Gains Network is a decentralized perpetual exchange on Polygon, with plans to expand and provide a suite of DeFi products. Their first product - gTrade, allows massive on-chain leverage, up to 50x for US stocks, 150x for cryptocurrencies, and 1000x for forex markets.

Various trading pairs have been listed on gTrade including 10 forex pairs (USD, EUR, JPY), 25 stocks (APPL, GME, TSLA) and over 48 cryptocurrencies (APE, BTC, ETH) that all share the same liquidity in GNS/DAI.

All pairs on gTrade are backed by DAI vaults and leverage is synthetic which means capital can be shared between multiple pairs. Trades are opened with DAI collaterals, which get deposited into the DAI vault, regardless of the trading pair. Any leverage is then synthetically backed by the DAI vault, GNS/DAI liquidity, and the GNS token. When a trade is closed, DAI is removed from the vault to pay the traders.

Decentralized leveraged trading platforms often use Chainlink Price Feeds as reference spot prices in order to compute the funding rate based on the difference between spot prices and futures contract prices. Since price feeds on Polygon are not updated every time in real-time, Gains Network has created a custom on-demand, real-time Chainlink DON that allows users to trigger new oracle price updates while executing trading orders.

Their unique oracle architecture uses a custom Decentralized Oracle Network (DON) to supply on-demand prices to an aggregator contract while the official Chainlink Price Feeds serve as anchors. A circuit breaker on gTrade is triggered when prices differ by more than 1.5% from the Chainlink Price Feeds, rejecting the node and waiting for the next answer. This mitigates the possibility of scam wicks and stop-losses will be triggered regardless of network congestion. As orders on gTrade are executed using accurate spot prices of listed assets, they do not charge a funding fee.

This feature is unique to gTrade and cannot be found on any other decentralized perpetual platforms like GMX or even centralized platforms. Having a guaranteed stop-loss price is absolutely beneficial for traders on a large leveraged position.

Assuming a trader sets his stop-loss at -10% of X price. If the price of an asset absolutely dumps and the Chainlink nodes return the current price of -50%, gTrade essentially says "the price is at -50% but since there was a stop-loss set @ -10%, let's be friends and look back at the price when it was -10%". The platform would then trigger their stop-loss at -10%.

You can see how this benefits traders as they will be able to dodge a bullet if the asset price dumps and the stop-loss price is honoured.

gTrade currently charges 0.06% for market orders, 0.08% on limit orders for all cryptocurrencies, and 0.006% - 0.008% for forex. The fee is applied upon opening and closing a trade.

There is a small spread on the price of each pair when opening trades to prevent high-frequency bots to exploit very small price movements. The exact percentage varies from 0.05% to 0.14% and can be seen in the trading panel. Check out their full fee breakdown 

Additionally, gTrade offers low price impact subjected to the position size of your trade, and the liquidity of the pair on spot exchanges.

Lastly, funding fees and rollover fees are charged based on your position size and your collateral respectively. This was implemented to manage the risk of the DAI vault, depending on the net exposure of a pair, and depending on its volatility. For the latest rates, visit the 

The DAI vault is where the DAI from open trades goes and is used to pay out traders when the trades are closed. Anybody can stake DAI in the vault and earn DAI rewards from fees based on the gTrade volume.

The staked DAI can only be withdrawn at a max rate of 25% of your maximum historical holdings every 24 hours. This means if you have 10,000 DAI in the vault, you can withdraw 2,500 DAI every 24 hours and will have withdrawn the entirety after 4 days.

The vault will always be over-collateralized and it achieves this by burning and minting GNS. If the vault is more than 10% over-collateralized because users have opened trades, the vault will use the extra DAI to market buy GNS and burn it.

On the other hand, if the vault is less than 100% full because traders have been winning, the vault will mint GNS and market sell it in very small amounts over time to refill the vault with DAI.

Collateral size is relative to the amount of DAI staked in the vault. This is updated based on its TVL. Currently, there is about 10 million DAI in the vault, and the max collateral allowed on a single trade is 75,000 DAI.

Finally, the vault reduces unnecessary volatility for GNS since both buys and sells are performed via the vault and spread over time.

GNS is essential to gTrade and its synthetic structure. Currently, GNS is a single utility token that is meant to capture the PnL of traders and drive that value back to token holders. GNS tokens are minted when traders profit from their trades and burnt when they make a loss.

The maximum supply of GNS is capped at 100 million GNS. This is used as a failsafe mechanism that in theory, should never be reached.

Currently, GNS holders are unfortunately exposed to the risk of traders’ performance. This allows them to earn the upside of losing trades while the token supply contracts but also risk losing big from profitable trades while the token supply expands from minting and dumping.

The chart above tracks the supply of GNS which has until recently been deflationary due to traders losing to the market on top of massive liquidations from February to May. GNS can also be paired with DAI on Quickswap and then staked on the GNS/DAI pool to earn incentives. The majority of trading fees will be sent to the GNS staking pool once the protocol has enough protocol-owned liquidity (POL).

Total Value Locked on Gains Network (DefiLlama)

Within the GNS ecosystem, there are 1,500 NFTs, each of which is then categorized into a different tier based on their rewards.

Each of these tiers comes with its own selection of benefits, incentivizing users to supply total liquidity in order to mint these NFTs. Diamond NFTs come with the largest amount of benefits and thus require the most amount of NFT credits.

Users can expect the following benefits from the NFTs, with varying returns based on the tier:

The connection of ecosystem benefits and NFT possession creates a unique feature of the platform, one that inherently increases the digital value of the NFTs, while incentivizing their trading.

 at the current floor price of 1 ETH. The team has plans to rename them to "GNS", and also include the art in their metadata.

If we take a look at Gains Network versus GMX, we can see that there's a lot of potential for GNS to grow as the protocol is still in its early stages of development.

gTrade offers a wider range of assets compared to GMX, with 15 vs 48 assets on cryptocurrency pairs alone. The platform also benefits traders with lower trading fees for opening and closing their positions. This can be seen from the comparison above. Despite having 13.9x fewer users and a 28.7x lower TVL, Gains Network has managed to net an all-time trading volume of $14 million which is only 3.4x less than GMX.

The single asset collateral (DAI) on gTrade is also a very attractive feature as users do not have to manage multiple positions using multiple assets as collateral, resulting in potential liquidations if poorly managed. The team has plans to utilize GNS as their governance token in the future which could potentially drive the price of GNS up.

Gains Network uses a range of DeFi products to deliver a new form of trading. Through their integration of GNS into gTrade, they provide the option to leverage in ways that would not be possible with traditional brokerage platforms.

The biggest advantage to gTrade is the ability to open a 100x leveraged position while having a guaranteed stop-loss price feature as a protective mechanism during a downturn. By using a Chainlink node and taking the median price from seven major data sources, Gains Network also prevents manipulated scam wicks or false prices from impeding its daily trading.

If you’re looking for a new leverage platform that could potentially become the next big perpetual platform, Gains Network is a great choice for you.

Ape Digest

Gains Network: Huge Gains with gTrade on Polygon

Despite current macroeconomic conditions, traders continue to trade in this uncertain market. While we have seen a great decline in trading volumes, crypto remains one of the most tradable asset classes in bull and bear markets due to its volatile nature.

With the market looking to form a bottom and perpetual protocols gaining popularity again, let us look at the fundamental numbers of various perpetual protocols (perps) to explore which is potentially undervalued.

Perps have the potential to open up a wide range of unique financial products. They provide composable leverage that other Dapps can use while improving capital efficiency across the board in the DeFi ecosystem. In this article, I will be comparing the statistics and value accrual of the largest perps including

Let’s compare the current valuation of these perpetual exchanges.

A perpetual exchange is an alternative way to trade assets as it allows investors to buy and sell the value of the underlying asset without having to own the asset. Perps do not expire, do not have a settlement date, and are easy to long or short.

Perpetual exchanges closely follow the price of the underlying asset due to the funding rate mechanism, which balances the demand between buyers and sellers of the perpetual swaps so that the price of the swap aligns with that of the underlying asset.

Decentralized perps are non-custodial and permissionless, which means that liquidity is provided by its users and exchanges cannot execute forced liquidations, unlike their centralized counterparties. They also do not require KYC which reduces counterparty risk, provides a censorship-resistant platform and their traders to trade pseudo-anonymously.

dYdX is the largest on-chain perpetual exchange, supporting over 40 different assets and up to 10x leveraged trading of assets. The protocol uses a central limit order book (CLOB) model. It is a non-custodial order book with on-chain settlements while running on off-chain matching engines.

dYdX is built out on a StarkEx implementation - a permissioned ZK Rollup. It sits on its own Layer 2 network providing instant finality and gasless trading. While they currently lack composability, the team has announced that they will be migrating to Cosmos sometime in the future.

Their trading volume dominates over 90% of daily trading volume across DeFi perps and has reached a staggering $650 billion traded since its inception in 2018. On most days, volumes easily surpass $1 billion, reaching over $5 billion on volatile days.

While liquidity on dYdX is supplied by community-approved market makers, users are given an option to provide liquidity in the form of USDC, offering capital efficiency to attract quality market makers and earning DYDX rewards in the process.

Their hybrid infrastructure allows the platform to offer a similar trading experience to popular centralized exchanges (CEX) like Binance. For those who prefer the classic user interface of CEXs, dYdX is a great platform that provides a similar user experience.

DYDX is the utility and governance token for the dYdX platform. It has a max supply of 1,000,000,000, of which 100% have been minted and will be unlocked over the next 5 years, starting in August 2021.

However, this max supply is soft capped and can be readjusted after 5 years based on dYdX governance. The max supply of new tokens to be minted is capped at an inflation rate of 2% per year. All newly issued tokens will be allocated by governance and will vest immediately. For more details, check out their 

There are a few things you can do with DYDX.

Unlike other platforms, staking DYDX does not give users a portion of platform revenue. Instead, all fees are distributed to the traders, market makers or back to the exchange.

There will be massive unlocks coming up for early investors, team members and the foundation, so holders can expect the price of DYDX to dump should they choose to exit their positions.

Additionally, the inflation schedule of DYDX puts token holders at a disadvantage while traders benefit from the liquidity mining program, essentially earning and dumping DYDX.

GMX is a decentralized perpetual exchange that supports low swap fees, zero price impact trades and up to 30.5x leveraged trading. All trades are supported by GLP - a basket of assets on Arbitrum and Avalanche that earns liquidity providers fees from market making, swap fees and leverage trading.

Traders can use any of the GLP assets which vary on Arbitrum and Avalanche to open long or short positions. A fee is charged for opening and closing positions along with a borrow fee which is similar to funding fees on centralized exchanges.

The trading volume on GMX has been climbing steadily and has recently crossed $39 billion of assets traded. The average trading volume of the platform ranges between $50 million to $100 million per day.

GMX is the governance and utility token for the GMX platform. The current max supply is 13,250,000 GMX, of which majority are currently vesting from liquidity rewards and team allocations.

Similar to DYDX, this max supply is soft capped and minting beyond the max supply is controlled by a 28-day time lock governance proposal. This will only occur if more products are launched and liquidity mining is required on GMX. The platform distributes 30% of all fees collected to GMX stakers in the form of ETH or AVAX and escrowed GMX (esGMX).

Users are incentivized to re-stake your esGMX to increase their GMX APR and are required to vest their esGMX over a year if they wish to convert them into liquid GMX. Additionally, the protocol requires a certain amount of GMX staked on the platform in order to start the vesting process of esGMX.

Essentially, you’re highly disincentivized to convert your esGMX into GMX.

GLP is a basket of assets on both Arbitrum and Avalanche. The Arbitrum index consists of ETH, WBTC, LINK, UNI and various stablecoins, while the Avalanche index includes AVAX, WETH.e, WBTC.e, USDC and MIM. Each asset in the index has a targeted weight which varies depending on its utilization rate.

The index (GLP) is essential to the ecosystem as it acts as liquidity for the platform, enabling trades and swaps to occur. 70% of fees are distributed to GLP holders in ETH/AVAX and esGMX.

Users are incentivized to mint GLP with lower fees given to "underweighted" assets as compared to an "overweighted" asset. This helps to automatically rebalance the index weightings.

GLP exposes you to an index of relatively safe assets against (~50% in stablecoins), giving holders a reasonable yield while minimizing downside risks.

As mentioned above, the GMX vesting model requires one year to fully vest esGMX into GMX. This could see future selling pressure should there be a coordinated attack to vest and eventually dump GMX.

Regarding GLP, only tokens in the index can be swapped or leveraged since the index assets are real and not synthetic. This limits capital efficiency which means GLP has to grow substantially to meet the needs of potential whale participants.

GLP holders also take a loss if traders are profitable upon closing their traders, making GLP a PvP-like asset. Luckily for them, statistics show that traders lose money in the long run, which means GLP holders are likely to benefit eventually.

Another important risk to note would be the potential bank run risk around GLP. During a black swan event, 10% of GLP holders would not be able to exit their positions until all open positions on GMX have been closed or liquidated.

Gain Network uses a similar model with certain differentiating factors to GMX. Currently, the protocol only has one product - gTrade, which runs on the Polygon network.

It operates a synthetic asset model with single-asset collateral where users simply deposit DAI into their vaults to start trading. This allows for significant trading flexibility and a wide range of options compared to other platforms. This could also be attractive to those who prefer a one-stop shop for leveraged trading.

gTrade replaces the typical order book model which we see with most leveraged exchanges. The DAI vault and GNS/DAI pool provide liquidity for all synthetic assets listed. The team has also created a custom pricing model which uses a hybrid Chainlink oracle and Decentralised Oracle Network (DON) structure.

The platform boasts the most capital-efficient model in the market, which explains how such high levels of leverage are possible on low-volume traded assets. Their unique approach easily allows any synthetic assets to be listed in the future.

The volume on gTrade exploded in March 2022, surging to all-time highs of $312 million in a single day. Currently, gTrade averages around $20 million of trading volume on quiet days to over $100 million on busy days.

The max supply of GNS is capped at 100 million GNS. It is said that the cap is used as a failsafe mechanism that should never be reached.

GNS is similar to GLP which is crucial to gTrade and its synthetic structure. Currently, GNS is a single utility token that is meant to capture the PnL of traders and drive that value back to token holders.

GNS tokens are minted when traders profit from their trades and burnt when they make a loss. The supply of GNS has been deflationary since its launch in November 2021 but has recently increased due to the increase in winning trades. Since its inception, traders are still down significantly and likewise for the supply of GNS.

Similar to GLP, GNS holders are exposed to the risk of traders’ performance. This allows them to earn the upside of losing trades while the token supply contracts but also risk losing big from profitable trades while the token supply expands from minting and dumping.

The current lack of additional incentives to trade on gTrade limits growth vs another platform like dYdX that uses its token for liquidity mining. There are trading competitions with rewards mainly from Polygon ecosystem funds.

There are also limits on how much collateral can be borrowed for higher value trades which will definitely drive whales away. Trading volume will remain limited until the pools expand which will cause the GNS/DAI pool APR to drop if the volume does not increase along with the price of GNS.

Ultimately, if APR drops low enough, users may prefer to just hold GNS in their wallet, which limits the platform’s ability to grow and service high-value trades or greater volume. Not to mention the impermanent loss that could occur if you deposit the token to the GNS/DAI pool.

DeFi perpetual futures have the potential to disrupt a large market. There are a number of protocols currently available that balance user experience, decentralization, and risk in various ways.

While each model has its pros and cons, they serve different purposes on individual blockchains. CLOB models like dYdX offer high performance but sacrifice full composability. On the other hand, AMM models like GMX are fully on-chain and composable but are limited due to the lack of adoption on EVM-compatible layer 2 networks. I believe the first successful multichain combination of these protocols would likely take up a huge portion of perps market share.

On a side note, Uniswap v3 appears to be gaining popularity as an execution layer among on-chain perps protocols such as Rage Trade. This could trigger the next wave of protocols launching on top of Uniswap, making way for potential new primitives in the perps market.

The current state of DeFi Perpetuals

The NFT ecosystem has relied on centralized marketplaces like OpenSea and LooksRare for practically its entire existence. Today, a new wave of decentralized alternatives is set to challenge the current platforms on the market.

With over 15,000 users generating $25 million in volume, Sudoswap could disrupt the NFT trading industry with its automated market making (AMM) algorithms and liquidity pools. It has a similar model to the premiere decentralized exchange (DEX) in crypto - Uniswap.

Originally launched as an over-the-counter (OTC) swap for NFTs in April 2021, Sudoswap was designed by a pseudonymous developer who was more well-known as the creator of 0xmons - an experimental pixel monster collection. The platform allows anyone to trade ERC-20, ERC-721, and ERC-1155 assets without incurring additional fees.

NFT traders and collectors have long been plagued by poor liquidity and large slippage from NFT marketplaces. A Kaiju Kingz NFT might sell for $10,000 on one occasion but could drastically decrease in value and not garner similar offers for weeks or months. This leaves investors confused over how much it’s actually worth.

In July 2022, Sudoswap launched its own brand of AMM called SudoAMM. The platform allows NFT traders to buy and sell instantly without having to wait for an offer. Unlike OpenSea, Sudoswap allows sellers to contribute their 

 (currently only ETH) as liquidity to facilitate smoother automated trades. This ensures that orders are settled on-chain within the specified pool rather than one-to-one.

 which is 5 times cheaper than what OpenSea charges at 

At first glance, Sudoswap offers completely decentralized pools that are funded by its users. The creator of the trading pool is allowed to set perimeters such as swap fees and the type of bonding curves. The platform provides 3 options for traders:

Buy pools contain ETH and are used to buy NFTs with ETH. This allows anyone to dollar cost average (DCA) into an NFT collection as the floor price decreases.

Sell pools contain NFTs and are used to sell NFTs into ETH. Likewise, this allows for DCA-ing out of an NFT collection as the floor price increases.

Dual pools or two-way pools contain both NFTs and ETH that receive fees from trades. Fees generated from assets traded within the pools are redirected to those providing the NFT and ETH liquidity.Additionally, Sudoswap bypasses any royalties on NFT collections set by creators which is a heavily debated topic amongst the community.

As buying NFTs individually would cause the floor price of a pool to increase, it is often better to use various pools to purchase multiple NFTs. Sudoswap has created a built-in feature called “Sweep Mode” that helps users to find the best combination of purchases.

For example, if you were to buy 5 NFTs, the cheapest option would be selected for the first purchase. However, this would increase the floor price of other NFTs in the same pool. Sweep Mode collects the floor price of different pools and presents this information to users. This allows us to pick up a couple of NFTs at a similar price instead of buying upwards.

The same principles when selling multiple NFTs. To sell several NFTs from a collection, you would likely get a better price by selling single NFTs to individual pools rather than selling all of them to the same one.

Do note that users can select the exact NFT they receive when buying NFTs from Sudoswap pools. This works well for collections with variable rarities as it gives buyers a chance to buy NFTs with rare traits close to the floor price.

Conversely, NFT sellers with rarer assets would probably find better prices for their grails on other centralized marketplaces.

Traditional AMM models support prices from 0 to infinity which has been proven to be less capital efficient with Uniswap v3. SudoAMM uses a concentrated liquidity AMM for trading whole NFTs.

This gives anyone the freedom to customize a specific price range just like on Uniswap v3. Let's take a look at how that works below.

As mentioned above, SudoAMM has brought the 

 formula from traditional DEXes to solve the liquidity problem in the NFT space.

If you have interacted with Uniswap v3 previously, Sudoswap works very similarly where liquidity providers are free to select a customized price range while putting up their NFTs and ERC-20 tokens. This is definitely the most innovative area of Sudoswap, where it manages the value of the NFTs traded through its pools.

The platform uses bonding curves to automatically increase and decrease the bid and ask on each collection depending on how many NFTs are bought or sold. Users can choose between two curves: 

 which adjusts the floor price of the pool each time an NFT is bought or sold.

For example, when a user sells a Tubby Cat NFT into a pool, it increases the supply which causes the buy price to decrease according to the delta value. The more NFTs sold, the lower the price per NFT becomes until the market decides on its fair value.

On the other hand, buying an NFT from a pool incrementally increases the cost of subsequent purchases, keeping the asset prices in line with demand.

Users are incentivized to trade in pools with lower fees. This creates a “race to the bottom” scenario for pool creators to offer the lowest fees, benefiting end users as a result.

Trading on Sudoswap: Linear vs Exponential

As mentioned previously, liquidity providers on Sudoswap are given a choice between two bonding curves.

With a linear bonding curve, the price of an NFT fluctuates 

 (delta) every time an NFT is bought or sold from the pool.

For example, a pool with a floor price of 1 ETH and a delta of 0.1 ETH would cause the floor price to increase or decrease by 0.1 after every purchase or sale.

This means the floor would increase to 1.1 ETH after the first NFT is purchased, 1.2 ETH subsequently and vice versa during a sale.

With an exponential bonding curve, the price of an NFT fluctuates 

For example, a pool with a floor price of 10 ETH and a delta of 50% would cause the floor price to increase to 10 + 50% = 15 ETH after the first purchase and 15 + 50% = 22.5 ETH after the second purchase.

To calculate the equivalent decrease, convert the percentage to a decimal index (e.g. for 50%, the index would be 1.5) and divide the price by this number.

Over the past few weeks, the number of daily users interacting with Sudoswap has surged by over 10,000%. According to this chart, the platform started with an average of 17 users in July.

Currently, Sudoswap has registered around 1,700 daily users with a total trading volume of $26.4 million among 112,157 NFTs traded.

We have also seen steady growth with the platform onboarding between 500 to 1,000 new users daily since the start of August, and even surpassing 1,200 users on a good day.

Their user growth has translated similarly to the increase in transactions on the platform. This in turn drives up fees collected by Sudoswap while generating more yield for liquidity providers on the platform.

When comparing Sudoswap to OpenSea and LooksRare, we can see that although Sudoswap only does 6.09% of volume and 1.35% of revenue compared to its competitors, it has slowly but surely been taking market share away from them.

The low revenue on Sudoswap is largely due to its inexpensive fees in contrast to the other platforms that charge 4 to 5 times of Sudoswap.

We can also see that Sudoswap has surpassed LooksRare in terms of daily active users and transactions despite having a lower volume. This could be due to the previous reports of incentivized wash trading on LooksRare, which means that Sudoswap could beat out LooksRare in terms of real volume and maybe even revenue in the near future.

As Sudoswap has yet to launch its token, let's assume that the current fees are directed to the XMON treasury. We will also assume a monthly growth of 50% and reference them with the largest NFT marketplace - OpenSea.

From the table above, we can see that XMON would have a fair value of $107,447 in 3 months IF the PS ratio of remains constant. This would project a $2.8 million daily volume on Sudoswap or 14.26% of OpenSea's current volume.

The XMON token has also been trading well against ETH since its launch in July. Although dips can be seen after every runup, the token has been in an uptrend since the announcement of plans around SUDO.

SUDO will be the governance token of Sudoswap and is designed to be non-transferable (subject to change by governance).

While there are no details of the airdrop or token distribution yet, there is speculation that XMON holders might get a share of SUDO tokens with 0xmons NFT holders confirmed to receive a portion of SUDO via a tweet from the founder.

Stayed tuned for more updates on the SUDO token 

With Sudoswap, NFT collectors can sell their digital assets instantly without having to wait for a buyer. This improves the liquidity and efficiency of the overall NFT market, bringing both NFT and DeFi communities together which in turn encourages more users to come on board.

While Sudoswap is still relatively new, it could revolutionize the way users trade NFTs and force creators to seek alternative monetization routes. Following the footsteps of every successful protocol in the space, the success of Sudoswap has spawned various derivatives to capitalize on the hype such as Sudo Loot and Sudo Inu.

If you have any NFTs lying around, do give Sudoswap a try as you get to earn fees on your NFTs. Do keep in mind that you would most likely not receive the same NFT(s) from your initial deposit should you decide to provide liquidity on Sudoswap.

Nonetheless, Sudoswap has plans to launch its native SUDO token and users *might* receive an airdrop as a form of appreciation for supporting and trying out their platform.

Sudoswap: The Future of NFT Marketplaces

Ever wanted to have exposure to an asset without holding the underlying resource? Now with synthetic assets, you can! In this article, I’ll be covering the fundamentals of Synthetix protocol and their latest update on Atomic Swaps. Let me know what I should cover next!

Synthetix is a decentralized synthetic asset issuance protocol built on Ethereum and Optimism. These synthetic assets are collateralized by the Synthetix Network Token (SNX) which when locked in the contract enables the issuance of synthetic assets (Synths). Each synthetic asset (Synth) is an ERC20 token which tracks the price of an external asset; sUSD tracks the price of the US dollar, sETH tracks the price of ETH.

Synthetix currently supports a wide variety of Synths including fiat currencies, cryptocurrencies, commodities, and inverse indexes. Synthetix can support any asset with a clear price, and provides on-chain exposure to an unlimited range of real-world assets.

SNX acts as collateral; staking a proportional value of SNX is required to mint Synths. Stakers are rewarded for supporting the system with a pro-rata share of the fees generated by activity in the system. The value of SNX is thus directly connected with the usage of the network.

Their pooled collateral model allows users to perform conversions between Synths directly with the smart contracts. This mechanism solves the liquidity and slippage issues experienced by decentralized exchanges. The resulting network of tokens supports an extensive set of use cases including trading, loans, payments, remittance, eCommerce and many more.

SNX holders are incentivized to stake their tokens as they are paid a pro-rata portion of the fees generated through activity on Synthetix from platform integrators such as Kwenta, Lyra, 1inch, Curve, Yearn, etc.

All Synths are backed by SNX tokens. Synths are minted when SNX holders stake their SNX as collateral using the Synthetix Staking application. Synths are currently backed by a 400% collateralization ratio, which can be raised or lowered in the future through community governance mechanisms.

SNX stakers incur debt when they mint Synths, and must pay back this debt by burning Synths to unlock their SNX tokens.

Synthetic assets provide exposure to an asset without holding the underlying resource. This has a range of advantages, including reducing the friction when switching between different assets, expanding the accessibility of certain assets, and censorship resistance.

Trading on Synthetix infrastructure provides many advantages over CEXs and DEXs. The lack of an order book means all trades are executed against the contract, known as P2C (peer-to-contract) trading.

Assets are assigned an exchange rate through price feeds supplied by an oracle, and can be converted using Kwenta. This provides infinite liquidity up to the total amount of collateral in the system, zero slippage, and permissionless on-chain trading.

Synthetix also currently uses ETH as an alternative form of collateral. Traders can borrow Synths against their ETH and begin trading immediately instead of selling them.

Staking ETH requires a collateralization ratio of 150% and creates a debt denominated in ETH, so ETH stakers mint sETH rather than sUSD and do not participate in the ‘pooled debt’ aspect of the system. This means ETH stakers do not receive fees or rewards as they take no risk for the debt pool.

The value of all synthetic assets is determined by oracles that push price feeds on-chain. The price feeds are currently supplied by Chainlink’s independent node operators.

Previously before Atomic Swaps, whenever a trade occurred on the Synthetix mainnet, there was a 10 minute waiting period. During this waiting period, users cannot interact with the Synth they have just traded into. This waiting period gives the oracles enough time to check if a trade was affected by a lag in price updates.

If a trade was affected, then the trader either owes Synths (reclamation) or is owed Synths (rebate), and must either pay or be paid these Synths. This process is known as fee reclamation.

Since block speeds are much faster and oracle latency is much less of a problem on Optimism, waiting 10 minutes to find out what price your trade settled at isn’t ideal for traders. This led to the introduction of Atomic Swaps.

Atomic Swaps have been in effect since early November 2021 on Optimism. This change has provided a new exchange function allowing users to exchange assets without fee reclamation by pricing synths via a combination of oracles from Chainlink and Uniswap V3.

Stakers are protected from frontrunning and allow traders to access low slippage and low fees on Synthetix with Atomic Swaps. This functionality will be available on Ethereum, with Synth trades on Optimism being atomic by default.

Most of Synthetix’s mainnet volume on Curve, 1inch, fixed forex, and many other aggregators are generated from Atomic Exchanges. This tool allows significant volume to be traded without front-runnable risk due to its unique pricing model.

SNX holders are incentivized to stake their SNX tokens for various rewards.

Rewards are generated whenever Synths are traded on platforms like Kwenta. Each trade generates a fee between 10-60 bps (displayed during the trade) and is sent to a fee pool, available for SNX stakers to claim their proportion each week.

Staking rewards come from their inflationary monetary policy. Synthetix has a target staking ratio of 85%. Inflation is adjusted weekly based on the staking ratio to incentivize stakers to hit this target. Inflation is decreased if the ratio maintains between 80-90%. SNX are distributed to stakers weekly on a pro-rata basis provided their CR does not fall below the target.

Synthetix has recently launched Perpetual Futures, which provide an additional revenue stream due to exchange and funding rate fees and reduce the need to hedge the additional debt due to inherent self-hedging and controlled exposure through market size limits. A portion of this goes back to SNX stakers.

When a staker wants to exit the system or unlock staked SNX, they must pay back their debt. So if a staker mints 10 sUSD by locking SNX as collateral, they must burn 10 sUSD to unlock it. But if the debt pool fluctuates while they are staked, they may need to burn more or less debt than they minted.

SNX stakers are incentivized to maintain their Collateralization Ratio (CR) at the optimal rate of 400%. This ensures that Synths are backed by sufficient collateral to absorb large price shocks.

Since the CR is directly affected by the fluctuating value of SNX or Synths, falling below a 400% CR will disallow stakers to claim fees until they restore their ratio. They can do so by either minting Synths if their ratio is above 400%, or burning Synths if their ratio is below 400%.

Synthetix uses an internal liquidation to flag accounts with a CR of less than 200% for liquidation. After an account has been flagged, the staker is given a window of 72 hours to fix their CR and stop the liquidation countdown. This can be done once they have reached the target CR of 400% (not just above 200%).

Should the staker not meet the requirements, the first participant on-chain that provides the sUSD proportional to SNX gets to liquidate their stake once the timer has gone to zero.

Synthetix has seen a downtrend of -83% from their peak of $2.9 billion, to their current TVL of $486.97 million. They have since dropped from first to third in TVL, falling behind dYdX and Keep3r Network.

However, protocol revenue and trading volumes have recently soared after the passing of SIP 120, which has tremendously increased the speed of Synths transactions through the use of Atomic Swaps.

Synthetix has grown to become the fourth highest earning protocol only behind Uniswap, Ethereum and Aave. Their daily fees have soared by 19x to $718,500 in the last month, bringing the protocol up to third in terms of fees generated, distributing over $1 million to SNX stakers.

Their volume has also spiked by over 4x from the highs of May to a new local high of $396 million on 19 June. According to Synthetix, the majority of their trading volume came from 1inch, which processed about $769 million of volume in the past week.

There are several risks in the current architecture. One risk involves the debt SNX holders issue when they stake their SNX and mint Synths. As previously mentioned, this debt can fluctuate due to varying exchange rates within the system.

This will affect users exiting the system as they may need to burn more Synths than they originally minted in order to unlock their staked SNX. As most alt assets are highly correlated to Bitcoin and Ethereum, this might cause the price of SNX to fluctuate for reasons that have little to do with the Synthetix protocol itself.

Next, there are a number of aspects of the system that are currently centralized. This decision was made by the team to ensure the efficient implementation of the project, such as the use of proxy contracts across the structure and easier access for any future upgrades. While these aspects will be phased out over time, it is important to understand the risks inherent in the current structure.

Synthetix is a versatile platform that drives value back to SNX holders. They have a suite of products that consists of a derivatives exchange with a built in swap - Kwenta, a decentralized options protocol - Lyra, and a customized options trading cum sports betting platform - Thales.

As one of the most unique protocols built on Ethereum, having the ability to create new Synths will vastly increase the potential for censorship-resistant synthetic assets. Synths are an interesting way for users to profit from real world assets such as USD, EUR, INR to digital assets like BTC, ETH, AVAX without owning any of the underlying assets.

In the future, we could see many different kinds of Synths added to the ecosystem including commodities and equities, which will bring greater utility to the Synthetix protocol. Given the current development of Synthetix, I’m excited to see what they have installed for us in the future as they continue to expand and increase their utility which will hopefully attract users back into the ecosystem.

Synthetix: Atomic Swaps, Astronomic Solutions

Welcome to the decentralized world of Web 3.0, I hope that you will enjoy your stay here! Thoughts on Crypto and DeFi? Let me know what I should cover next!

In 2008, the concept of Bitcoin was published in a white paper written by an anonymous figure under the alias of Satoshi Nakamoto. This has led to the creation of a long line of foundational blockchains as we know today.

Created in January 2009, Bitcoin was meant to be an electronic peer-to-peer cash system, but it has since attracted investors as a store-of-value currency, similar to gold.

Following the rise of Bitcoin, Ethereum was introduced to the world in the summer of July 2015 as the second most popular digital token.

Since then we have seen the revolutionary impact of over 35 different general purpose blockchains, all on full display with the rise of decentralized finance (DeFi) and now the explosion of activity around non-fungible tokens (NFTs).

A cryptocurrency is a digital or virtual currency secured by cryptography. Cryptography is a method of protecting information through the use of codes, securing various transactions occurring on the network and verifying the transfers of digital assets. This makes it nearly impossible to commit fraud such as counterfeiting or double-spending.

Cryptocurrencies are generally not issued by any central authority. This decentralized structure allows them to exist outside the control of governments and central authorities, rendering them theoretically immune to interference or manipulation.

Cryptocurrencies run on decentralized networks that use blockchain technology, a distributed ledger enforced by a varying network of computers.

A blockchain is essentially a set of connected blocks on an open online ledger. Each block contains a set of data, the hash of the current block and that of the previous block.

The data stored in a block varies from different blockchains, some of which include

The hash of a block is calculated every time a new block is generated. It is the unique fingerprint that separates one block from another. An attempt to change the properties of a block will cause the hash to change, making it very easy to uncover potential fraud. By verifying the current and previous hash of a block, this creates a chain of blocks that provides security for the blockchain.

Every new block generated must be independently verified by each member of the network before being confirmed, making it almost impossible to forge transaction histories. The contents of the online ledger must be agreed upon by the entire network of an individual node, or computer maintaining a copy of the ledger.

If that was too complicated for you, let’s simplify it.

Cryptocurrency, in its simplest form, is a digital asset based on a network that is distributed across a large number of computers. This network of computers has to solve complicated equations to confirm the validity of the transaction. These blocks are then chained together, creating a long history of irreversible transactions.

Cryptocurrencies represent a new, decentralized paradigm for money. This system removes the need for centralized intermediaries, such as banks and credit card companies, to enforce trust and monitor transactions between parties, eliminating the possibility of a single point of failure.

Cryptocurrency transfers between two transacting parties are much faster compared to traditional money transfers since they do not use third-party intermediaries. Such transfers are secured by the use of public keys, private keys and different forms of incentive systems.

At its peak, the cryptocurrency market was worth over $3 trillion with around 300 million users globally, a global economic system running on two key secure mechanisms - Proof of Work and Proof of Stake.

Proof of Work (PoW) is a decentralized consensus mechanism that requires members of a network to solve an arbitrary mathematical puzzle to prevent anybody from rigging the system. This is used widely in cryptocurrency mining and validating transactions, allowing them to be processed in a peer-to-peer, secure manner without the need for a trusted third party.

However, since the network only rewards the first miner to solve the puzzle, this has encouraged the use of mining pools, causing groups of people to rally together, combining their equipment and hashing power to earn the rewards and distribute them evenly across everyone in the pool.

This makes the blockchain more centralized as opposed to decentralized, which defeats its original purpose. Furthermore, this requires massive amounts of energy, increasing exponentially as more miners join the network, causing the PoW model to be extremely unscalable. Yes, I’m talking about you Bitcoin.

To solve this, a new consensus mechanism was introduced. In 2011, the Proof of Stake (PoS) was one of several consensus mechanisms created as an alternative to PoW. The PoS mechanism replaces miners with validators that forge or mint new blocks.

To become a validator, a node has to deposit a certain amount of coins into the network as a stake. The network randomly assigns a validator to validate a block transaction according to the number of coins staked. The more coins held in a wallet, the more staking power is effectively granted to it.

Sounds unfair right? This is however even worse with PoW, as the rich get to enjoy the power of economies at scale. Basically, the more the equipment or electricity they pay for, the bigger the discount they get to enjoy. Similar to bulk discounts, when buying something in large quantities, their expenses do not increase linearly. Did I mention that PoS uses much less energy consumption compared to PoW?