Synthereum. Vision and roadmap.
In this article, I wanted to highlight the vision that dictates the roadmap of Synthereum, our protocol for issuing synthetic assets on Ethereum. A part from obvious use cases like payment remittance and trading, I share some of our ideas here, in no particular order, to help you understand what we are building and the value it can create. Among other things, I will explain the advantage of using USDC as collateral, the role of arbitrageurs, and our yield farming desires…
Before reading this article, I strongly advise you to read the one explaining how the protocol works:
USDC Collateral
Using USDC as collateral allows you to take advantage of its liquidity! It is listed on several services that allow it to be purchased via card or bank transfer such as Wyre, Transak, or Ramp, and is listed on several CEXes and DEXes. It benefits from significant liquidity on both fiat and crypto sides with which it can easily be purchased.
The particularity of Synthereum is that users do not need to over-collateralize the assets they mint: they deposit 100 USDC and receive 100 dollars of jEUR or jGOLD for example; from the users point of view it’s identical to an exchange. As a result, jEUR or jGOLD have the same liquidity as USDC:
- fiat <> USDC liquidity = fiat <> jEUR liquidity
- crypto <> USDC liquidity = crypto <> jEUR liquidity.
We are working to automate these processes in our dApps (Jarvis Wallet and Jarvis Exchange) to be able to exchange any fiat or crypto for any synthetic. These exchanges issue a synthetic and therefore generate a commission and a cash flow for the DAO and the liquidity providers.
Special synthetics
The “reverse”
Reverse are synthetics that track the reverse price of an asset. For traders, reverses allow you to short an asset without having to borrow it, in order to speculate or to hedge their market risk; for liquidity providers (LPs), reverses help them balancing their balance sheet to more easily reach a neutral risk on the market (as a reminder, LPs can be hedged via Margineum, but the introduction of reverse will reduce the cost of such hedges).
The “leveraged”
Leveraged are synthetics that track the multiplied price of an asset. The price of j2xBTC is therefore the price of jBTC multiplied by 2.
Leveraged can be classic or reverse synthetics and make it possible to use leverage and multiply the gains (and losses) of an asset without borrowing and without the risk of margin calls.
Special synthetics have some UX limitations, and have to be capped; we will work on an auto-rebalancing mechanism to roll a contract which hit its cap to a new one.
Money market
Borrowing USDC and borrowing synthetic asset, by depositing jGOLD or jEUR (or even $JRT) as collateral will be one of the highest priorities after mainnet.
We will submit a vote to the governance of various protocols, like Aave, Compound and Cream, with Aave being our main target to take advantage of their innovative features such as Credit Delegation and Flashloans (jFiat Credit Delegation could be huge); we will also make sure to have an on-chain price with Chainlink for all our synthetic assets. If the governance of these protocols votes “no’, we will advance the development of our third protocol, a fork of Compound combined with the priceless framework of UMA.
While borrowing will allow the creation of interest-bearing synthetics, the use of synthetics as collateral will open the door to farming while remaining exposed to assets other than the dollar, such as the Swiss Franc, and will allow to use one’s multi-assets portfolio to use leverage.
Farming and Vault
Once the possibility of borrowing is in place, ySynth, a fork of yVault, will allow the creation of automated farming strategies with exposure to any asset, such as Euro or gold. These strategies will be offered via a new protocol based on Synthereum.
jEUR would be deposited to borrow USDC, which would be used to farm CRV. The latter would be sold for jEUR or for USDC (which would be used to mint new jEUR). The former option would generate a commission for the DAO and for the liquidity providers, and the governance of this new protocol will be able to vote on adding withdrawal or performance fee like on the yVaults. The first option may lead to create arbitrage opportunies, which may also generate a fee…
Arbitrageurs
The success of a stablecoin is linked to its liquidity and its peg. As said above, the jEUR will have the same liquidity as that of the USDC; as for the peg, a mechanism unique to Synthereum will facilitate arbitrage and ensure a solid peg.
The USDC retains its peg because it can be exchanged for a real dollar by any USDC holder. If 1 USDC = 0.98 USD, an arbitrageur can buy it for 0.98 USD and exchange it for 1 USD, making a profit of 2 cents and helping to push the price of USDC up to $1.
On Synthereum, collateral can be withdrawn at any time by any user holding a synthetic (on Synthetix and on Maker, only the sUSD and DAI issuers can withdraw the collateral). When the price of the jEUR on Uniswap is higher than that on Jarvis exchange (the interface to interact with Synthereum — https://kovan.jarvis.exchange) an arbitrageur can deposit USDC to issue jEUR at the real market price (Synthereum uses the market price in real-time, see how in our article), and sell them on Uniswap for more USDC, making a profit and bringing the price of the jEUR on Uniswap closer to its peg.
Providing liquidity for synthetic assets on Uniswap and other AMMs will be part of a $JRT farming program.
These arbitrages mint synthetics and therefore pay a fee to the DAO and to the liquidity providers which allows a strong peg to be established for the synthetics listed on the various AMMs, DEXes and CEXes.
In the first version of the protocol called Opatija, our synthetic assets won’t be composable; it will not be possible to use flashloans or to mint them from a smartcontract; we will have to wait for Budva, the next “Optimistic” version of Synthereum which will allow greater composability and scalability of the protocol.
Price feed
Uniswap v2 introduced several new features including the ability to use a Uniswap pool as a decentralized and tamper-resistant price oracle. Since a jEUR/USDC pool would be constantly arbitrated, the price of the jEUR against the USDC would be very close to that of the real EURUSD. In fact, it would be possible to recreate the price of most assets against the dollar directly on Uniswap and use it as a price oracle for DeFi.
The problem of indices and stocks
The price of gold, Bitcoin, or Euro is free of rights and can be used without authorization. The prices of the Apple stock or the DAX30 index on the other hand belong to the Nasdaq and Euronext exchanges respectively and cannot be used freely. An agreement is needed (data distribution agreement) with the exchanges or with an authorized distributor, but these agreements do not allow the use of their prices in a public environment, making the creation of synthetic stocks and indices very complicated on the Blockchain. Worse, creating a financial product (like a synthetic) using this price requires another type of agreement that is more restrictive and expensive.
Synthereum’s priority remains the issuance of synthetic fiat, commodities, metals, and crypto, and we will work on stocks and indices once the system is stable, and without violating the limitations set out above, thanks to the particularities of Synthereum and of UMA combined with the one of Uniswap. An experimental solution solving this issue will be unveiled next year when the time will come.
Empower communities
Synthereum can help crypto and DeFi communities and projects around the world to break free from their dollar dependency.
We have already discussed with communities and projects in Poland and Switzerland, South Africa and Ivory Coast, Singapore and Hong Kong, Indonesia and Vietnam, Argentina and Bolivia, which have shown a lot of interest in being able to issue their local currency on Ethereum, whether to create pairs on their exchanges, to use them for payment, or even to farm without being exposed to the dollar.
Auto-pilot investment
Synthetics on TokenSet or Melon would make it possible to create decentralized social trading, copy trading, and multi-asset fund management.
The liquidity pools on Bancor and Balancer can be seen as indexes for which the allocation of their constituent assets is fixed thanks to arbitrageurs constantly rebalancing it. A Balancer pool containing 25% jGOLD, 25% jOIL, and 50% jBTC is, in reality, an index that will keep this allocation and that will earn commissions from trading and arbitrages, and can potentially farm BAL. This is how the excellent PieDAO project works, which uses private Balancer pools to create indexes like DeFi+S, and most recently Set announced the launch of a similar project, Index.
Like the synthetic “reverse” and “leveraged”, the creation of indexes will allow investors to create multi-asset portfolios with a wide choice of possibilities. Combined with lending, farming, and social trading, Synthereum has the ability to become an asset issuance layer for a complete financial ecosystem, open and interoperable with all the other DeFi protocols and ecosystems on Ethereum.
Integration with CEXes
In the near future, CEXes will allow interaction with decentralized protocols. This will allow their users to enjoy DeFi without having to leave the exchange, and without having to worry about private key or gas. This represents a huge pool of users, and protocols like Synthereum would then only have to focus on attracting liquidity and securing the network without worrying about user acquisition.
This also helps to address one of the issues that the success of DeFi will bring: regulation, KYC, and AML of users.
Pascal (pascal.jarvis.eth on Twitter).
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