DeFi protocol Synthetix is setting its sights on acquiring Kwenta, a derivatives exchange that emerged from Synthetix itself in 2020.
On October 29, the project published a proposal outlining the acquisition plans in the governance forums of both Synthetix and Kwenta.
If approved, the exchange, recognized as the leading project within the Synthetix ecosystem by trade volume, will be rebranded as a new version of Synthetix Exchange.
Kwenta’s Treasury to be Integrated into Synthetix
Additionally, Kwenta’s treasury will be integrated into the Synthetix treasury, while the governance structure surrounding Kwenta will dissolve, transferring control to Synthetix’s Spartan Council.
The financial terms of the deal include Synthetix purchasing the entire circulating supply of Kwenta, totaling 532,375 KWENTA tokens, for approximately 9.05 million newly minted SNX tokens, valued at $13.2 million.
The transaction will inflate the supply of SNX by 2.8%.
The acquisition will proceed at a ratio of one KWENTA for 17 SNX, representing a 19% discount relative to the 30-day moving average price ratio of KWENTA to SNX.
Synthetix attributes this discount to the stark contrast in trading volumes, with SNX achieving daily volumes of around $20 million on major centralized exchanges, while Kwenta manages just $100,000.
Kwenta’s team has acknowledged that the current market conditions make it challenging for token holders to unlock the value of their assets.
The proposed migration is designed to enhance liquidity for these holders, making it easier to convert their assets.
Upon approval, a token migration contract will allow KWENTA holders to burn their tokens in exchange for SNX vesting contracts.
These contracts will come with a three-month lockup period, followed by a nine-month linear vesting schedule.
Synthetix Says Separation From Kwenta Was an Error
Reflecting on its past, Synthetix noted that the decision to separate its exchange front-end in 2020 was a “strategic error.”
The move inadvertently distanced the protocol from its end users and resulted in ineffective economic models for front-end integrations.
Despite Kwenta processing over $60 billion in trades since its inception, the project has struggled to find a sustainable business model.
Synthetix said that this acquisition would restore its connection to the customer interaction points, enabling it to develop superior perpetual (perp) products that benefit all integrators.
Following the announcement, SNX’s price saw a 2.7% increase, while KWENTA experienced a decline of 5% in the same timeframe.
The proposal comes amid the growing adoption of derivatives products among risk-aware investors.
As of now, trading in futures and options constitutes 71% of all digital asset trading volumes, the Financial Times reported last week, citing data from CCData.
The report also noted that open interest in crypto derivatives has crossed the $40 billion mark for the first time this year.
For many traders, the primary allure of derivatives lies in their ability to amplify exposure through borrowing.
Furthermore, the collapse of major lenders such as Genesis, BlockFi, and Celsius following the 2022 market crash has created a void in the lending landscape.
As unsecured borrowing has become largely unavailable, traders are increasingly turning to derivatives to gain exposure to crypto assets without the need to commit full capital upfront.
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