How does Synthr use its DRASR Framework to minimize price deviation between the Oracle and DEX Price of an asset?
Getting exposure to an asset in crypto (i.e. to profitably buy and/or sell it), you must find liquidity for that asset.
Often, a desired asset may not have liquidity on a particular network (or even any network; how do I earn on-chain profit for Tesla stock?). Synthetic Exchanges mint and exchange synths to provide trading opportunities for almost any asset — on, or off-chain, tradable 24/7, from any region of the world.
These synths on Synthr are minted by users by locking up liquid assets such as ETH or BTC at C-Ratio of 150% to receive Debt Pool Shares (DPS). Our CDP structure is in place with debt pool utilisation and over-collateralization at its heart.
As for the synths, i.e. the syAsset — this asset is easily tradable and bridgeable; all syAssets come into existence through CDP’s.
This synthetic model of asset issuance and exchange facilitates zero-slippage trading. Swapping between one synthetic and another only involves burning one token and minting another.
This is how Synth traders on Synthr will deal in these derivatives to get price exposure to different assets on different chains.
However, for them to be able to take advantage of these cross-chain trading opportunities, they need to be able to consistently acquire synths at a price value as close to the oracle price of the underlying assets as possible.
How will Synthr ensure these traders experience stability when dealing with underlying assets that have such high potential for rapid bi-directional price fluctuations over short time periods?
Our model focuses on overall system solvency by using over collateralized syAssets, (as described above) a battle tested Dynamic Reward Allocation for Spread Reduction model (DRASR — more on this below), along with a protocol wide Recovery mode as the final backstop mechanism.
Today, we’ll be discussing DRASR — a kinetic system that incentivizes users (via $SYNTH rewards and stablecoins) to reduce the difference in the oracle and the DEX price of a syAsset in either direction.
Synthr’s DRASR (Dynamic Reward Allocation for Spread Reduction) framework:
This model functions to reduce the price spread between the oracle price and the price on DEXs. This is achieved through a dynamic reward-based liquidity incentivization programme which also acts as an added benefit contributing to the building of deep liquidity closer to the oracle price.
(Note: syAssets can be minted/swapped(zero slippage) on synthr at the oracle price, irrespective of the price on DEXs.)
- DEX price < Oracle Price = Long Opportunities Arise
i. Long Farms
To neutralise scenarios where the price of an asset deviates negatively on a partner DEX (i.e. when the syAsset is trading at a discount), LPs on these DEXs are incentivized to deposit liquidity on the DEX via $SYNTH rewards.
This liquidity is allocated to the LP incentivisation farm of that particular syAsset. This incentivisation will stabilise the price of the price-deviant syAsset on those DEXs.
ii. Long Vaults:
For popular DEXs on each chain, users can deposit liquidity into LongVaults which will be used to open CDPs and issue syUSD; this syUSD is then swapped to the syAsset that is trading at a discount. Providers earn $SYNTH rewards for neutralising price deviance on this particular syAsset on the partner DEX, and as additional benefit, undertake zero third-party SCV risk.
2. DEX price > Oracle Price = Shorting Opportunities Arise
iii. Short Farms:
In scenarios where an syAsset of a stablecoin on a partner DEX is trading at above a pre-set threshold premium, users will have an opportunity to earn yield via depositing the stablecoin within a StableCoin Vault — this liquidity is used to open CDPs and issue syUSD, which is then swapped into syAssets to take advantage of arbitrage opportunities on behalf of the user on different DEXs.
Supported by the protocol’s in-built Recovery Mode (more to come on that soon — watch this space) and third-party insurance coverage, the DRASR mechanism allows Synthr to essentially reduce asset price spreads in either direction, and ensure that traders on the platform can trade and earn by being exposed to cross-chain opportunities with minimised risk of loss due to front-running or arbitrage exploits.
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