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As the Perp game-changer, how does SynFutures lead a new round of DeFi innovation?

BlockBeats2024/05/10 11:14
By:BlockBeats
Original author: SHA


I. Introduction


Currently, there are two solutions that are widely used in the derivatives track. One is the Vault model of GMX, where LP acts as the counterparty of the transaction and the Oracle determines the transaction price; the other is the order book model of dYdX, where off-chain matching and on-chain settlement, such as AEVO, Vertex and dYdX V3/V4. The former has counterparty risk and oracle attack risk, while the latter has the risk of opacity and trading platform maliciousness.


Unlike semi-decentralized solutions such as dYdX and AEVO, SynFutures has always insisted on and focused on building a fully decentralized and high-performance perpetual contract trading platform. SynFutures was founded in 2021 and has received a total of US$38 million in financing from well-known industry institutions such as Pantera, Polychain, Dragonfly, Standard Crypto, and Framework. According to DeFillma data, since its V3 version was launched on Blast on February 29 this year, the cumulative trading volume has exceeded US$48 billion, and the daily trading volume ranks among the top 3 in the industry.



SynFutures V1 and V2 are based on the xyk AMM model like UniSwapV2, and there are some problems with low capital efficiency and poor depth. Therefore, SynFuturesV3, by drawing on the centralized liquidity model of UniSwapV3, launched oAMM specifically for contract trading, allowing LP to concentrate liquidity in a specified price range, maximizing capital efficiency and liquidity depth, while maintaining complete decentralization, providing traders with a good trading experience and minimizing trading wear and tear.


· A major innovation of oAMM is that it implements a pure on-chain order book, allowing market makers to make markets by placing limit orders and directly obtain ⅓ of the transaction fee share. This may be the highest share ratio in the industry at present, which is conducive to SynFutures attracting market makers from centralized trading platforms to participate in on-chain market making and create an order book depth comparable to that of centralized trading platforms.


· Another major innovation of oAMM is that it has the same permissionless feature as UniSwapV3, and can achieve "three permissions" - allowing anyone, at any time, to use any token as a margin, and the entire listing process can be completed in just 30 seconds. This means that any project can create a contract trading pair of its own token on SynFutures. Imagine if half of the project parties in the future use their own tokens as margin to create a contract trading pair on SynFutures, what a huge market it will be...


· At the same time, as a pure on-chain contract, oAMM can naturally integrate with the ecosystem of the underlying blockchain and grow together, which is precisely what many semi-decentralized trading platforms currently do not have. After all, the most attractive thing about DeFi is its composability, which is like nesting dolls. At the same time, all its data is stored on the chain, and anyone can verify it. Traders do not need to worry about centralized risks such as "trading platform downtime, unplugging the network cable, and funds being misappropriated."


2. Introduction to oAMM Mechanism


If UniSwapV2 is likened to a stream, UniSwapV3 is in the middle of the stream, with two dams erected to form a large reservoir. Small streams can only support small fish and shrimps to play, while large reservoirs can allow giant whales and sharks to swim freely, deriving a more complex ecosystem. The same is true for SynFuturesV3.


2.1 Centralized liquidity - improve capital efficiency


oAMM greatly improves the liquidity depth and capital utilization efficiency of AMM by allowing LP to add liquidity to a specified price range, while supporting larger and more transactions, creating more fee income for LP. From its documentation, we can see that its capital efficiency can be up to 26,666.6 times the original.



2.2 Pure on-chain order book - maintain efficiency while being open and transparent


oAMM's liquidity is distributed in a specified price range, and the price range is composed of several price points. For example, LP provides liquidity at [3000, 4000] of ETH-USDB-PERP. This price range can be divided into several price points, and each price point is allocated an equal amount of liquidity. Smart people like you might immediately think, isn't this an order book? That's right!



oAMM implements on-chain limit orders by allowing users to provide liquidity at specified price points, thereby simulating the trading behavior of the order book and further improving capital efficiency.


Compared with the market-making method of traditional AMMs, market makers on centralized trading platforms are more familiar with the market-making method of limit orders, have a higher level of awareness, and are more willing to participate in it. Therefore, oAMM that supports limit orders can better attract market makers to participate in active market making, further improve the trading efficiency and trading depth of oAMM, and achieve a trading experience comparable to that of centralized trading platforms.


Unlike off-chain order books such as dYdX, oAMM is a smart contract deployed on the blockchain. All data is stored on the chain and can be verified by anyone. It is completely decentralized, and users do not need to worry about the trading platform's dark operations or false transactions.


2.3 Limit orders can get a share of transaction fees - the highest share ratio in the industry


Since users place limit orders in essence to provide liquidity for oAMM, they can get a share of transaction fee income. Transaction fee sharing is usually only open to specific institutional clients and VIP users on centralized trading platforms, and there is a certain settlement cycle. In oAMM, the transaction fee share is directly returned to the user's margin account when the order is eaten. Taking BTC-USDB-PERP as an example, the current share ratio is 0.01% of the transaction amount; while the relatively risky MEME Coin WIF-WETH-PERP is as high as 0.5%. This may be the highest rebate ratio in the derivatives track in the industry.



2.4 Unlicensed Token Listing - Quickly Capture Trading Opportunities


Currently, all decentralized derivatives trading platforms are decided by the project party or the community on which tokens to list, which makes it difficult for most users to make profits by "issuing tokens first". The essence of oAMM is a smart contract deployed on the chain. Like most spot AMMs, it allows no tokens to be listed, and anyone can freely create perpetual contracts or expired contracts.


In other words, if you think a certain coin is very popular and it is profitable to be its LP, you can create a corresponding contract market through SynFutures. For example, the newly released MEME is quite popular, and many people want to trade its contracts but there is no trading platform to support it. At this time, you can choose to list the coin on SynFutures first, that is, take advantage of the popularity of MEME, and take advantage of the traffic and community of SynFutures, achieving two birds with one stone.



2.5 Support any ERC20 Token as margin - creating a new paradigm for the derivatives market


Each pool of oAMM is independent and will not affect each other. This design allows oAMM to theoretically support the use of all ERC20 Tokens on the market as margin without increasing the risk of the overall system. This is unimaginable in systems such as Hyperliquid or dYdX.


Assuming that half of the top 500 altcoins in the future will create corresponding pools on SynFutures to provide liquidity, even if each pool has only $1m of liquidity, it is still a very impressive number. Based on this, the project party can also empower its own tokens, allowing the holders of its tokens to use tokens as margin for trading, or earn SynFutures points and transaction fees by providing liquidity, etc., to achieve a true win-win situation.


2.6 Risk Control Mechanism-All-round Protection of User Funds


Derivatives are much more complicated than spot. Spot is used up and gone, such as UniSwap, while derivatives have an intermediate state of holding positions, which has higher requirements for the design of the protocol's security mechanism. In this regard, SynFutures protects the security of user funds through four methods: smooth price curve, dynamic penalty fee, emergency response mechanism and large profit withdrawal check.


2.6.1 Smooth Price Curve


Historically, GMX and dYdX have both experienced losses caused by hackers through oracle attacks. Therefore, SynFutures will not directly use the quotes given by the oracle, but will process them with EMA (exponential moving average) before using them. As can be seen from the figure below, the price curve processed by EMA is smoother than the direct oracle quotes, which can reduce the impact of the oracle price on the mark price, thereby reducing the risk of oracle attacks.



2.6.2 Dynamic Penalty Fee


What if someone wants to make a profit by maliciously manipulating prices? SynFutures avoids this problem through dynamic penalty fees. If the user significantly deviates from the price, an additional transaction fee will be charged as a penalty. In this case, the attacker has no profit and no motivation to attack. The fees collected will be distributed to the LP of that market.


2.6.3 Emergency Response Mechanism


We all say that blockchain is a dark forest, and you never know what will happen. What if, under the protection of the above two mechanisms, some unforeseen situations still occur in a market, threatening the security of user funds? SynFutures handles this by activating the emergency response mechanism, freezing the market that triggers risk control (for example, the market price deviates significantly from the marked price), then evaluating the cause of the risk and determining the response measures, and doing its utmost to protect the security of user funds.


2.6.4 Large Profit Withdrawal Check


For large profit withdrawals, SynFutures will set a withdrawal threshold. Withdrawals exceeding this threshold will have a maximum waiting time of 24 hours - that is, the funds will be credited within 24 hours at most. Users can also contact the community to speed up withdrawals. This is mainly to check whether the withdrawal initiator's profits are obtained through normal channels, thereby protecting the safety of user funds.


III. Project Development


3.1 Data Performance


Since SynFutures V3 was launched on the Blast mainnet on 02-29:


· Cumulative trading volume exceeds 48 billion US dollars

· Daily trading volume is close to 1 billion US dollars

· TVL exceeds 54m

· 7-day active addresses exceed 3.3w


Currently it is the largest decentralized derivatives trading platform on Blast. It is believed that in the near future, with its further development and expansion, its various indicators will be comparable to projects such as GMX, dYdX V4 and Hyperliquid.




3.2 Growth space



According to The Block data, the trading volume of the entire decentralized derivatives track is less than 3% of the centralized trading platform, and this track still has a lot of room for growth. At present, there are two obvious phenomena in the DeFi world. One is that users begin to recognize brands. The longer the project exists, the safer it is considered by users; the other is that the TVL of the top projects is increasing. In this case, any project or imitation without innovation is unlikely to grow beyond the original project, let alone challenge the centralized trading platform.


This track needs to continue to innovate and iterate to continuously improve the trading experience and capital utilization efficiency. Only innovative projects can become challengers and game changers, and continue to expand the market share of decentralized derivatives trading platforms.


SynFuturesV3 undoubtedly has this innovation. It creatively implements the on-chain order book through oAMM, allowing users to provide liquidity in a specified price range; and enables market makers to directly obtain commissions through limit orders, attracting market makers to make markets, and improving capital utilization efficiency and trading experience. This integration of active and passive market making into one system, which runs completely on the chain, can be said to be one of the biggest innovations in the current derivatives track.


Although Vertex, BlueFin, and RabbitX also use Exilier to provide passive liquidity for their order books, SynFutures directly uses AMM to provide passive liquidity, achieve native support, and do not introduce third parties. LPs have less risk and a better experience.


At the same time, SynFuturesV3's permissionless and "three permissions" features allow anyone to use any token as collateral at any time, and complete the entire listing process within 30 seconds, creating a new paradigm for decentralized derivatives trading. It is possible that, like UniSwap, it will take away part of the cake of centralized trading platforms in the future.


3.3 Problem Analysis


The main shortcoming of xyk AMM is that it has impermanent loss, which is difficult for ordinary users to hedge and grasp. SynFutures' oAMM is similar to UniSwapV3 and also has the problem of impermanent loss. From some public information and AMA, we know that SynFutures will consider using Strategy Vaults to open effective passive market-making strategies to users in the future, which is similar to copy trading, so that more users who are worried about the risk of impermanent loss can participate.


Fourth, Team Background


The founding team of SynFutures has backgrounds in international first-tier investment banks, Internet companies and crypto OGs, and has won the favor of investors including Pantera, Polychain, Standard Crypto, Dragonfly, Framework, SIG, Hashkey, IOSG, Bybit, Wintermute, CMS, Woo, etc., and has raised more than 38 million US dollars so far.



V. Summary


After experiencing the two hot cycles of DeFi Summer and DeFi 2.0, DeFi seems to have entered a silent stage. There are only a few disruptive innovations in the past year, and most of them are micro-innovations at the level of old protocols, or innovations in operational gameplay. SynFutures V3 creatively integrates the two mainstream models of AMM + Order Book, and opens up the "last mile" of centralized trading platforms to on-chain market making, while ensuring performance and experience, and achieving security, transparency and decentralization. At the same time, its permissionless and "three permissions" features have created a new paradigm for derivatives trading and become a breakthrough in leading innovation in the decentralized derivatives track.


Decentralization is the elephant in the room. It seems to have no presence when it is not important, but at the critical moment, you will find that it is so important and indispensable. After all, FTX is the best precedent. Therefore, I agree and understand SynFutures's firm decision to go the decentralized route. Although it is currently limited by the underlying performance and infrastructure of the blockchain, the product experience is still lacking compared to centralized trading platforms, but I believe that in the near future, with the further improvement of the underlying public chain performance, the popularization of AA wallets and the improvement of infrastructure, decentralized trading platforms such as SynFutures will also have an experience comparable to that of centralized trading platforms, breaking the monopoly of centralized trading platforms and occupying a place in the entire derivatives track.


This article comes from a contribution and does not represent the views of BlockBeats



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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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