The team at SynthSwap has some exciting news to share with all of you that have been following along these past few weeks! After careful deliberation and lots of testing, the developers are proud to lay out our official exchange model including some changes we felt necessary to the protocol in this article. We hope this will offer some insight for our supporters in regards to platform development, our current state, and what we plan do accomplish in the next few months.
While the changes are nothing too major, the team strongly believes that they give us an exponential advantage over any of our competitors. Every aspect of the exchange and its ecosystem now compliment the native token (SYNTH) in one way or another.
L2
First and most importantly, it became quite clear that the current state of the Ethereum network is too congested, with simple ERC20 swaps costing nearly $200 per transaction at the time of this writing! The extremely high gas fees in combination with the multitude of governance tasks to be completed on SynthSwap are not a viable solution for our preferred governance model. We want a system where individuals are inclined to participate through being rewarded for voting on a proposal, not one where they will be turned off by the massive transaction fees (more on this later).
High gas fees will result in less traders using the protocol, less volume on the exchange, and an inevitable decline in governance participation thereafter.
So, what is SynthSwap’s solution?
The developers at SynthSwap are proud to announce that we will begin developing the SynthSwap exchange on a layer 2 scaling network, allowing us to process thousands of transactions more than what would be capable on the Ethereum network, at a fraction of the cost.
SynthSwap will be building on the xDAI STAKE chain for our layer 2 scaling solution, which is an EVM sidechain with a different consensus model than Ethereum. SynthSwap chose the xDAI chain for its simplicity and effectiveness. Smart contracts deployed on the Ethereum network can be deployed in exactly the same way as on the xDAI network, by just using a different RPC endpoint.
WEBSITE: https://www.xdaichain.com/
PROTOCOLS USING xDAI: Perpetual Protocol, Chainlink, HOPR, Gnosis, PowerPool, and much more!
The xDAI side network is compatible with many existing dapps in DeFi and it can process upwards of 7,000 TPS (transactions per second), compared to Ethereum’s 70 TPS capabilities at its current state. On SynthSwap’s layer 2 platform, users will be able to trade crypto perpetuals and synthetic assets with up to 100x leverage the utilizing xDAI stable-coin.
NOTE: The SynthSwap exchange will exist on both layer 1 and layer 2 networks (with a primary focus on the bridge to L2).
The need for Rollups and layer two scaling solutions is becoming more and more apparent in the decentralized finance industry every day, so much so that even Vitalik Buterin is stressing the importance of using such side chains to help take some of the stress off of the Ethereum network in the “mid term,” as it transitions into a proof of stake consensus mechanism.
With that being said, SynthSwap is excited to be one of few decentralized finance platforms taking the initiative to build on layer two and scale the Ethereum network to levels it hasn’t been taken before!
Oracle Solution
While the platform of SynthSwap is sufficient right now for beta release, the team believes it is in the best interest to explore different oracle solutions before launch. For now, the SynthSwap exchange would be managed by a third party API controlled by us. The oracle aggregates data from top exchanges like Coinbase, and quotes the prices of the assets supported on our platform with that information.
However, since it is a centralized solution and not representative of what the SynthSwap ecosystem envisions becoming, the team has decided to utilize Chainlink as an oracle solution in the future and proceed with launch once our protocol has been fully integrated with their decentralized and distributed oracles for price feeds on our exchange (for main-net).
When conceptualizing our plan for an oracle solution, we realized the importance of a distributed and reliable source of price feeds, one of which was not in our current design for beta (the centralized model). Chainlink quickly become the obvious choice, as its availability and distribution is unmatched in the oracle industry.
SynthSwap integration with Chainlink oracles will provide high-quality price feeds to our decentralized exchange for trading synthetics and with margin on Ethereum.
Centralization and synthetic markets involving securities like stocks brings about the risk of being censored in certain jurisdictions who are strict about regulation, so it is imperative that SynthSwap utilizes decentralized oracles for price feeds from the very beginning.
This will also give us time for deployment to IPFS, allowing SynthSwap to live forever on an unstoppable domain which is immune to censorship!
Governance Model
The former governance model for SynthSwap lacked the fundamentals to encompass the type of environment we were looking for within our protocol and community. The team has since explored several different governance structures, leading us to explore a new and incentivized governance model to control different parameters of the protocol.
We plan to incorporate a voting rewards program, inspired by UMA, where the winning voter pool on a proposal receives newly emitted SYNTH tokens. Voting reward emissions will be dependent on the holders votes submitted during the trading period.
This model creates an economic incentive for individuals to consider when making a vote on a proposal for the ecosystem, one that is in the best interest of the entire protocol.
The big picture is to incorporate this secondary market on a layer 2 hot pool with all reputable cryptos and stocks to bring the best of synthetic trading to the open market. The premise of attracting speculative secondary market has large ramifications on the future of synthetic trading.
A community governed, universal market access protocol is a revolutionary tool for decentralized finance and the world as a whole.
The Treasury
Issues have been identified with the existing protocol which we believe will severely limit the growth of the traders in the ecosystem if not fixed. When there is not enough liquidity in the treasury, the exchange will not be able to pay out funds to the biggest winning traders on a normal basis. That is because the SynthSwap has a built-in safety mechanism preventing the liquidity pool from drawing back more than 10% on a given day. In order to prevent these potential problems from arising in the future, we created a multi-faceted approach for funding the treasury detailed below.
The following concepts will be integrated on SynthSwap’s margin and synthetics exchange addressing this problem, creating a three-pronged positive feedback mechanism:
- SEED: Initial seed funding will be allocated directly to the treasury for trading on main-net once live, avoiding illiquidity and/or potential issues of revenue risk
- FOT: SynthSwap will introduce a negotiable fot (fee on transfer) which can be implemented and changed through governance, taking 1–3% percent of every sell of the SYNTH token and then sending it to the treasury
- LOSSES + LIQUIDATIONS: Trader losses and liquidations are automatically sent to the treasury of the SynthSwap exchange
Furthermore, there are several safety mechanisms already built in the protocol, including a feature to gradually increase daily withdraw limits as the size of the treasury (and thus solvency) grows.
This approach will help to protect the treasury from inventory risk and give the secondary market a hot pool of liquidity for thousands of assets for traders to invest in. The SynthSwap exchange treasury will have an ever-increasing value of liquidity available and a perpetual motion machine backing it, while locking up SYNTH on every transfer contributing to the scarcity of the token backing the ecosystem.
Such a complex protocol without the necessary funds to back large orders in trades will never attract the amount of users it deserves, and this is why we have created our own positive feedback loop to contribute to the consistent growth of the funds inside of the SynthSwap treasury.
Hybrid Staking Model
SynthSwap designed something to operate as a traditional liquidity mining program that allows users to vote without having to un-stake any tokens. The liquidity pool token will be analyzed for the amount of SYNTH to represent the correct amount of voting power without having to take the unnecessary steps unwinding a liquidity provider contract.
A portion of SYNTH tokens will be allocated to a liquidity mining program, where individuals who provide value to the protocol are rewarded based on the value they provide to the project.
These tokens will immediately be up for grabs via liquidity mining upon launch, with a rewards design where payouts increase the longer you stake your tokens!
More information regarding the liquidity mining program will be available closer to the date of launch.
Token Economics
SYNTH is the native currency of the SynthSwap ecosystem and its trading protocol. SYNTH serves as a liquidity provider token, utility token, and a governance token. Anyone can become a liquidity provider by simply purchasing the SYNTH token on a DEX.
SYNTH represents a share in the treasury, which backs all trades going throughout the market. If the amount of funds in the pool increases (i.e. a margin trader gets liquidated), you share of the SYNTH token and its price goes up relative to the pool.
Investing in SynthSwap is like investing in Robinhood, you are investing in the success of the fund and the revenue it generates. You can read more about this concept here.
The initial distribution and metrics for the SYNTH upon launch to Uniswap is provided below:
TOTAL SUPPLY: 100,000 SYNTH
CIRCULATING SUPPLY: 50,000 SYNTH
MARKET CAP: $115,000 (at the time of this writing)
SynthSwap initially planned to collect funds through both a private and public sale of the SYNTH token, but we have recently decided to go forward with doing a fair launch to Uniswap at an unannounced date sometime in the near future instead. Our team will not be announcing the date or time beforehand to make the process as fair as possible and avoid front-running bots from sniping the listing.
Approximately 35 ETH and 30,000 SYNTH will be added to liquidity on Uniswap and announced by the team shortly after on all of our social channels, sometime in the next few weeks.
After launch, SynthSwap will be governed by its community and token holders. With that in mind, we felt that giving random speculators looking for a quick flip in pre-sales a large portion of the supply is hazardous, and not in the best interest of the protocol, so we agreed to a vesting deal which was brought forth to us by private investors early on.
Seeding a small amount of liquidity (50 ETH) from these private investors will enable us to launch at a relatively low market capitalization, giving early contributors a chance and building a community in the process. We want the majority of the tokens (voting power) in the hands of early members and those passionate about the project.
Everything about the exchange and the protocol are controlled by the holders of the token and the governance contract after deployment of the system, so it is imperative that these people are dedicated to the success of the synthetic trading protocol.
The launch of the SYNTH token will coincide with the release of the beta SynthSwap exchange and all of its features within the next month or two. Afterwards, the team will shift focus towards main-net and audits and final tweaks before main-net deployment.
PLEASE DO NOT FALL FOR ANY SCAMS! ONLY FOLLOW THE LINKS PROVIDED BY AN OFFICIAL TEAM MEMBER IN ONE OF OUR OFFICIAL SOCIAL CHANNELS!
The Future
In the near future, we intend to implement our own incentivized governance model (similar to UMA), explore different lending/borrowing solutions, form partnerships with different industry leaders, deploy the protocol to the xDAI layer two network, and begin to build prediction markets all encapsulated by the Synth token and our ecosystem.
The opportunities our synthetic trading protocol can create are tremendous, and the SynthSwap team is excited to join you all on this journey!
Conclusion
SynthSwap is a community-based fork of the cap ecosystem. Our ethos is to empower traders with financial tools for a hyper-growth speculative secondary market. This model enables access to tools that are typically unavailable to a majority of the population. In recent times access to such services have been gradually restricted in varying geo-locations due to legislation and the centralized nature of the platforms offering such services. Synthswap requires no KYC (know your customer) and is available to anyone with internet access via IPFS, an xDAI balance, and a configured Metamask wallet. The end goal is to create a self-sustaining protocol that is immune to censorship on the Ethereum network, governed by the community and holders of the SYNTH token.
Join the conversation on Telegram!
