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Synthetix fee reclamation and rebates work details

By Inkarias - 2020-03-24

In the previous months, and following the Achernar release, the Synthetix has integrated a new system, the fee reclamation and rebates. Published as a Synthetix Improvement Proposal (SIP-37), this project is intended to prevent traders from front-running the latency of Ethereum block processing therefore improving the trading experience as well as the scalability of the network and associated operations. For all synthetic assets issued by the Synthetix protocol, the system requires regular real-time prices pushed on-chain, considerably increasing the gas costs. The team has integrated with Chainlink to use their decentralised price feeds for the forex and commodities, and will soon be transitioning the other assets to Chainlink (SIP-36). Fee Reclamation provides a great alternative and solution to the existing problems.

How does the system work?

[caption id="attachment_8704" align="aligncenter" width="972"]Synthetix rabate https://blog.synthetix.io/how-fee-reclamation-rebates-work[/caption]
Whenever a trade occurs on Synthetix.Exchange, there is a predefined waiting period which is currently set at 3 minutes delay. During this waiting period, users cannot exchange, transfer, or burn the Synth they have just traded into. This waiting period gives the oracles enough time to check the difference between the initial price and the new price avoiding any latency that could occur during the trade. If a trade was affected, then the traders either owes Synths (reclamation) or is owed Synths (rebate), and must either pay or be paid these Synths. Therefore, the next time they exchange, transfer, or burn that Synth, the settle function is called, which settles this debt. If they’re owed a rebate, they receive extra Synths from the feePool to cover what was lost from the price update lag. If they owe reclamation, it is paid to the feePool from their Synths next time they exchange, transfer, or burn. This new system is a great improvement for the Synthetix ecosystem and the traders.
More details on fee reclamation and rebates at https://www.synthetix.io