Sesterce Capital is building a position in SYN, Synapse Protocol’s native token.
Sesterce Capital is building a position in SYN, Synapse Protocol’s native token. Synapse Protocol is a is a cross-chain layer protocol powering frictionless interoperability between blockchains.
Synapse Protocol, previously branded as Nerve Finance, is a cross chain layer protocol allowing frictionless interoperability between blockchains. Synapse allows decentralized transactions between the current layer 1 blockchains supported, sidechains and layer 2.Put simple, say you hold a token on the Ethereum blockchain, for example USDC, and want to interact with the Avalanche blockchain to use one of its dApps. You would need to convert your Ethereum USDC to Avalanche compatible USDC. Synapse facilitates this by providing a bridge between the two chains. The transaction settles in a few seconds/minutes for low cost, then enabling you to perform your wished actions on Avalanche.
Synapse Protocol’s most attractive feature for everyday DeFi users is its bridge of stable coins between all supported chains — Arbitrum, Avalanche, Boba, Binance SmartChain, Ethereum, Fantom, Harmony, and Polygon — with more connectivities in the works. We are especially looking forward to Synapse’ successful integration of Solana. We anticipate Neon Labs’ developments to provide a working EVM compatibility solution for Solana
Providing liquidity to the many pools hosted by Synapse from the chains that the protocol is integrated with benefits the user by rewarding a yield coming from the swapping and bridging fees, as well as a reward in SYN governance token.
While Synapse’ core feature and focus is on its cross-chain transactions development, it is also an Automated Market Maker (AMM) that allows low slippage swaps between pegged tokens; ie stablecoins on the supported chains.
AMMs allow digital assets to be traded in a permissionless and automatic way by using liquidity pools rather than a traditional market of buyers and sellers.
The Synapse network is secured by cross-chain multi party computation (MPC) validators operating with threshold signature schemes (TTS). The network is leaderless, and maintains security by each validator running the same process upon receiving on-chain events on the various chains that the MPC validator group tracks.
A secure multi-party computation (MPC) is a cryptographic protocol that distributes a computation across multiple parties where no individual party can see the other parties’ data. Validators are thus able to jointly work on solving the same function without compromising their privacy.
THRESHOLD SIGNATURE SCHEMES
A threshold signature scheme is a digital signature that relies on a paired public and private key. The public key is used to verify the existence of the signature while the private key is shared across a number of different validators, thus spreading the responsibility and ownership between several trusted parties.
Validators are currently selected based on community governance and consensus. Anyone can contact the Synapse community and request to become a part of the network. As Synapse continues to grow and as part of the upcoming Archean phase, validators will need to stake SYN to become an active part of the network. Validators will be incentivized to secure the network and incentivized by being distributed SYN tokens in the form of staking rewards sourced from their fair share of the transaction fees generated by the network.
Current chain integrations include, and are of course not limited to, Ethereum, Arbitrum, Avalanche, Fantom, Binance Smart Chain, Harmony, Polygon, Boba Network, Aurora, Optimism, Moonriver, and Moonbeam.
Synapse has recently been integrated with Coinbase Wallet. Users can now conveniently bridge between all the supported chains without having to leave their wallet. This new integration has the potential to attract millions of active Synapse Protocol users.
We expect Synapse to be integrated with more wallets and dApps in the future as it becomes a chain, which will enable people to build on it.
As of January 27, Synapse accumulated a total bridge volume of $5.41B distributed as followed:
With volume pace rapidly growing:
Bridging volume should continue its impressive growth as users look to move away from Ethereum due to on-going scalability issues and Synapse integrates more chains. Stats show that Arbitrum and Avalanche are the chains of choice for users looking for faster and cheaper transaction executions.
We are also especially excited for an integration of Solana to the list of bridges supported by Synapse in the future. We believe the development team is moving in that direction and especially looking forward to Neon Labs’ Ethereum Virtual Machine solution. An EVM compatibility would allow programs and dApps to be easily migrated over to Solana without the need for a language rebuild and/or fix.
Two of the few DeFi solutions for bridging with Solana are the Wormhole Network, and Allbridge, although not EVM compatible. As of today, they bridged and estimated $4.7B to and from Solana. We are looking forward to shares of this volume moving to Synapse.
THE SYN TOKEN
SYN’s primary purpose is to encourage participants to provide liquidity by entrusting their funds to the protocol’s smart contracts. Liquidity providers are rewarded in SYN tokens emitted every block corresponding to 550K SYN per week as of today.
Token holders also have a governance power in the protocol’s developments. The community is able to have a say in changes to smart contracts and monthly SYN emissions rate, as well as changes in supply cap.
Fees generated by the protocol are split between liquidity providers and the Decentralized Autonomous Organization (DAO) treasury. This allows the treasury to accumulate assets and provide a price floor enabling emissions and supply cap to be adjustable.
Validators will also need to be incentivized as the roadmap approaches the Archean phase release which will be a step forward to the protocol’s decentralization. Any token holder will be able to participate in validations while staking SYN.
What’s next for Synapse?
The inevitable outcome for the SYN token is to evolve into a layer 1 like chain, where SYN will be used as a native gas token, hence generating more revenue and offering a larger incentive for holders to stake. We project this will happen after the roadmap focused on EVM bridges integrations is fully deployed.
Nerve Finance, Synapse’ former name, announced in April 2021 closing a strategic round worth $2M led by Three Arrows Capital, CMS and Alameda. Synapse was added to the list of 3AC select investments recently. They have consolidated their position since with another $4M buy at around $2 per token according to on-chain data.
SYN token information as of 27 JAN 2022 according to CoinGecko.
Circulating supply: 175M
Max supply: 250M
Market cap: $370M
Fully diluted valuation: $530M
Total Value Locked: $1.085B
Market cap to TVL ratio: 0.34
The protocol is currently emitting 550K SYN tokens per week across its liquidity pools while the maximum supply is 250M token. It can virtually be changed by DAO after going through a SYN improvement proposal (SIP). The current circulating supply is 175M.
We believe the sell pressure from early investors is not significant enough as they were on a 3 month vesting schedule which is now fully unlocked.
SYN is not listed on any major exchange making it a “niche” token with an important barrier to entry.
We had a hard time finding applications that could compete with Synapse and we came to the conclusion that There Is No Second Best™. No but really. Synapse is the superior bridge in our eyes.
That being said, a comparable project leading Synapse in terms of valuation is ThorChain and their token RUNE, however not EVM positioned and focused on native swaps. And although we find it inferior in terms of UI and UX comparing RUNE’s value at ATH with SYN gives us the following value:
60/40% of swap fees are shared between liquidity providers and the treasury respectively.
Bridging fees vary from 0.04% to 0.10% depending on the token and chain used.
And since Synapse Protocol is a revenue generating dApp distributing cash flows to token holders we can make an attempt at estimating a fair value through a discounted cash flow valuation method.
Our assumptions are the following:
- We solely look at the bridging revenue source, Synapse' main attractivity.
- Synapse will bridge around $2.5B in January, we extrapolate this trend for the whole year.
- Bridge fee varies from 0.04% to 0.10%, we assume an average of 0.07%.
- Volume did 10x' magnitudes in H2 2021, we assume the following growth rates
- We apply a discount rate of 10%.
- We apply a perpetual growth rate of 4.5%
Revenue numbers in millions