As crypto markets rallied to kick off the new year, a handful of DeFi’s subsectors are outperforming. Liquid staking derivatives (LSDs) have been big winners, with Lido’s TVL jumping a third, to $7.8B, since Jan. 1.
Another sector, perpetual futures — a derivative that behaves like a futures contract but doesn’t expire — is now spiking, too.
Synthetix, one of the oldest DeFi protocols on Ethereum, launched a second iteration of its perpetuals platform on the Layer 2 network Optimism in December.
Since then, Synthetix has seen daily active users jump to 5,800 from 2,300 a day on Jan. 9, according to data from Token Terminal.
That’s an all-time high for Synthetix, which is often mocked, even by the protocol’s own team members, for having a dearth of active users.
Mike Griffith, a core contributor to Synthetix, ascribed the growth to users of the new perpetuals product.
“I think Perps V2 is certainly a large factor in the momentum,” Griffith told The Defiant. “It’s finally a perps product that we feel really lives up to what we set out to build ~2 years ago in a cheap, permissionless and composable perps engine that can rival the [centralized exchanges].”
Centralized exchange (CEX) BitMEX pioneered perpetual futures in 2016 with great success. Perpetuals have since been adopted by top exchanges like Binance, as well as more decentralized projects like dYdX.
Synthetix isn’t the only perpetuals protocol hitting all-time highs — GMX, another major player in the category that operates on Arbitrum, also set a record in terms of fees generated for stakers of the GMX token, on Jan. 8, according to a dashboard provided by the project.
Of course, these spikes are bound to occur during bouts of volatility like the one crypto has experienced in the last few weeks, with traders jockeying to take advantage of price swings.
Griffith agreed that sharp price moves contributed to the highs, though he added that Synthetix may not be as beholden to market conditions in the future.
“I think the volatility certainly contributed to some of the recent momentum,” he said. “Our products, once optimized, should develop a sizable base of volume in any environment.”
Regardless, Synthetix and GMX are booming relative to conventional decentralized exchanges (DEXs) in recent weeks — leaders like Uniswap and Curve have seen an uptick in volume in January, but mainly just to levels reached in December.
Notably, both GMX and Kwenta, the primary project which integrated Synthetix’s new perpetuals product, run on Layer 2s (L2s), which are scaling solutions for the Ethereum blockchain.
“We can’t really do perps on Layer 1,” Griffith said, adding that the fees would be prohibitive to all but the deepest pockets and that the user experience would also suffer.
To be sure, Synthetix has had other brief stints of momentum — in June of last year, the protocol collected nearly a million dollars in fees, which are paid to stakers of the SNX token when traders swap synthetic assets. Fees quickly dropped off, however, according to CryptoFees.
Fees paid to SNX stakers for the past year.
Wave of Momentum
Synthetix’s SNX token is also riding the wave of momentum which has carried most digital assets higher in the new year. SNX is up 50% in 2023, more than ETH at 30%, but less than Lido’s red hot LDO, which has surged 121%, according to The Defiant Terminal.