What is SynFutures? 

SynFutures is described as a next-generation derivatives exchange that is focussing on creating an open and trustless derivatives market through making it possible for users to  trade on anything with a price feed. SynFutures is looking to cultivate a free market and maximize the variety of tradable assets, thereby lowering the barrier to entry in the derivatives market and helping to create a more equitable digital assets exchange market. 

Currently, SynFutures is in the beta version which makes it possible for users to access the DApp via beta.synfutures.com. This can be done through a Web3 wallet such as MetaMask, for example. 

The platform offers an all-in trading fee that is lowered by 4bps in beta following changes that set the reserve fee at 1bp. The platform also offers transparent data. 

SynFutures is said to have been inspired by Uniswap. However, instead of focusing on the decentralized spot exchange market, SynFutures is designed as a decentralized synthetic asset derivatives trading platform. Its first version comes with a futures trading market. Just as users of Uniswap are able to create new spot trading pairs, SynFutures@v1 makes it possible for any liquidity provider to essentially create digital asset futures trading pairs that have arbitrary assets and arbitrary expiration dates.

Understanding SynFutures’ Synthetic Automated Market Maker Model 

By adopting a Synthetic Automated Market Maker model (sAMM), SynFutures’ asset pricing follows a constant product formula. As far as liquidity provision is concerned, only a single asset (quote asset) of the trading pairs is required to be supplied, and the other asset (base asset) is then automatically synthesized by the contract. This makes it possible to support cross-chain and real-world assets such as gold and foreign currencies and not simply Ethereum native assets. 

The sAMM can be viewed as a market participant that has its own margin account that is similar to other users. Nonetheless it is always prepared to make prices based on the constant product formula and its current position. Aside from trading, the sAMM contract provides users with interfaces to add and remove liquidity to the sAMM liquidity pool. Additionally, the sAMM contract also acts as the gateway for users to deposit margin to and withdraw margin from their account.

Liquidity on SynFutures

In order for a user to add liquidity to the sAMM, they have to interact with the smart contract and transfer the margin token, or the QUOTE asset to the sAMM. This could be wBTC, ETH, MATIC, etc.

The sAMM creates a long position in the futures contract internally utilizing half of the added margin token. This effectively synthesizes the BASE asset of a trading pair, and keeps the remaining half as available margin. Contemporaneously, the sAMM then allocates a short position of the same size as the newly created long position to the same user. This means that the user owns a share of the total long position and the available margin of the liquidity pool in the sAMMAs as a liquidity provider. The share of the long position of the sAMM plus the position in their own account equals the total risk position of a liquidity provider. Ultimately, this means that adding liquidity to the sAMM does not change the total risk of the liquidity provider since the newly created long and short positions generally offset each other. 

The important thing to note, however, is that the liquidity provider needs to ensure sufficient margin in their margin account in order to meet the margin requirement after adding liquidity to the sAMM. In order to remove liquidity from the sAMM, they’d be a reduction of the long position and allocation of the reduced long position to the user requesting to remove liquidity thereby facilitating the return of the margin token to the user. In the same light, removing liquidity from the sAMM doesn’t change the total risk of the liquidity provider. 

Liquidation on SynFutures

An account is liquidated if the margin balance of an account becomes lower than its maintenance margin requirement. SynFutures provides two approaches for liquidation. The first is a conventional DeFi approach whereby the liquidator takes over the position of the liquidated account. Consequently, they have to provide the required initial margin at current mark price. The liquidator also receives the balance of the maintenance margin of the liquidated account as reward when a successful liquidation event occurs. 

SynFutures employs this system due to the fact that the approach barely has any impact on the market since the only change to the system as a whole would be the extra margin that is provided by the liquidator. It’s important to be aware that a liquidator willing to provide that type of margin and take on the risk of holding such a position may not always be available. This makes full liquidation attractive when such a liquidator is present. 

Liquidations are normally handled by executing trades in the market to partially reverse the position of an account falling below its maintenance margin requirement when it comes to the traditional financial market and centralized exchanges. SynFutures functions based on the concept of an Automated Liquidator (ALQ) who plays the role of passively performing liquidator duties by only providing liquidity and earning trading fees. With the AMM, accounts that need to be liquidated can be forced to trade with the ALQ. More precisely, the respective AMM partially reduces positions to meet margin requirements. 

SynFutures’ Ecosystem Partners 

SynFutures has some ecosystem partners that include: Fantom, BingX, Mars Ecosystem, BENQI, Pangolin, Aavegotchi, Quickswap, Keystone, Aurora, Project Galaxy etc. 

SynFutures is currently available to users from most countries except China, Malaysia, United Kingdom, United States, and countries listed in the UN Security Council sanctions list.

Originally posted on Decentralised News

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