The advent of DeFi has been a game-changer for the global economy as it rectifies many of the problems plaguing traditional financial systems. Synthetic assets are one of the most exciting opportunities in this space because they promise more liquidity and access to asset classes that were not previously available.

SYNTHR hopes to expand on existing DeFi products and make financial assets more widely available by creating synthetic assets such as hedge pools, delta-neutral vaults, and derivatives.

This article comprehensively explores SYNTHR (a synthetic asset) and how it extends the power of financial instruments to all.

What Are Synthetic Assets?

Synthetic assets can be made in ERC-20 smart contracts with the help of smart contracts referred to as “synths.” These are similar derivatives in traditional finance.

A smart contract-based protocol can track and trade the value of real-world assets in a synthetic asset. Indexes, inverse indexes, cryptocurrency, and tangible assets like precious metals or fiat currency are all examples of these assets.

Synths give access to assets like gold and silver that the average cryptocurrency investor may not have easy access to. They pave the way for holders of one asset class to engage with holders of another asset class.

What is SYNTHR?

SYNTHR is a synthetic asset protocol that allows users to mint and trade on-chain derivatives of various financial assets. It uses cutting-edge methods for managing collateral, reducing risk, keeping costs stable, and allowing chains to work together.

There are two crucial components of the decentralized ecosystem that have allowed the protocol framework to be implemented.

The first is the creation of highly effective Oracle networks, which provide advanced smart contracts with data sources, outputs, and calculations that can’t be altered.

The second involves the development of on-chain debt management principles to keep track of protocol solvency and liquidity.

SYNTHR Architecture

Users will be able to mint, manage, and speculate on synthetic derivative tokens representing any financial instrument in the world using the SYNTHR Protocol. Synthetic versions of assets like cryptocurrencies, stocks, currencies, bonds, and commodities can be created by using on-chain Oracle price feeds.

Participants in the protocol will initially put up highly liquid assets like USDC, ether, and tether as collateral. Those who put up collateral can mint synthetic tokens (syAssets) at a collateralization ratio of 150% (on average). Synthetic assets will be issued against overcollateralized loans to ensure the robustness and solvency of the SYNTHR ecosystem. All sorts of asset types will be represented by synthetic assets.

SynthSwap, Synthr’s internal slippage-free DEX, will be used to facilitate the trading of these assets for other assets. SynthSwap will be able to make much better use of capital than traditional AMMs because it won’t depend on user deposits for liquidity.

Using on-chain oracles and a global debt pool, SynthSwap will facilitate the trading of syAssets via the minting and burning of syAssets. It will also allow for the tracking of CDPs across chains as well as the issuance of debt, expanding the composability of the DeFi ecosystem by providing access to the vast pools of liquidity found on other blockchains.

SYNTHR will give investors a chance to make money by using the Hedge Pool’s Delta-Neutral strategies, Long-Farm Vault strategies, Short-Farm Vault strategies, and Stability Pool strategies.

Users can earn yield in the form of liquidated collateral by depositing syAssets such as syETH into the Stability Pool. Collecting penalty fees from CDP liquidations will allow the Stability Pool to generate stable returns while minimizing tail risk. When the market is highly volatile, the Stability Pool will be a crucial part of the liquidation process. It will help keep the protocol healthy and reduce the risk of insolvency.

The Long-Farm Vault is a unidirectional vault that will produce returns via the provision of liquidity to system asset pairs trading on DEXs and via LP incentivization programs.

The Long-Farm Vault will use discretion to release funds at peak earning periods. The Short-Farm Vault will make money by trading between the higher DEX price and the lower Oracle price of a security.

To generate arbitrage profits for vault depositors, the funds in the short-farm vault will be used as collateral to mint securities at Oracle prices, which will then be sold on partner DEXs at higher prices.

Participants in ShortFarm Vault only need to add funds. The protocol-governed arbitrage bots will take care of everything else, including distributing profits in proportion to deposits and minting different assets.

Finally, delta-neutral strategies will be used using the hedge pool to protect the debt from potential appreciation. Appreciating assets could lower the collateralization ratio if they are part of the debt pool. Holders of CDPs will be able to deposit securities into this vault to ensure that the value of the debt pool is always backed by the same amount of assets.

Oracles

Oracles are essential to DeFi because they enable the development of traditional financial instruments on blockchains that are both permissionless and censorship-resistant. Smart contracts alone can’t access information from anywhere besides the blockchain.

Oracles were developed so that information from sources outside of the blockchain can be shared with smart contracts in a way that doesn’t need permission and can’t be shut down.

Since it is crucial for blockchains to interact with data that exists outside of the blockchain ecosystem, oracles have infinite potential in the blockchain world. Since most oracle services are centralized, SYNTHR will need truly decentralized oracles to be totally immune to censorship.

Given that most Oracle services are run by a handful of validators, they are susceptible to manipulation and censorship. The SEC or the CFTC can legally compel independent node operators to cease providing data feeds to users to prevent them from utilizing specific protocols.

To ensure a secure DeFi ecosystem that can’t be changed and where oracles can’t be censored or manipulated, SYNTHR will rely on truly decentralized oracle services.

Tracking of the Debt Pool

SYNTHR monitors the size of the global debt pool (which is the total value of all issued assets in the network) using Oracle. The user’s total debt will be determined based on the value of the debt pool shares they own. The functionality of SyAssets’ cross-chain features will be built upon these oracles.

Slippage-Free Swapping

Slippage in an order book system is more likely to increase when volatility is high, or the financial product has low liquidity and order depth. The trader incurs a loss due to slippage whenever they must buy at a slight premium or sell at a small discount to maintain liquidity. On centralized exchanges, traders can avoid this problem by placing limit orders, but it still happens on traditional AMM-driven decentralized exchanges.

SYNTHR will use the debt pool model to simultaneously mint and burn assets at Oracle price feeds, thereby enabling instant order execution and slippage-free trades.

The debt pool model will allow high-volume trades to be executed without volume or liquidity requirements, which is a significant departure from traditional AMMs. The low transaction costs of SYNTHR will make many investors want to use the platform, which will raise the trading fees for the protocol.

SYNTHR Risks

Market Data Oracles and Price Feeds

To determine the present value of a syAsset, SYNTHR will need access to accurate and reliable price feeds. Given that no distributed ledger or cryptographic system has the inherent ability to know things like the price of the S&P 500, SYNTHR will need a trusted oracle to communicate prices and market data. If the oracle is compromised, the contracts could be manipulated.

De-Pegging of Assets and Security Flaws in Smart Contracts

SYNTHR will use smart contracts for the automation and execution of certain tasks in a trustless manner. These tasks include (but are not limited to) borrowing, lending, burning, minting, depositing, staking, and withdrawing crypto assets. Smart contracts, like any other software or program, are not immune to the possibility of being compromised and having money stolen from them.

Due to these vulnerabilities, crypto assets can become de-pegged, which means that the syAsset is no longer the same as the underlying asset.

In addition, certain blockchain networks may become congested during volatile market conditions and black swan events, which would hurt essential infrastructures such as APIs, query services, Infura, and Oracle services. The protocol can’t manage such factors beyond its scope.

In Conclusion

DeFi has opened up new possibilities for the widespread application and adoption of cryptocurrency. The only ways to benefit from cryptocurrency (before the advent of DeFi) were to exchange it for other assets, mine or stake it to make a profit, or run nodes to facilitate a decentralized economy.
Despite the risks, SYNTHR will do everything in its power to protect against vulnerabilities and lessen attack vectors by spreading out the services it uses and performing regular audits. SYNTHR will also work with DeFi insurance platforms to protect its users from the de-pegging of assets, exploitation of smart contracts, and financial loss.

Disclaimer: This article is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence.

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