SYNTHR PROTOCOL ARCHITECTURE Part II: The Role of Oracles, SynthSwap, & Atomic Swaps.
1. Oracles
Smart contracts alone do not have the ability to pull data directly from sources outside of the blockchain (off-chain data); Oracles enable this sharing of important data between on and off-chain systems
To prevent censorship and manipulation of oracles, SYNTHR will only use truly decentralized oracle services to ensure a censorship resistant and trust-less DeFi ecosystem (Chainlink, Band Protocol, Tellor, UMA’s Optimistic Oracle, etc. are some that are good contenders).
i. On-chain And Off-chain Assets Price Feeds
The most used application of oracles is pricing information of on-chain assets within Decentralized Finance.
When users stake ETH and mint syUSD, oracles are used to pull current ETH prices to determine how much syUSD can be minted as per C-Ratio.SYNTHR also requires oracles to prevent insolvency; the protocol determines the C-Ratio of CDPs by relaying pricing information given by oracles.
When liquidations occur, oracles are used again to determine how much of an asset is liquidated, how much debt is needed to be paid off, and how much of the remainder is to be sent to the Stability Pool. Oracles would also be responsible for overseeing cross-chain CDPs.
ii. Debt Pool Tracking
SYNTHR will utilise oracles to track the size of the chain specific/global debt pool, as a sum of all assets issued across chains. These values will be utilised to then calculate the user debt based on the debt share tokens owned. These oracles, essentially serve as the heart of cross-chain functionality of syAssets.
Individual syAsset debt can be tracked as the summation of the issued syAssets on various chains multiped by its current market value.
2. SynthSwap
SynthSwap is the protocol’s internal slippage-free DEX that allows users to swap syAssets by simultaneously minting and burning assets while referencing oracle price feeds. SynthSwap allows users to have access to liquidity 24/7.
i. Slippage Free Swapping Engine
Slippage could be defined as the difference between the expected price of a trade and the executed price of a trade. In an order book system, slippage tends to be higher during periods of high volatility or if the financial product has poor liquidity and order depth. Slippage is widely prevalent in Traditional AMMs such as the common model of X * Y = K with liquidity bands ranging from 0 to infinity. These models are very capital inefficient because the liquidity of the pairs is spread across an infinite amount of prices which limits price discovery. The result of this inefficiency is high slippage costs to the user.
SYNTHR uses a debt pooling model to mint and burn assets simultaneously while using oracle price feeds as a reference to enable instant execution on zero slippage fee trades. The debt pooling model allows trade execution on large volumes of trades with very little liquidity required when compared to a traditional AMM model. SYNTHR’s capital efficiency will attract more liquidity on its platform, while bringing in more trade volume, and more fee generation for SYNTHR’s LPs.
ii. Atomic Swaps
Atomic Swaps allow for slippage free, low fee trades on DEX aggregators. By leveraging high throughput, low latency blockchain networks, SYNTHR’s Atomic Swap implementation can allow all the benefits of Atomic Swaps in addition to low network fees and less possibility for MEV and frontrunning attack vectors. The process of an Atomic Swap would be as follows:
· User executes swap from ETH to WBTC on SynthSwap
· DEX aggregator swaps ETH to syETH
· syETH is burned, while syBTC is minted referring to oracle price quoted in ETH/BTC
· syBTC is swapped for WBTC on DEX aggregator
· User receives WBTC
All the above steps occur within one transaction known as an atomic swap to reduce frontrunning and oracle latency.
The above enable the smooth functioning of the protocol’s ecosystem overall — decentralized, censorship-resistant oracles will enable syAsset minting and SynthSwap will allow for their fair and lucrative trade by users on either side.
In addition, our Atomic Swaps technology enables DEXs and Bridges to integrate with us — in order to serve real utility to the wider crypto community; in this case, zero to low slippage swaps.
Follow this space for subsequent parts of this article series to learn about the protocol’s price stability maintenance model, opportunities to earn real-yield within the ecosystem, and more.
About Synthr
Born through a collaboration of DeFi experts and traditional investors with real-world trading expertise, Synthr is a synthetic asset protocol with the goal is to enable traders to thrive without the restrictions of traditional finance via the application of DeFi solutions and to transform trading into a truly universal and omi-accessible market.
