Perp Breaker, how does SynFutures lead a new wave of DeFi innovation?

Original Author: SHA

1. Introduction

Currently, there are two widely adopted solutions in the derivatives space: one is GMX's Vault model, where LPs act as counterparties and the trading price is determined by an Oracle; the other is dYdX's order book model, which features off-chain matching and on-chain settlement, such as AEVO, Vertex, and dYdX V3/V4. The former has counterparty risk and oracle attack risk, while the latter has risks of opacity and malicious behavior from trading platforms.

Unlike semi-decentralized solutions like dYdX and AEVO, SynFutures has consistently focused on creating a fully decentralized and high-performance perpetual contract trading platform. Established in 2021, SynFutures has raised $38 million from well-known industry institutions such as Pantera, Polychain, Dragonfly, Standard Crypto, and Framework. According to DeFillma data, since the launch of its V3 version on February 29 this year, its cumulative trading volume has exceeded $48 billion, with daily trading volume consistently ranking in the top three of the industry.

Like UniSwapV2, SynFutures V1 and V2 are based on the xyk AMM model, which has issues with low capital efficiency and poor depth. Therefore, SynFutures V3 has introduced an oAMM specifically designed for contract trading by borrowing the concentrated liquidity model from UniSwapV3, allowing LPs to concentrate liquidity within specified price ranges, maximizing capital efficiency and liquidity depth, while providing traders with a good trading experience and minimizing trading slippage, all while maintaining full decentralization.

• One major innovation of oAMM is its implementation of a purely on-chain order book, allowing market makers to provide liquidity through limit orders and directly receive ⅓ of the trading fee revenue. This may be the highest revenue-sharing ratio in the industry, which helps SynFutures attract market makers from centralized trading platforms to participate in on-chain market making, creating order book depth comparable to centralized trading platforms.

• Another significant innovation of oAMM is its permissionless feature, similar to UniSwapV3, which achieves "three permissions"—allowing anyone, at any time, to use any token as collateral, with the entire listing process completed in just 30 seconds. This means any project team can create a contract trading pair for their own token on SynFutures. Imagine if in the future half of the project teams create contract trading pairs using their own tokens on SynFutures; that would be a massive market…

• At the same time, as a purely on-chain contract, oAMM can naturally integrate and grow with the underlying blockchain ecosystem, which is something many semi-decentralized trading platforms currently lack. After all, the most attractive aspect of DeFi is its composability, with layers upon layers of integration. Additionally, all its data is stored on-chain, allowing anyone to verify it, and traders need not worry about risks associated with centralized platforms, such as "platform downtime, unplugging, or fund misappropriation."

2. Introduction to the oAMM Mechanism

If we liken UniSwapV2 to a stream, then UniSwapV3 is like building two dams in the middle of that stream, creating a large reservoir. The small stream can only support small fish and shrimp, while the large reservoir allows whales and sharks to swim freely, giving rise to a more complex ecosystem. SynFutures V3 is similar.

2.1 Concentrated Liquidity—Improving Capital Efficiency

oAMM significantly enhances the liquidity depth and capital utilization efficiency of AMMs by allowing LPs to add liquidity to specified price ranges, supporting larger and more transactions while generating more fee income for LPs. According to its documentation, its capital efficiency can reach up to 26,666.6 times the original.

2.2 Purely On-Chain Order Book—Maintaining Efficiency While Ensuring Transparency

The liquidity of oAMM is distributed across specified price ranges, which are composed of several price points. For example, if LP provides liquidity in the price range of [3000, 4000] for ETH-USDB-PERP, this price range can be divided into several price points, each allocated an equal amount of liquidity. You might immediately think, isn't this just an order book? That's right!

oAMM allows users to provide liquidity at specified price points, simulating order book trading behavior and further improving capital efficiency.

Compared to the market-making methods of traditional AMMs, centralized trading platform market makers are more familiar with and have a higher understanding of limit orders, making them more willing to participate. Therefore, the oAMM that supports limit orders can better attract market makers to engage in active market making, further enhancing the trading efficiency and depth of oAMM, achieving a trading experience comparable to centralized trading platforms.

Unlike off-chain order books like dYdX, oAMM is a smart contract deployed on the blockchain, with all data stored on-chain, allowing anyone to verify it, ensuring complete decentralization. Users need not worry about issues such as hidden operations or false trading by the trading platform.

2.3 Limit Orders Can Earn Trading Fee Revenue—The Highest Revenue-Sharing Ratio in the Industry

Since users placing limit orders are essentially providing liquidity to oAMM, they can earn a share of the trading fee revenue. Trading fee sharing on centralized trading platforms is typically only available to specific institutional clients and VIP users, with a certain settlement period. In oAMM, trading fee sharing is directly returned to the user's margin account when an order is filled. For example, in BTC-USDB-PERP, the current sharing ratio is 0.01% of the trading amount; for the riskier MEME Coin WIF-WETH-PERP, it can be as high as 0.5%. This may be the highest rebate ratio in the derivatives sector currently.

2.4 Permissionless Token Listing—Quickly Capturing Trading Opportunities

Currently, all decentralized derivatives trading platforms are determined by project teams or communities regarding which tokens to list, making it difficult for most users to profit from "early token launches." The essence of oAMM is that it is a smart contract deployed on-chain, allowing anyone to freely create perpetual or expiring contracts without needing permission, similar to most spot AMMs.

In other words, if you believe a certain token is popular and that being an LP can be profitable, you can create a corresponding contract market on SynFutures. For example, if a new MEME token is gaining popularity and many people want to trade its contracts but no trading platform supports it yet, you can choose to list it on SynFutures first, leveraging both the MEME hype and SynFutures' traffic and community, achieving a win-win situation.

2.5 Supporting Any ERC20 Token as Collateral—Creating a New Paradigm for the Derivatives Market

Each pool in oAMM is independent and does not affect each other. This design theoretically allows oAMM to support the use of all ERC20 tokens available in the market as collateral without increasing the overall system risk. This is unimaginable in systems like Hyperliquid or dYdX.

Assuming that in the future, half of the top 500 altcoins create corresponding pools on SynFutures to provide liquidity, even if each pool only has $1 million in liquidity, that would still be a considerable figure. Project teams can also empower their tokens based on this, allowing token holders to use their tokens as collateral for trading or earn SynFutures points and trading fees by providing liquidity, achieving a true win-win situation.

2.6 Risk Control Mechanism—Comprehensive Protection of User Funds

Derivatives are much more complex than spot trading. Spot trading is used up immediately, like UniSwap, while derivatives involve an intermediate state of holding positions, requiring higher safety mechanism designs for the protocol. In this regard, SynFutures protects user funds through four methods: smoothing price curves, dynamic penalty fees, emergency response mechanisms, and checks on large profit withdrawals.

2.6.1 Smoothing Price Curves

Historically, GMX and dYdX have experienced losses due to oracle attacks by hackers. Therefore, SynFutures does not directly adopt the quotes provided by oracles but processes them using EMA (Exponential Moving Average) before use. As shown in the figure below, the price curve after EMA processing is smoother compared to direct oracle quotes, reducing the impact of oracle prices on the mark price and thereby lowering the risk of oracle attacks.

2.6.2 Dynamic Penalty Fees

What if someone tries to manipulate prices maliciously for profit? SynFutures addresses this issue through dynamic penalty fees. If a user significantly skews the price, they will incur additional trading fees as a penalty. In this case, the attacker would have no profit motive, thus eliminating the incentive to attack. The collected fees will be distributed to the LPs of that market.

2.6.3 Emergency Response Mechanism

We often say that the blockchain is a dark forest; you never know what will happen. If, despite the protection of the above two mechanisms, an unforeseen situation arises in a market that threatens user fund safety, how will SynFutures handle it? The approach is to activate an emergency response mechanism, freezing the market that triggers risk control (such as significant price deviations from the mark price), assessing the cause of the risk, and determining countermeasures, all while doing everything possible to protect user fund safety.

2.6.4 Checks on Large Profit Withdrawals

For large profit withdrawals, SynFutures will set a withdrawal threshold, with withdrawals exceeding this threshold having a maximum waiting time of 24 hours—meaning they will be credited within 24 hours at most, and users can expedite withdrawals by contacting the community. This measure is primarily to check whether the profits of the withdrawal initiator were obtained through normal means, thereby protecting user fund safety.

3. Project Development Status

3.1 Data Performance

Since the launch of SynFutures V3 on the Blast mainnet on February 29:

• Cumulative trading volume has exceeded $48 billion
• Daily trading volume is close to $1 billion
• TVL exceeds $54 million
• 7-day active addresses exceed 33,000

Currently, it is the largest decentralized derivatives trading platform on Blast, and it is believed that with further development and expansion, its various metrics will rival those of GMX, dYdX V4, and Hyperliquid.

3.2 Growth Potential

According to The Block data, the trading volume of the entire decentralized derivatives space is less than 3% of that of centralized trading platforms, indicating significant growth potential in this sector. Currently, two phenomena are quite evident in the DeFi world: one is that users are beginning to recognize brands, with older projects perceived as safer; the other is that leading projects are attracting more TVL. In this context, any project without innovation or merely imitating existing ones is unlikely to grow beyond the original project, let alone challenge centralized trading platforms.

This sector needs to continue innovating and iterating, constantly improving trading experiences and capital utilization efficiency. Only projects with innovative capabilities can become challengers and disruptors, further expanding the market share of decentralized derivatives trading platforms.

SynFutures V3 undoubtedly possesses this innovation, creatively integrating AMM and Order Book models, allowing users to provide liquidity within specified price ranges; and enabling market makers to directly earn trading fee revenue through limit orders, attracting them to engage in market making, thereby enhancing capital utilization efficiency and trading experience. This integration of active and passive market making into a single system, fully operating on-chain, can be considered one of the significant innovations in the current derivatives space.

Although Vertex, BlueFin, and RabbitX also provide passive liquidity for their order books through Exilier, SynFutures achieves the function of providing passive liquidity directly through AMM, realizing native support without introducing third parties, resulting in lower risks for LPs and a better experience.

At the same time, the permissionless feature of SynFutures V3 and its "three permissions"—allowing anyone, at any time, to use any token as collateral, with the entire listing process completed in just 30 seconds—create a new paradigm for decentralized derivatives trading, potentially capturing a portion of the market share from centralized trading platforms in the future, much like UniSwap.

3.3 Problem Analysis

The shortcomings of the xyk AMM primarily lie in its impermanent loss, which is difficult for ordinary users to hedge and grasp. SynFutures' oAMM, similar to UniSwapV3, also has impermanent loss issues. From some public information and AMAs, it is understood that SynFutures is considering Strategy Vaults in the future to open effective passive market-making strategies to users, somewhat akin to copy trading, allowing more users concerned about impermanent loss risks to participate.

4. Team Background

The founding team of SynFutures has backgrounds in top international investment banks, internet companies, and crypto OGs, attracting the favor of investors including Pantera, Polychain, Standard Crypto, Dragonfly, Framework, SIG, Hashkey, IOSG, Bybit, Wintermute, CMS, Woo, and others, with total funding exceeding $38 million.

5. Conclusion

After experiencing the two explosive cycles of DeFi Summer and DeFi 2.0, DeFi seems to have entered a phase of stagnation, with only a handful of disruptive innovations visible over the past year, mostly involving micro-innovations at the protocol level or operational gameplay innovations. SynFutures V3 creatively merges the two mainstream models of AMM and Order Book, bridging the "last mile" of centralized trading platforms to on-chain market making, ensuring performance and experience while achieving safety, transparency, and decentralization. Its permissionless feature and "three permissions" create a new paradigm for derivatives trading, becoming a breakthrough point for leading innovation in the decentralized derivatives space.

Decentralization is the elephant in the room; it seems insignificant when it’s not important, but at critical moments, you realize how vital and indispensable it is, as FTX serves as a stark reminder. Therefore, I fully agree with and understand SynFutures' steadfast commitment to the decentralized route. Although currently limited by the underlying blockchain performance and infrastructure, resulting in a product experience that still lags behind centralized trading platforms, I believe that in the near future, with further enhancements in the performance of underlying public chains, the popularization of AA wallets, and the improvement of infrastructure, decentralized trading platforms like SynFutures will also offer experiences comparable to centralized trading platforms, breaking the monopoly of centralized trading platforms and securing a place in the entire derivatives space.