Thread: Why I Think Synthetics Could Be The Next Big Defi Narrative And Overview Of The Best Synthetic Protocols Right Now
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Alright my froggish brethren, I am going to geek out on the topic of "Synthetics". Let's dive in!
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๐งต
Alright my froggish brethren, I am going to geek out on the topic of "Synthetics". Let's dive in!
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"Synthetics" are, essentially, synthetic representations of assets/things, that you can trade via an on-chain platform or AMM.
The topic first became talked about when @synthetix_io came out a few years ago, but seems to have largely died down for awhile after that...
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The topic first became talked about when @synthetix_io came out a few years ago, but seems to have largely died down for awhile after that...
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In the last year though we've seen a number of really amazing synthetic platforms spring up, and it seems to me this could be one of the next big 'narratives' in crypto.
There's a myriad of reasons for this...
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There's a myriad of reasons for this...
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Primarily though is the fact that they have a VAST addressable market.
Tradfi companies transact trillions of dollars each year on various derivatives + other analogous legacy stuff.
Often this has to do with interest rates and volatility, but...
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Tradfi companies transact trillions of dollars each year on various derivatives + other analogous legacy stuff.
Often this has to do with interest rates and volatility, but...
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...there's also massive use of derivatives by commodity producers and consumers seeking to hedge their profits/expenses.
All of this could eventually come on-chain, and indeed, in this regard....
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All of this could eventually come on-chain, and indeed, in this regard....
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...synthetics are a perfect example of why crypto is fundamentally superior 'financial plumbing'.
As we have seen with this recent Nickel short squeeze insanity, the value of the transparency/composability/immutability of on-chain solutions can't be overstated.
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As we have seen with this recent Nickel short squeeze insanity, the value of the transparency/composability/immutability of on-chain solutions can't be overstated.
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On-chain synthetics platforms could eventually eat nearly all of their tradfi analogues, but even if they only eat a tiny % of them that would still represent massive growth for crypto as a whole.
There's also many other areas they can service though.
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There's also many other areas they can service though.
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This could be stuff as diverse as gambling, sports betting, insurance, digital marketing related derivatives... all kinds of stuff...
So far though, the synthetics platforms that exist have primarily focused on synthetic versions of stocks, commodities, and crypto assets.
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So far though, the synthetics platforms that exist have primarily focused on synthetic versions of stocks, commodities, and crypto assets.
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And provide users the chance to trade these synthetic assets utilizing a number of different mechanisms.
Below I will go over what I think are the top synthetics platforms on the market right now (not in any particular order though).
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Below I will go over what I think are the top synthetics platforms on the market right now (not in any particular order though).
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The first is the most notorious of them all, which is @mirror_protocol.
I say 'notorious' bc it is the platform that US regulators were giving @stablekwon so much grief about last year.
Here's an interview he did with @laurashin discussing it:
youtube.com
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I say 'notorious' bc it is the platform that US regulators were giving @stablekwon so much grief about last year.
Here's an interview he did with @laurashin discussing it:
youtube.com
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Mirror Protocol is the synthetics platform that will have the most familiar architecture to most users, as its very similar to AMM's.
There are a number of synthetic versions popular stocks + commodity etf's.
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There are a number of synthetic versions popular stocks + commodity etf's.
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Liquidity for these is provided by users farming each synthetic either 'long' or 'short', paired w/ $UST.
So, for instance, I am currently long-farming the iSLV synthetic silver etf analogue along with $UST, for 19.6% apr.
Again, same setup (and risk of IL) as w/AMM's.
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So, for instance, I am currently long-farming the iSLV synthetic silver etf analogue along with $UST, for 19.6% apr.
Again, same setup (and risk of IL) as w/AMM's.
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@mirror_protocol is also popular with users bc you can long/short farm the same asset and go 'Delta Neutral', + borrow assets and all kinds stuff.
Here's a great thread on delta-neutral farming via Mirror by @DeFi_Made_Here:
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Here's a great thread on delta-neutral farming via Mirror by @DeFi_Made_Here:
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The next synthetics platform I want to talk about is @float_capital.
Float is the brain-child of a bunch of wicked smart South African dudes (if I understand right), and has quietly become one of the most exciting protocols on both Polygon and Avalanche this year.
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Float is the brain-child of a bunch of wicked smart South African dudes (if I understand right), and has quietly become one of the most exciting protocols on both Polygon and Avalanche this year.
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The @float_capital team just ships, ships, ships constantly, and through their work have created a novel synthetics platform that allows for you to long or short various derivatives.
This includes $JOE/$USD, $AVAX/$USD, $ETH/$BTC X3, and more.
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This includes $JOE/$USD, $AVAX/$USD, $ETH/$BTC X3, and more.
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They also have a really cool one based on the 'crypto vix' where you can go long/short implied volatility in the crypto space.
Float works via one side (either long or short) paying a 'funding' apr to the other, based on demand balance.
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Float works via one side (either long or short) paying a 'funding' apr to the other, based on demand balance.
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This also allows Delta Neutral strategies.
If the $JOE pool is paying an 80% APR to short stakers at the moment, you could short+stake that derivative, and then purchase an equal amount of $JOE to hold long (or stake long on the @traderjoe_xyz website).
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If the $JOE pool is paying an 80% APR to short stakers at the moment, you could short+stake that derivative, and then purchase an equal amount of $JOE to hold long (or stake long on the @traderjoe_xyz website).
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With @float_capital though the side that's paying the funding apr can shift back and forth based on demand, so you would need to monitor it to make sure that did not happen (or adjust accordingly if it did).
There's also no liquidations though, which is nice :)
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There's also no liquidations though, which is nice :)
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The next platform I want to highlight is @dsynths, which is part of the @lafachief @DeusDao @muon_net ecosystem that has a lot of folks very excited.
I did a huge thread on all of it that you can check out below:
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I did a huge thread on all of it that you can check out below:
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@dsynths allows trading of synthetic assets as well, but unlike Mirror or Float, it does not rely on liquidity being 'farmed', but rather what might be called an extremely sophisticated oracle/algorithm system that...
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...monitors all positions in real time to ensure there is not excessive funding on any one asset in any one direction.
This description does not even remotely do the technology justice though...
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This description does not even remotely do the technology justice though...
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So if you want to know more, follow @lafachief or @quantlordd, or check out this interview with Lafa below:
youtube.com
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youtube.com
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Click the tweet below to continue the thread:
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