SynFutures

Decentralized exchanges have come into the spotlight over the past few months, with automated market makers (AMM) solidifying their position as a mainstay technology. Notably, decentralized exchange Uniswap has seen its trading volume reach $30 billion in Jan 2021, transcending its centralized peers and proving the feasibility of building open financial services based on blockchain.

Inspired by this trend, SynFutures focuses on the natural next generation of financial instruments — derivatives, whose market size has long outstripped that of spot in traditional finance. According to the Bank for International Settlements (BIS), derivatives transactions accounted for approximately 70% of the total trading volume of FX in 2019.

SynFutures is a decentralized derivatives platform that allows various digital assets pairs to be freely created and traded with one single digital token as margin.

Our first version of the protocol will be a futures market and will be designed to support a large variety of assets, including: ERC-20s, cross-chain assets, and anything else with a price feed. That means you will be able to take leveraged long or short positions on assets like gold, hashrate, and even Tesla. Liquidity only needs to be provided in a single digital currency, such as USDC.

(1) The Synthetic Automated Market Maker (sAMM) model. Currently, a liquidity provider to an AMM must provide liquidity to both sides of a token pair. SynFutures’s sAMM allows for only one asset of the trading pair to be supplied by liquidity providers and the other asset position to be automatically synthetized by the smart contract. As an example, if 1 ETH is currently worth 1500 USDC, you can supply liquidity by simply providing 3000 USDC to the pool. Half of it remains as the USDC position, and the other 1500 USDC synthetically represents 1 ETH, creating a 1x long ETH futures contract.

(2) A permissionless market for adding arbitrary assets with arbitrary expiration dates. Just as Uniswap lets anyone create new spot trading pairs freely, SynFutures has a “factory” contract that allows liquidity providers to create futures pairs — the pairs can include any supported asset on any expiration date. All that is needed is an oracle — today we have Uniswap and Chainlink oracles to initially support BTC, ETH, ERC-20s, gold, fiat, and more. In the future we will introduce additional oracles to enable trading assets like hashrate, interest rates, and even stocks.

(3) Automated Liquidator (ALQ). Liquidations occur when a position has insufficient margin. In other parts of DeFi, liquidators are third parties who actively monitor open positions and close undercollateralized ones by trading with their own liquidity. SynFutures introduces the Automated Liquidator (ALQ) smart contract to perform liquidations automatically: similarly to AMM, anyone can become an ALQ by providing liquidity to the protocol only to earn liquidation transaction fees without needing to actively sending transactions; and any user can use the ALQ to trim undercollateralized positions to earn rewards without needing to provide liquidity.

Because derivatives involve leverage and thus potential liquidations of positions, managing risk and sudden changes in market prices is core to our protocol design. The SynFutures team has an extensive background in financial derivatives. Our team members have spent time at top tier global investment banks where we learned best practices including:

1) Price and position limit: To protect user positions and avoid unintended price volatility such as manipulation of oracle spot prices through flash loans or other unfair manipulation methods, SynFutures has also introduced certain limits on prices and positions. Most of the restrictions will only be triggered when there is a large price movement within a single block. Examples include a limit on the max price slippage within a single block as well as the max spot index change per second. These parameters will be controlled by our community over time.

2) Durable mark price calculation: Derivatives traders are often afraid of a brief second-long spike in price resulting in a complete liquidation of their position. To address this, instead of just using a raw oracle price feed to calculate liquidations, mark price is calculated using an exponential moving average (EMA) on the mark basis and a time-weighted average price (TWAP) of the spot index to determine price for settlement and liquidation.

3) Prohibiting position increases during final settlement: A “Settling” state for futures is an extremely important safety feature introduced because traders with large long or short positions have an incentive to place orders right before the settlement time to push the final price up or down. We do not allow users to open or increase positions in the final hour of a market to minimize last minute price manipulation.

The SynFutures v1 smart contracts have already been audited by Peckshield.

We are also proud to share that the contracts have one of the lowest gas consumption rates of any on-chain derivatives protocol today. It costs only an average of about 200K gas per trade, compared with 500–800K for some existing derivatives protocols — this is also generally lower than spot exchange protocols.