Author: SHA
1. Introduction
There are currently two solutions that are widely used in the derivatives market. 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 are performed, 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 malicious exchange behavior.
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 exchange. 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 have some problems such as low capital efficiency and poor depth. Therefore, SynFuturesV3 draws on the centralized liquidity model of UniSwapV3 and launches oAMM specifically designed 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 friction.
undefined 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 receive ⅓ of the transaction fee. This may be the highest share ratio in the industry at present, which is conducive to SynFutures attracting market makers from centralized exchanges to participate in on-chain market making and create an order book depth comparable to that of centralized exchanges.
Another major innovation of undefined oAMM is that it has the permissionless feature like UniSwapV3, and can achieve "three permissions" — — allowing anyone to use any token as collateral at any time, and the entire listing process can be completed in just 30 seconds. This means that any project party 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 collateral to create a contract trading pair on SynFutures, what a huge market it will be...
undefined 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 exactly what many semi-decentralized exchanges 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 can be verified by anyone. Traders do not need to worry about centralized risks such as "exchange downtime, unplugging the network cable, and funds being misappropriated."
2. Introduction to oAMM Mechanism
If UniSwapV2 is likened to a stream, UniSwapV3 is like two dams in the middle of the stream, forming a large reservoir. A small stream can only support small fish and shrimps, while a large reservoir can allow giant whales and sharks to swim freely, deriving a more complex ecosystem. The same is true for SynFuturesV3.
2.1 Centralize liquidity — Improve funding 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 and 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 — — maintaining efficiency while being open and transparent
The liquidity of oAMM 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. You may 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 traditional AMM market making method, the market makers of centralized exchanges are more familiar with the limit order market making method, 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 transaction efficiency and transaction depth of oAMM, and achieve a trading experience comparable to that of centralized exchanges.
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 exchange's shady operations or false transactions.
2.3 Limit orders can earn a share of transaction fees — — the highest share ratio in the industry
Since users place limit orders to provide liquidity for oAMM, they can get a share of transaction fee income. In centralized exchanges, transaction fee sharing is usually only open to specific institutional clients and VIP users, and has 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 Coin Listing — — Quickly Capture Trading Opportunities
At present, all decentralized derivatives exchanges are decided by the project owner or the community on which tokens to list, which makes it difficult for most users to profit by "being the first to issue tokens". 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 you can make money by being its LP, you can create a corresponding contract market through SynFutures. For example, the newly released MEME is very popular, and many people want to trade its contracts, but there is no exchange support yet. At this time, you can choose to list the coin on SynFutures first, which means you can take advantage of the popularity of MEME and the traffic and community of SynFutures, killing two birds with one stone.
2.5 Support any ERC20 Token as margin — — creating a new paradigm in 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 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 owner can also empower their own tokens, allowing the holders of their tokens to use the 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 — — Comprehensively protect user funds security
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 places higher requirements on the design of the protocol's security mechanism. In this regard, SynFutures protects user funds through four methods: smooth price curve, dynamic penalty fee, emergency response mechanism, and large profit withdrawal check.
2.6.1 Smoothing the price curve
Historically, GMX and dYdX have experienced losses caused by hackers using oracle attacks. Therefore, SynFutures does not directly use the oracle quotes, but processes 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 profit by maliciously manipulating prices? SynFutures avoids this problem through dynamic penalty fees. If a user pulls the price significantly off the track, they will be charged additional transaction fees as a penalty. In this case, the attacker has no profit and no motivation to attack. The fees collected will be distributed to the LPs of the 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), and then evaluating the cause of the risk and determining the response measures, and protecting the security of user funds as much as possible.
2.6.4 Large profit withdrawal inspection
For large profit withdrawals, SynFutures will set a withdrawal threshold. Withdrawals exceeding this threshold will have a waiting time of up to 24 hours — that is, the funds will be credited to the account within 24 hours at most. Users can also speed up withdrawals by contacting the community. This is mainly to check whether the profits of the withdrawal initiator are obtained through normal channels, thereby protecting the safety of user funds.
3. Project Development
3.1 Data Performance
Since SynFutures V3 was launched on the Blast mainnet on 02–29:
Cumulative transaction volume exceeds 48 billion US dollars
Daily trading volume approaches $1 billion
TVL over 54m
More than 33,000 active addresses in 7 days
It is currently the largest decentralized derivatives exchange on Blast. I believe that in the near future, as it further develops and expands, its various indicators will be comparable to projects such as GMX, dYdX V4 and Hyperliquid.
3.2 Room for growth
According to data from The Block, the trading volume of the entire decentralized derivatives track is less than 3% of that of centralized exchanges, and there is still a lot of room for growth in this track. There are currently two obvious phenomena in the DeFi world. One is that users are beginning to recognize brands. The longer a project exists, the safer it is considered by users; the other is that the top projects are getting more and more TVL. In this case, any non-innovative project or imitation is unlikely to grow faster than the original project, let alone challenge centralized exchanges.
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 exchanges.
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, thereby 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 currently also use Exilier to provide passive liquidity for their order books, SynFutures directly implements the function of passively providing liquidity through AMM, achieving native support without introducing 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 in just 30 seconds, creating a new paradigm for decentralized derivatives trading. It is possible that, like UniSwap, it will take away a portion of the pie from centralized exchanges 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 Strategy Vaults in the future to open effective passive market-making strategies to users, which is a bit similar to copy trading, so that more users who are worried about the risk of impermanent loss can participate.
4. Team Background
The founding team of SynFutures has backgrounds in international first-tier investment banks, Internet companies and crypto OGs. It 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 US$38 million to date.
Source: https://www.rootdata.com/Projects/detail/SynFutures?k=MzAyMA%3D%3D
V. Conclusion
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 old protocol level 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 exchanges to on-chain market making, while ensuring performance and experience, while achieving security, transparency and decentralization. At the same time, its permissionless and "three permissions" features have created a new paradigm for derivatives trading, becoming 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 take 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 exchanges, 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 exchanges such as SynFutures will also have an experience comparable to centralized exchanges, breaking the monopoly of centralized exchanges and occupying a place in the entire derivatives track.
(This article was written by a third party and does not represent the position of Wu Shuo)
