Marqet: Margin Trade Any Synthetic Asset

Marqet combines AAVE credit delegation with Synthetix peer to contract exchange to uniquely provide trustless margin trading of any synthetic asset with no slippage.

In traditional markets, margin trading uses borrowed funds that are usually provided by a bank or an investment broker. In cryptocurrency trading there are two kinds of margin trading platforms, those centralized which work similarly to traditional markets where the centralized exchanges act as liquidity providers or brokers and those decentralized whereas funds are provided by other traders, who earn interest based on the market demand for margin funds.

Margin trading brings several advantages to investors:

• Amplified returns when the price of an asset is moving in your favor
• Easy portfolio diversification allowing traders to open a larger number of positions using margin power with a small amount of capital as collateral
• Asset management efficiency by avoiding large sums shifting between different accounts or wallets (especially interesting for spot market makers)

Let’s quickly review the margin trading platforms operating within the crypto market:

1. Centralized Exchanges operating as a Liquidity Provider (e.g. Binance): funding for borrowing is provided by the exchange itself. Interest rates are entirely charged and defined by the exchange.

2. Centralized Exchanges operating as a Broker (e.g. Bitfinex): RFQ approach where the exchange is the intermediary between users who can be margin traders or lenders. Lenders express their intention to loan funds defining an interest rate they are willing to accept and the exchange keeps a “funding order book”, margin traders use the liquidity provided paying the defined borrowing rate. The exchange withholds 15% of the interests earned by the lenders as their fee.

Pro’s

• High Liquidity Available
• High Order Books Depth
• Efficient

Con’s

• Custodial
• Sign Up / KYC Required
• Potential Market Manipulation

3. Decentralized Exchange (e.g. dYdX): Pool to pool approach where users participate as both lenders and borrowers in pools via an order-book or AMM. Similar to DeFi lending protocols, interest rates are defined by the usage of the pool and accrue to the lenders. Regarding trading differently from centralized solutions, they combine off-chain orders with on-chain settlement.

Pro’s

• Non-Custodial
• No Sign Up / KYC Required
• Active Interests on Purchased Assets

Con’s

• Lower Liquidity / Order Depth
• Expensive Liquidation
• Gas Fees

The main issue today for Decentralized Platforms is Liquidity. To be successful, a margin trading platform needs to have enough liquidity for the funding and liquidity in its order books to facilitate deep, low slippage markets — in the same order of magnitude as that seen in centralized platforms.

In one of the latest Deribit Research article, Su Zhu (CEO/CIO of Three Arrows Capital) widely explained the differences between CeFi and DeFi platform approaches on margin trading and he perfectly summed up the DeFi Liquidity Problem as follows:

“Without a centralized party to facilitate the initial liquidity or on an adhoc basis, there is a chicken or the egg problem. Composability is likely important to be able to access the assets sitting on other DeFi protocols and make them available for margin traders”

“If the trend of users migrating to DeFi continues, it is possible to imagine that soon DeFi spot markets are on par with or more liquid than CeFi ones. Then margin traders may see DeFi margin trading as an increasingly viable alternative to CeFi–which in turn may compel CeFi exchanges to add DeFi liquidity into their own financial markets”

Now it’s time to unveil Marqet

Marqet is the first protocol that combines two foundational DeFi protocols, AAVE and Synthetix, taking advantage of DeFi’s composability.

Marqet creates a new margin trading platform where funding is provided by AAVE credit delegation and the order book liquidity is infinitely supplied by the peer to contract Synthetix Exchange.

Users can thus margin trade with long and short positions on any asset available on Synthetix, by depositing an initial margin on Marqet and leveraging via AAVE funding.

Thanks to this unique combination, Marqet solves critical issues related to Decentralized Margin Trading Platforms, such as:

• Low Liquidity Available for Funding

All the AAVE depositors will be incentivized by additional yield to delegate their credit to Marqet. Credit delegated will be then available for funding purposes. SNX Minters will also be incentivized to mint new sUSD and make them available to Marqet Traders.

• Low Order Book Depth

Integrated trading with Synthetix Exchange implies trading at spot price with no slippage. Independently on the amount traded in Marqet, users will always buy or sell at spot price. This is far better than the tight spread offered by centralized platforms .

• Expensive Liquidation

Decentralized margin trading platforms face expensive liquidations because during the liquidation process trader’s collateral is sold and if there isn’t enough liquidity in the order book will incur in high slippage. On Marqet, liquidations are executed via a trade on Synthetix, thanks to infinite liquidity and no slippage it happens atomically with 0-risk for the liquidator and the platforms. This means also the liquidators don’t have to provide the funds, they just have to kick the position. A revolution compared to the traditional liquidations.

• Low Leverage

Reduced risks on liquidations help to decrease minimum collateralization ratio for margin positions, which implies combined with no slippage the opportunity to have higher leverages with the same degree of risk.

• Gas Fees

As soon as layer 2 solutions are up and running, Marqet will migrate the protocol together with Synthetix to reduce gas fees to almost to zero, while allowing for leverage levels similar to those offered by derivatives centralized platforms. The trading experience will then be as seamless as a centralized exchange, without the downsides of centralization.

Marqet does not only leverage DeFi composability to create a unique product, but also to contribute positive sum advantages to AAVE, Synthetix and their respective token holders enabling a real gravitational pull for liquidity.

In fact a usage increase on Marqet implies:

• Increase trading volumes on Synthetix Exchange
• More loans taken out from AAVE
• Attractive higher lending rate on AAVE
• Increase in sUSD Minting through Synthetix
• Increase deposits on AAVE
• Increase AAVE and Synthetix TVL
• Fees generated for AAVE and SNX Holders
• Increase AAVE and SNX Value

We are committed to a fair launch

We are excited to announce that Marqet has been the first project selected for the fair launch capital, which provides resources and guidance from a top-tier team of sponsors and advisors including Joe Gerber (Co-Founder IDEO CoLab), Reuben Bramanathan (prev Product and Legal at Coinbase), Gavin McDermott (prev Founding Engineer at BitGO), Andre Cronje (yEarn), Kain Warwick (Synthetix), Stani Kulechov (AAVE), Damian Brener (OpenZeppelin), and many others.

It is an immense pleasure to work with such a smart group of people who will bring incredible value to the project with their practical experiences in creating successful community-governed protocols. They will help us to bootstrap Marqet, to cover initial expenses (via delegated credit!) and to design the most efficient token economy with the goal to build a long-term, highly engaged, collaborative community that earn, own and govern the protocol creating a standard that inspires a new wave of projects to pursue this fair launch path.

We will share the details of the project’s progress with all of you in the coming days!