Synthetix Proposes Acquiring Kwenta From Tokenholders

Synthetix, the veteran DeFi protocol, is looking to acquire Kwenta, a derivatives exchange that spun out of Synthetix in 2020.

On Oct. 29, a proposal outlining plans for Synthetix to acquire Kwenta, the top project within Synthetix’s ecosystem by trade volume, was published to the governance forums of both Synthetix and Kwenta.

Should both projects pass the proposals, Kwenta would be rebranded as a new incarnation of Synthetix Exchange, Kwenta’s treasury would be absorbed into the Synthetix treasury, and the Kwenta subdao would dissolve with governance over the front-end handed over to Synthetix’s Spartan Council.

Acquisition terms

The deal would comprise Synthetix purchasing 532,375 KWENTA — the token’s entire circulating supply — with roughly 9.05 million ($13.2 million) newly minted SNX tokens, resulting in SNX’s supply inflating by 2.8%.

The deal would be closed at a ratio of one Kwenta to 17 SNX, equating to a 19% discount compared to the price ratio of KWENTA/SNX based on a 30-day moving average. Synthetix said the discount reflects the disparity between the two assets’ trade volume, with SNX driving $20 million in daily volume on major centralized exchanges compared to just $100,000 for KWENTA.

As such, Kwenta acknowledges that it is currently “difficult for tokenholders to access the value for their assets,” meaning the token migration would benefit holders through deeper liquidity.

Following approval, a token migration contract would allow KWENTA holders to burn their assets in exchange for SNX vesting contracts. All SNX received by KWENTA holders would be subject to a three-month lockup and subsequent nine-month linear vesting schedule.

Synthetix told The Defiant that all remaining SNX that have not entered circulation are currently held by the Kwenta and Synthetix treasuries, and will be burned should the proposal go through.

Synthetix Exchange

In 2020, Synthetix divested its Synthetix Exchange front-end in a bid to revamp itself as a liquidity provision protocol powering a diverse ecosystem of front-end integrations.

However, Synthetix now describes this move as a “strategic error” that created distance between the project end users, in addition to fostering poor economic models for front-end integrations. Despite Kwenta driving more than $60 billion worth of trade in the past four years, the project said it has struggled to establish a sustainable business model for the mid-long term.

“Synthetix lost control of the point where customers most interact with their perp engine, and the commercial model has historically not proven to be sustainable for front-ends,” Synthetix said. “This strategic acquisition will ensure Synthetix is closer to the end customer, so it can build better perp products, which will benefit all integrators… Reuniting Synthetix and Kwenta is the solution to offering a competitive perps product.”

Synthetix said the move would also realign the strategic objectives of it and Kwenta, noting that differences in roadmap priorities have previously resulted in delays for Synthetix shipping upgrades.

Synthetix added that it will continue to work closely with other front-ends and products that leverage its perp engine despite the acquisition.

The price of SNX is up 2.7% over the past 24 hours, while KWENTA is down 5% over the same period.