Synthetix has partnered with dHEDGE to deploy a one-click debt mirror index for SNX stakers on mainnet Ethereum. With this tool, each staker can hedge their exposure to the debt pool.
Main article points:
- dHEDGE tool that helps automate SNX stakers’ debt management by automatically mirroring debt pool
- To activate it, a staker needs to purchase a debt mirror index token (dSNX)
- Currently available on L1 Ethereum
- In the future, it is planned to be built on L2 Optimistic Ethereum
The Challenge for SNX Stakers
SNX stakers are exposed to the price fluctuations of all outstanding synths and have the challenge of hedging their exposure to the debt pool. To hedge this exposure, stakers need to replicate the debt pool by buying (or shorting if required) the underlying assets of outstanding synths (e.g. if debt pool is 50%sUSD & 50%sETH, if one wants to be hedged, he/she would need to hold 50%USD & 50%ETH). This is an expensive and tedious process that requires ongoing management.
The dHEDGE team has introduced a simple one-click solution that handles debt hedging by automatically replicating the global debt pool. To activate it, a staker needs to purchase dSNX tokens to automatically hedge their debt.
How to Utilize the dHEDGE dSNX Token Solution?
All a staker must do is navigate to the Synthetix Staking website’s debt section and purchase the dSNX token through the UI which is integrated into the ‘Manage Tab’. 1 sUSD worth of debt mirror token will hedge one sUSD worth of debt.
Example: If you have 100,000 of sUSD active debt and purchase 100,000 of the dHEDGE debt mirror index token, it will keep your debt in parity with the debt pool without any outside interaction.
IMPORTANT: Users should pay attention to the slippage they would incur if executing large trades of dSNX.
The Debt Mirror Index in the Backend
Things are a bit more complex in the backend. While purchasing the debt mirror token is done on layer one Ethereum through a Uniswap V3 pool, the pool containing the assets that replicate the debt pool exists in Polygon. Users do NOT have to do anything in Polygon; all interactions for the user are handled on Layer 1 Ethereum.
This index token gets continuously rebalanced to hold the assets that comprise the debt pool, including borrowing and shorting via AAVE any % required by the debt pool. A redeemable token is then ported to mainnet Ethereum, which enables a single token debt hedging solution.
The current implementation of the debt mirror index currently exists in polygon primarily because there are currently no liquid lending pools to short assets on OE.
Specifics on the Debt Mirror Bot
Please visit the blog post on the dHEDGE site for specifics on the debt pool. – dHEDGE Docs
Future of the dHedge Debt Mirror Index
While this solution has been initially launched to layer one, we’re working hard alongside the dHEDGE team and protocols on OE to make this a reality for OE stakers as well.
Currently, this solution cannot be launched on L2 because there’s no ability to mimic non-synthetic assets to track the debt pool. Once more protocols launch on L2, the debt mirror index will be launched there as well.