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SynFutures is the “Uniswap in the field of futures contracts”. Users can easily list their futures contracts with just a few clicks, and can purchase the required derivative contracts in a permission-free manner.
Original Title: ” Synthetic Derivatives “
Written by: Paul Veradittakit, Founding Partner of Pantera Capital Compiled by: Lu Jiangfei
In just over a year, DeFi has begun to “invade” many core use cases of traditional financial systems. Some core infrastructure modules of DeFi—for example, lending agreements and decentralized spot exchanges—have found product/market fit. However, there are still many indispensable elements in the traditional financial field, and they have not yet been subverted.
Derivatives may be the next financial “Lego block” to be disrupted by DeFi. Why do you say that? Let us speak with data: In 2019, spot transactions (stocks, bonds, commodities, etc.) accounted for only 30% of the total trading volume in the financial industry; the remaining 70% came from futures and options. No matter which way you analyze, the conclusion is clear: the financial market has a great demand for derivatives.
At present, digital asset derivatives are still in the early stage of development. Despite this, we still see an upward trend in the digital asset derivatives market. In December 2020, the average daily trading volume of crypto asset derivatives exceeded US$1.3 trillion, accounting for more than half of the market value of the entire cryptocurrency industry. In addition, the proportion of digital asset derivatives trading volume has reached 55%, surpassing the spot trading market.
So, where are digital asset derivatives traded today?
Currently, the vast majority of encrypted derivatives are traded through centralized exchanges, such as Binance, OKEx, etc. Centralized exchanges are favored by derivatives traders mainly because of the following three advantages:
- Able to accumulate large amounts of liquidity;
- Provide reasonable and competitive interest rates;
- Can effectively attract large financial institutions.
Source of the above image: The Block
But now, the situation seems to be slowly changing. We know that in the early stages of digital currency development, due to the advantages of user-friendliness and low transaction fees, most digital currency transactions are completed in centralized exchanges such as Coinbase or Binance. However, over time, decentralized exchanges such as Uniswap or 0x have begun to emerge, and they can provide users with value in ways that centralized exchanges simply cannot provide, such as:
- Provide a wider and larger number of trading pairs;
- Provide higher liquidity and so on.
Today, nearly 15% of spot transactions are completed (settled) on decentralized exchanges, which is an amazing achievement for the entire digital currency ecosystem-but in fact, everything has just begun.
Source of the above image: The Block
We believe that a similar situation will occur in the derivatives market.
Centralized trading has many limitations. In the recent market volatility, the impact of these restrictions has been fully highlighted, including:
- There is an opaque behind-the-scenes mechanism, which may cause controversy in the case of forced liquidation.
- Relying more on institutional trust, some traders who buy long-term derivatives because of concerns about the issuer’s bankruptcy will be turned away.
- Operational efficiency is very low, privacy settings are complicated, and the addition of new transaction pairs is very slow.
- There are regulatory risks that may affect the accessibility of transactions. For example, the Financial Conduct Authority (FCA) of the United Kingdom recently stated that Binance Markets, the holding company of Binance in the United Kingdom, shall not carry out any financial business regulated by the FCA in the United Kingdom, and cannot provide personal information to individuals. Clients provide loan business.
At the same time, as the decentralized derivatives exchange matures, we believe that this “new” type of exchange can provide more superior products and services, just as they do in the spot market. In fact, the question now is not whether decentralization will come, but when it will come.
SynFutures: Anything. Anytime.
SynFutures is a decentralized derivatives exchange. They are seizing the current huge market development opportunities. They recently successfully raised a US$14 million Series A financing. Pantera Capital is one of the investors. In addition, the SynFutures team also launched the Closed Alpha version of the platform in June this year, which was launched on the Ethereum mainnet and Polygon.
In short, SynFutures is the “Uniswap in the field of futures contracts”: users can easily list their futures contracts (which support any trading pair) with just a few clicks, and can purchase the required derivatives in a permission-free manner contract. SynFutures has three core goals:
- Make it accessible to anyone;
- Highly decentralized;
- Compatible with as many trading pairs as possible.
Currently, the protocol is built on Ethereum and Polygon. Polygon is a two-tier scaling solution designed to minimize transaction costs. If you want to sneak peek SynFutures Alpha version in here Register and here to view the brief tutorial.
Source of the above image: SynFutures
There is no doubt that in the current synthetic derivatives field, the most well-known project is the derivatives liquidity agreement Synthetix, but we believe that SynFutures has the ability to surpass Synthetix in many aspects, such as:
1. SynFutures supports a wider range of trading pairs.
If you want to launch a new asset in Synthetix, you must follow a lengthy governance process, and sometimes it may take several months to complete the asset online (Dogecoin is a typical example). In contrast, SynFutures allows users to directly select any trading pair they like, and then immediately make a purchase (as long as the relevant asset exists in the Chainlink price oracle or Uniswap, Sushiswap liquidity pool).
2. There is no “trap” of zero slippage in SynFutures.
Synthetix’s “zero slippage” promise looks good on the surface, but in fact, users may still face unlimited downside risks-once the price of Synthetix protocol native token SNX fluctuates sharply, traders will suffer unexpected losses, regardless of whether the transaction is Long or short. In contrast, SynFutures completely avoids these traps mechanically, and is more in line with the basic logic of financial markets.
3. The capital efficiency of SynFutures is higher.
The mortgage rate set by Synthetix is 450%, which can easily lead to insufficient asset utilization. In contrast, SynFutures allows users to put 100% of their capital into use, and only use a single token to complete market making (currently supports USDT, USDC, DAI, ETH).
If you want to know more about the comparative analysis between SynFutures and Synthetix, you can refer to this article .
How does the automatic market maker (AMM) work?
What makes SynFutures unique is their sAMM-the industry’s first automated market maker for synthetic assets. Here is a brief description of its working principle:
SynFutures’ automated market maker for synthetic assets (sAMM) allows liquidity providers (LP) to provide any type of asset (such as a stable currency) in the trading pair, and then the smart contract will automatically synthesize another asset in the pool. For example, if you choose to deposit a stable currency (such as USDT) into the ETH/USDT pool, you can use USDT to provide the full amount instead of increasing every equivalent token.
50% of the user’s deposit value will be kept in USDT, and the other 50% will be used as margin to represent the synthetic 1x long futures contract of ETH, so that users can gain exposure to derivatives positions.
When a long position is created, sAMM will automatically establish an equal amount of short positions for the user. The long and short positions offset each other, so the user will not increase any additional risk when adding liquidity to the pool.
In fact, futures contracts have two core elements:
- Base asset
- Quote asset
Interestingly, SynFutures allows liquidity providers (LP) to choose to provide unilateral liquidity; in other words, they can choose to provide any one (or two) assets in the trading pair. When LP provides liquidity, sAMM essentially “becomes” a market participant with its own margin account. Of course, if you don’t know much about this mechanism, you might as well think of it as a liquidity provider to a typical AMM pool to “liquidity provision” (liquidity provision), but this liquidity provision The participant must also ensure that the margin requirements of the liquidity pool are met.
In addition, SynFutures also has a unique clearing mechanism. In the decentralized financial derivatives agreement Maker, insufficient account collateral will automatically trigger liquidation, while SynFutures is different. For those accounts that do not meet the margin requirements, SynFutures will forcefully reduce (and offset) their positions-this It is a “happy medium” specially used for derivatives transactions, which can minimize the systemic risks of the agreement while simplifying the liquidation process.
SynFutures V1 will be launched on the mainnet later in July. This version will support:
- Fixed margin futures
- Leveraged trading
- Futures liquidity pool for all Chainlink-backed assets
- Futures liquidity pool of Uniswap and Sushiswap assets
Looking ahead, SynFutures will also launch many exciting new products, including:
- Index futures, such as speculation on the difficulty of future Bitcoin mining.
- Shared margin futures, including perpetual futures and decentralized futures basis trading (basis trading).
- Cross-margin futures provide an “auto hedging” solution for impermanent losses.
Source of the above image: SynFutures
We believe that derivatives will become an important part of the DeFi ecosystem, just like its position in the traditional financial system. Only those high-quality decentralized protocols that can replace centralized products can seize this huge opportunity.
Of course, SynFutures is still in the early stages, but we believe that they have created a differentiated product for a broader market and we are very happy to move forward with them.
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