Thread by @kaiynne

I’m starting to come around to the idea of deploying the @synthetix_io Exchange contracts to multiple L1’s. This is purely based on a concept that emerged recently for Synths to act as fast withdrawal bridges across networks. Synthetix has some *weird* properties so a 🧵👇

As @AndreCronjeTech demonstrated recently

https://twitter.com/AndreCronjeTech/status/1466367684271132674?s=20

20% of people are willing to lie about the fact that they understand how Synthetix works to look smart.

For everyone else a quick overview of how Synthetic works before I dive into the concept of bridges.

There are main two components to Synthetix. Staking and Exchanging. Staking takes SNX and other collateral and turns it into Synths. Think ETH -> DAI in Maker.

Exchanging is by far the cooler side. It allows you to take any Synth e.g. sBTC, sETH, sUSD and many more and convert between them at the current @chainlink oracle price.

In order to do this the protocol has the ability to burn one synth and mint another synth. This ability enables exchanges but also creates the potential for cross chain bridges.

To the best of my knowledge no one else has been stupid enough to try something like this. And for good reason, when you allow direct swaps like this it creates all kinds of attack vectors. Even mirror silos pools. This is one of the reasons we decided to pursue @optimismPBC .

On Optimism the lower latency of the network allows for atomic transactions between Synths, there is no waiting time which means once we start to get more traction on Optimism the integration of Synths will create significant volume for the protocol, @lyrafinance is already there

The other reason was to the reduce the costs for stakers who must maintain their collateral ratios on a weekly basis. So in the next few months the staking side of the protocol will be completely migrated to L2 to reduce costs for everyone.

You will then have exchanges supported on both L1 and L2 but backed by collateral only on Optimism. Because Synths across both networks are backed by the same pool of collateral the protocol can easily burn synths on one network and mint them on another.

What is missing is cross chain messaging. But like with the oracle prices @synthetix_io uses @chainlink to pass messages between networks about the total supply of Synths on each network to ensure the protocol remains collateralised. These messages can enable fast withdrawals.

Crucially this works even if all of the collateral is on one network and all of the Synths are on another. From the protocols perspective this is not an impediment.

The contracts that manage this will be called Synth teleporters. Because like Star Trek style teleporters, they destroy the thing they are teleporting on one side and recreate it on the other side.

This would allow for a fast withdrawal or deposit between L1 and L2 of tens of millions of dollars in practice and orders of magnitude more in theory, constrained only by the Synth supply.

But there are other benefits, because of the work of @CurveFinance and @AndreCronjeTech we have cross asset swaps on L1, and hopefully on L2 soon. This means you can take WBTC on L2 and get USDC on L1 requiring 1 or maybe 2 transactions, in only a few minutes.

One of the major objections to cross-chain bridges is that most of them are just multisigs and the ones that aren’t are very complex and therefore hard to reason about. H/t @RuneKek.

Synthetix very complex so it doesn’t offset this argument, but it has been running on mainnet for years and the contracts are pretty battle hardened so this presents an opportunity.

If you can use Synths for cross chain fast withdrawals you probably need the Exchange contracts everywhere that people will want to move funds. In the immediate term, @0xPolygon and @arbitrum definitely and other networks later if this two work.

You could even build a scheme that allowed you to have this be user controlled, where a signed message is generated by one side of the bridge that can be presented to the other side. There are several variations on this that are possible.

Having used Optimism daily for several months I am seeing a trend of improving liquidity but it is still very very far away from mainnet in terms of market efficiency.

Using synths to span the four major networks in the Ethereum ecosystem could rapidly increase liquidity across all of them.

This is still not possible until after the debt pool synthesis in a month or so, but once that is out of the way work on teleporters will begin and we will hopefully see an implementation across L1 and Optimism in Q1. Other EVM networks could follow fairly quickly.

The concept needs more discussion and feasibility study but in principle it is possible. The question then becomes does the protocol charge a fee for this service, I think it makes sense to do so provided it is not prohibitively expensive.

Probably nothing.