Synthetix has recently surpassed its closest decentralized exchange (DEX) competitor in trading volume, yet shrinking user activity across decentralized exchanges might signal a potential downturn. While Synthetix recorded over $1 billion in weekly volume—more than double that of GMX during the week starting May 17—the sustainability of this growth remains in question.
Data from Token Terminal highlights Synthetix as the second most active platform in the derivatives DEX space. A significant driver appears to be the token incentives offered to perpetual swap traders on Optimism. Despite this jump in activity, SNX, the native token of Synthetix, faced resistance around the $2.50 mark after climbing roughly 10.3% over the past week.
Meanwhile, other major players like GMX and dYdX are experiencing a decline in trading activity, with their native tokens showing bearish technical signals.
How OP Incentives Drove Synthetix Trading Volume
Synthetix offers perpetual futures contracts through Kwenta, a decentralized application operating on the Optimism Layer 2 network. A proposal approved by the Synthetix community initiated a 20-week incentive program starting in April, distributing 3.65 million OP tokens—valued at approximately $5.7 million—as rewards to Kwenta users based on trading activity and the amount of SNX staked.
Since the announcement in March 2023, data from DefiLlama indicates a sharp increase in Kwenta’s usage, strongly correlating with the introduction of these OP rewards. A Dune analytics dashboard created by researcher Gunboats reveals that for every dollar spent on fees trading Synthetix perpetuals, users earned $1.27 in OP tokens. This effectively created a $0.27 profit margin per dollar after accounting for risk, encouraging high-frequency trading primarily to farm rewards.
Interestingly, the total value locked (TVL) in the Synthetix ecosystem has remained steady at around $430 million since early 2023. This suggests that the increased volume isn’t due to an influx of new capital but is instead driven by existing users optimizing for reward extraction.
A comparison of open interest (OI) across major derivatives platforms further indicates that Synthetix’s volume might be inflated. Kwenta’s total OI sits around $50 million, significantly lower than GMX’s OI, which ranged between $130 million and $150 million in May, and dYdX’s, which stood between $250 million and $270 million.
The ratio of weekly trading volume to OI is telling: approximately 26 for Synthetix’s Kwenta, compared to 16 for dYdX and 3.77 for GMX. High volume-to-OI ratios have historically been a sign of reward-driven, rather than organic, activity—a phenomenon previously observed with dYdX.
From a technical perspective, the SNX/USD pair is facing resistance near $2.50, a level that coincides with its 50 and 200-period exponential moving averages (EMAs). A decisive break above this resistance could see buyers target the 2023 peak near $3.30.
In a significant development, Synthetix founder Kain Warwick proposed 12 improvements to the protocol on May 23, including a “buyback and burn” initiative that could potentially remove $60 million worth of SNX tokens from circulation. This proposal is explicitly designed to support the token’s price by reducing its available supply.
Examining the Decline in GMX and dYdX Activity
In contrast to Synthetix, both GMX and dYdX have seen a noticeable contraction in key metrics throughout May 2023. A primary reason appears to be a lack of volatility in the prices of major assets like Bitcoin and Ethereum, which typically drive trading demand.
Weekly fees earned by the GMX protocol were nearly halved in May compared to previous months. This decline in revenue directly impacts GMX stakers, as 30% of platform fees are distributed to them. Consequently, the staking ratio—the proportion of staked tokens to the circulating supply—decreased from 71% to 69%, indicating some stakers may be seeking higher yields elsewhere.
On a positive note, GMX’s TVL has remained robust, holding above $650 million. This suggests that while trading activity and fee generation are down, capital has not significantly exited the ecosystem.
Technically, the GMX token has broken below the crucial $59.30 support level, which aligned with its 200-day moving average. This breakdown opens the door for a further decline toward the $40.28 support zone. Although the Relative Strength Index (RSI) suggests the token is oversold and could be due for a short-term rebound, the weakened fundamentals may limit bullish momentum.
The story is similar for dYdX. While its open interest remained relatively flat, trading volume declined in May. The DYDX token fell 7.53% on May 24, mirroring GMX’s downturn and losing support below its 200-day moving average around $2.10. The token is now approaching a bearish target near $1.22. For the outlook to turn positive, buyers would need to reclaim the $2.10 level and push toward $2.50.
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Frequently Asked Questions
What caused Synthetix's trading volume to surge?
The surge was primarily driven by a 20-week incentive program distributing OP tokens to users who traded perpetual swaps on Kwenta and staked SNX. This created a profitable opportunity for users to earn more in rewards than they paid in fees, encouraging high-volume trading.
Is the high trading volume on Synthetix sustainable?
The sustainability is questionable. The volume appears heavily influenced by token incentives rather than organic trading demand. Key metrics like a high volume-to-open-interest ratio and a stagnant TVL suggest this activity may subside once the incentive program concludes.
Why are GMX and dYdX volumes declining?
A significant lack of price volatility in major cryptocurrencies like Bitcoin and Ethereum has reduced trading opportunities and demand. This has led to lower fees earned by the protocols, making them less attractive to stakers and traders alike.
What is the "buyback and burn" proposal for SNX?
Proposed by Synthetix's founder, this initiative would use protocol funds to buy SNX tokens from the open market and permanently remove them from circulation. The goal is to create deflationary pressure and potentially increase the token's value by reducing its supply.
What key levels are traders watching for SNX and GMX?
For SNX, the key resistance is at $2.50; a break above could target $3.30. For GMX, losing the $59.30 support was bearish, with the next major support at $40.28. Reclaiming the lost support level is crucial for any bullish recovery.
How does TVL differ from trading volume?
Total Value Locked (TVL) represents the total capital deposited in a protocol's smart contracts. Trading volume is the total value of trades executed on the platform. A protocol can have high trading volume driven by incentives without a corresponding increase in TVL, indicating that new capital isn't necessarily flowing in.