protocol.

Abstract

This SIP proposes to acquire TLX via a token<>token transaction on the following terms.

18 TLX <> 1 SNX, this represents an 8% discount to the 30d average price.
This is an implied valuation of $4.0m based on a circulating supply of 47m and a 30-day average SNX price of $1.53.
SNX received from acquired token conversions are subject to a 1 month lock and 4 month linear vest following the lock period.

To fund the acquisition, Synthetix would issue just over 2.6m new SNX tokens. This represents a 0.8% inflation over 1 year.

Motivation

The most successful vaults within the Synthetix ecosystem to date have been leverage tokens. TLX has launched over 50 leverage tokens with up to 10x leverage for 10 assets. Since launch ~6 months ago, TLX have maintained a high level of professionalism and have v2 leverage tokens live and v3 leverage tokens in audit (close to launch). These aspects along with their historical alignment with the Synthetix ecosystem makes them a highly attractive protocol to acquire.

Rather than continuing to outsource vault strategies, Synthetix should own and operate its own vaults. This will provide more optionality for users of Synthetix (e.g. simplified LP’ing, availability of trading strategies, additional yield generation opportunities), improving the customer experience and attracting a new audience into our ecosystem.

Vertically integrating vault strategies into the Synthetix stack compliments existing products and brings many benefits to the Synthetix system. Vaults drive TVL, grow OI, generate more trading and generate revenues for SNX tokenholders.

Whilst we will own vaults, we will also continue to work with vault providers utilising Synthetix liquidity.

Rather than building our own vaults and strategies from scratch, Synthetix can quickly ramp up and go to market by acquiring TLX. The acquisition is beneficial to Synthetix for the following reasons:

Hot start - Rather than spending the time to build and market our own vaults, the acquisition of TLX would present Synthetix with the opportunity to go live with over 50 leverage token vaults with up to 10x leverage.
Revenue Diversification - Vaults generate a new revenue stream that can be captured by SNX tokenholders.
Complementary products - Leverage token vaults can generate volume and fees on Synthetix perp markets (e.g. levered token strategies like 3x BTC utilise Synthetix perps and continuously rebalance, generating volume and fees).
Strategic Fit - The acquisition aligns with Synthetix's long-term strategy to broaden its offerings in DeFi, thereby strengthening its position as a market leader.
Efficiency - Operational efficiencies are expected from the merger of both Synthetix and TLX capabilities.

Specification

This acquisition is for everything related to TLX, including but not limited to the TLX platform, all related smart contracts, all code, all repos, all IP, all domains, all front-ends, all operations, everything in its treasury and treasury related wallets.

18 TLX <> 1 SNX, this represents an 8% discount to the 30d average price.
An implied valuation of $4.0m based on a circulating supply of 47m and a 30-day average SNX price of $1.53.
SNX received from acquired token conversions are subject to a 1 month lock and 4 month linear vest following the lock period.

Funding the acquisition

Synthetix will mint 2.6m SNX tokens to cover the cost of the acquisition. These tokens will be locked for 3 months and will vest linearly over 9 months after the locked period. This token mint represents an inflation of 0.8% to the total token supply over the following year. This token inflation should be more than compensated by the value added by integrating a vault strategy with existing users, TVL and revenue into Synthetix.

The decision to issue tokens was chosen over other financing options due to several advantages:

Liquidity for TLX token holders - their current tokenholders are liquidity trapped and do not have an avenue to sell a meaningful amount without receiving a significant amount of slippage.
Alignment of interests - By issuing tokens, both existing and new SNX holders will have a vested interest in the future success of the combined entity.
Community growth - TLX has a dedicated community, and bringing into Synthetix will grow the Spartan Army.
Capital preservation - This method allows Synthetix to preserve cash reserves for operational and future strategic needs.

Governance

The Tabby Council will be dissolved if the governance proposals pass in both communities. At this stage, governance will be transitioned over to the Spartan Council.

The TLX treasury will be absorbed into the Synthetix treasury. The Spartan Council will also become responsible for establishing operational efficiencies and allocating a new budget based on synergies created by the acquisition.

For this proposal to pass, not only will the Spartan Council need to reach a majority, but the sister proposal, TIP-14 (hosted in their Discord), will need to reach a majority within the Tabby Council as well.