or how we pivoted to become a black hole protocol…

Kwenta provides a reliable frontend with best-in-class UX to access Synthetix perpetual futures. The UI provides a suite of familiar tools for users to construct positions they can confidently open and close. For revenue, Kwenta receives a 5% rebate for all fees generated on Optimism for Synthetix V2 markets paid in SNX and a 20% fee rebate for fees generated on Base for Synthetix V3 markets paid in USDC. We have a council-centric DAO that governs the protocol’s code and a token which can be staked to vote in council elections. Once profitable, the DAO aims to redistribute profits to stakers and use earnings to fuel product refinement. Simple.

The Problem

Kwenta has a team of S-tier developers and growth specialists dedicating their time and energy to a product that is not as profitable as it should be.

Kwenta has generated over $44 BILLION USD in volume over the course of nearly 2 years. That’s $44 Billion USD of mostly organic volume; note that we had ongoing OP incentives for roughly two months which accounts for a minority of our overall volume. We currently maintain around $100-$200M in non-incentivized open interest which you’ll find competitors with heavy trading incentives fail to display. To show for it, we have ~400k SNX. That’s around $1.6M. However, Kwenta can’t dump these SNX tokens to cover costs because that would break our hearts, we can’t distribute it to stakers because then we’ll have nothing to fund operations in a pinch, and staking the token mints a debt owed that is slowly repaid overtime meaning its a very impractical token to derive revenue from as a staker. In other words, we have some emergency funds to cover payroll in return for generating - and I’m aware I’m repeating myself - over $44 BILLION in volume…

The Solution

We are faced with a thriving product built on top of an unsustainable model. However, Kwentans are far too hungry to sit idle. Behind the scenes, a multi-faceted strategy has gradually begun to take form and transform the Kwenta protocol.

Transformation 1: Add a Fee

Historically, Synthetix has actively fueled competition and traders have been very sensitive to fees. This meant that new competitors were on our heels and, having a fee, competitors could easily undercut in order to take away our traders. But times have changed. After dominating on perp V2 for nearly two years… We can, in my opinion, comfortably add a small fee to V2 in an effort to develop our runway. If we see any sign of competition gaining our volume share, a decrease in global volume, etc. we will halt the fee. Ultimately, this will function as a tool for Kwenta to encourage users to migrate to V3 as we begin to dedicate more resources there.

So yes, the sentiment across the community has changed, and we should add a fee to V2 markets.

Transformation 2: Add Another Liquidity Source

If we’re being honest… the only reason we haven’t done this is because we couldn’t bear the thought of working with anyone else other than our loving parent DAO, Synthetix. We’re a light weight front end that can build on top of liquidity sources with the goal of focusing on providing a better UX than any liquidity provider can via specialization. Therefore, offering as many markets as possible, one would think, should play a role in that strategy. Kwentan’s, however, are loyal creatures. Even when obvious avenues for new revenue had been on the table, we saw our partnerships and the support they’ve provided as more valuable in the long run.

It wasn’t until Perennial came to the Kwenta DAO with a thoughtful and encouraging proposal that the DAO finally caved. After speaking with this group, we saw a hunger and collaborative spirit that the Core Contributors identified closely with. They offered a level of hands-on support that went above and beyond our expectations, talented contributors, a fee share that’s 7X more than our current rewards on V2 perps, and the benefits of working with an emerging protocol. The final component that sold the DAO’s council was their decision to use Arbitrum, one of the only chains that has a proven track record of actively fuelling and supporting DeFi onchain.

After reviewing the facts about how this would impact our DAO, we made the painful decision to expand our liquidity sources. We want to work with more talented and hungry devs. We want to diversify and grow our revenue. We want to work on the best chains in DeFi. And lastly, we want to continue to do our existing incredible partners justice; in fact, we want to exceed the potential of our current relationships by innovating with liquidity sources as an aggregator. If you’re a perps liquidity source who wants to be included in our warpath, noting Synthetix and Perennial dominate our roadmap at the moment, don’t hesitate to dm. We have a lot to talk about.

As of two weeks ago, the DAO officially accepted a proposal to add Perennial as a liquidity source.

Transformation 3: Make Our Own Perps

When the first draft of Kwenta native perps went public, it felt like we had broken something sacred with our relationship with Synthetix. At the time, we did a very simple analysis and saw not enough money had been coming in to be sustainable and realized it would be prudent to begin to create new revenue streams in order to survive. We dug into our imaginations on what we could do to innovate our way to being cashflow positive and found we had all the skills and creativity to execute on something powerful. What we didn’t anticipate was the emotional journey we were embarking on as we had to confront that we wouldn’t be dedicating every inch of our resources to the protocol we grew up to love so much.

We want to thank all the Synthetix community members who have been supportive of our creativity, even finding ways for us to continue to have synergy, viewing our needs as an opportunity for growth: we appreciate you dearly and will continue to share the belief you have in our success in yours too.

We have since innovated our way to a first-of-its-kind: Onchain Quanto Perpetual Futures. This asset is not as complex as its name implies. Quanto perps provide perps traders with exposure to the price action of the collateral backing the system. If the collateral backing the system is ETH, then your perps position, say UNI/USD, will include exposure to ETH price swings, allowing traders to maintain exposure to assets while still trading perps. A perfect bull-market product. Built within Synthetix V3. Kwenta has a branch of utterly cracked developers tackling this as we speak.

Quanto perps by Kwenta are rumored to be code complete and will be launching on a chain near you soon.

Transformation 4: Change Our Tokenomics

Why? Everything works, right? People stake and vote in elections, they get inflation, and that adds to the proportion of the supply they have, which will potentially dictate how much revenue they have a claim to once fees roll in, plus inflation is locked for a year to encourage long term alignment, and people can freely enter and exit via AMM pools… But the price is down, liquidity is low, and fees have still not started to roll into the hands of stakers. So maybe it is time to explore a new tokenomics model.

After some discussion with community members, I’ve begun drafting a new tokenomics model that will better position the DAO to expand far beyond its current state. DeFi is a space for financial innovation and when the old and simple models fail, there’s boundless room for innovation. I’ve been drawing inspiration from OHM, VEC, and similar protocols to create a sustainable system for consuming DeFi, fwiw.

In the coming weeks, I plan to propose a KIP that will change the tokenomics of KWENTA, propelling the protocol onto a path for it to become the black hole of DeFi.

The New Vision for Kwenta

Kwenta will become a perpetual futures aggregator offering best-in-class UX with the most markets available in DeFi. We will capture a fee share ranging from 20-35% of volume generated from liquidity providers and in-house offerings. Our tokenomics will enable stakers to participate in governance, capture rewards, and scale the protocol to consume the best parts of DeFi.

These changes have been subtle, easy to miss. The outcome, however, is massive for Kwenta. We’ve made the hard decision to expand to new liquidity sources, bet big on the talent of our own DAO, and taken steps that I personally have absolute confidence, not hopium, we can execute on. It’s all within reach, it's just a matter of time. It’s inevitable. Kwenta is turning the corner out of a winter of development and has found its new path to Valhalla.

Here is precisely what Kwenta will do to usher in this new era:

Focus on best in class UX.
Aggregate new liquidity sources that provide markets that users want and that offers users and the DAO material value.
Develop our own complimentary markets we can dog our food within our system, starting with onchain Quanto Perps.
Develop new tokenomics that can catapult the DAO into a more ambitious direction.
Appointments with therapists for all Kwentans to get over the heartbreak of out-growing our parent DAO.

SNX Disclaimer: We still love SNX. We have close personal relationships with contributors, community members, and OGs. We believe in them, we agree with their vision, and will continue to prioritize and support them. V3, at scale, is the benchmark for the best onchain perps in DeFi. Go see for yourself, it’s truly so valuable that we have no choice but to include it in our protocol. Brilliant minds and very hard working people have put a ton of time and energy into Synthetix and we see you; we respect and appreciate everything you’ve done.

We owe the robust DAO structure we have, the levels of volume we’ve brought in, and the partnerships we’ve since forged to our inception from within Synthetix. However, as a consequence of splitting out into our own protocol and heading into untested territory, we’ve learnt to proritize the needs of KWENTA stakers. We now have a responsibility to the Kwenta DAO. We truly believe in its future. That future will include Synthetix, but it will also include other ways for us to create value.

Kwenta is on the verge of something huge. We’ll need every contributor and community member onboard to recreate Kwenta as one venue to seamlessly access liquidity across the space. Kwenta is coming to consume DeFi.

Join this revolution and help us steer the black hole we are about to unleash. We’ve included some steps below.

Sincerely,

Andotlas

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