Figure 1: Process of collateral to debt, to synthetic assets, to a variety of yield generation opportunities.
The SYNTHR Protocol will allow users to create, manage, and speculate on synthetic derivative tokens that can represent any financial instrument in the world. On-chain oracle price feeds will en- able the protocol to create synthetic versions of assets such as cryptos, stocks, currencies, bonds, and commodities.
The protocol will start with users depositing highly liquid assets such as ETH, USDC, and USDT as collateral. By posting collateral, users will be able to mint synthetic tokens (syAssets) against their collateral at an average Collateralization Ratio of 150%. Synthetic assets will be
issued against overcollateralized loans to ensure the robustness and solvency of the SYNTHR ecosystem.
Synthetic assets will be issued to represent a wide array of asset classes. These syAssets will be traded for other syAssets utilizing SYNTHR’s in-house slippage-free DEX, SynthSwap. Due to its lack of dependency on user-deposited liquidity, SynthSwap will be able to achieve much higher capital efficiency than traditional AMMs. SynthSwap will allow the trading of syAssets using the process of minting and burning syAssets with the help of on-chain oracles and a Global Debt Pool. SynthSwap will also facilitate cross-chain CDP tracking, liquidity, and debt issuance, thus increasing composability within the DeFi ecosystem by opening the gateway to vast amounts of liquidity residing on foreign blockchain networks.
SYNTHR will offer the opportunity to generate yield using its Stability Pool, Liquidity Pools, Long-Farm Vault, Short-Farm Vault, and Delta-Neutral strategies of the Hedge Pool.
Users will be able to deposit syAssets such as syETH into the Stability Pool to earn yield in the form of liquidated collateral. The Stability Pool will generate stable returns – while reducing tail risk – by collecting penalty fees from CDP liquidations. The Stability Pool will play a critical role in the liquidation process, acting as the primary participant in the process, bolstering protocol health and decreasing insolvency risk during turbulent market conditions.
The Long-Farm Vault is a one-directional vault that will generate returns by providing liquidity to syAsset pairs trading on DEXs and through LP incentivization programs. The Long-Farm Vault will strategically deploy capital at times when earnings can be maximized.
The Short-Farm Vault will generate returns by taking advantage of the price arbitrage between a higher DEX price and the lower oracle price of an syAsset. Funds deposited into the Short-Farm Vault will be used as collateral to mint syAssets at oracle prices, which will subsequently be sold on partner DEXs at higher prices, thereby generating arbitrage profits for the vault depositors. Since the entire process will be managed by protocol-governed arbitrage bots, Short- Farm Vault participants will only be required to add funds, while the allocation of funds towards the minting of different syAssets and the eventual distribution of profits in proportion to deposits will all be managed by the bots.
Lastly, the Hedge Pool will be used to implement Delta-Neutral strategies to hedge against debt appreciation. The Debt Pool may be comprised of assets that appreciate, thus decreasing the Collateralization Ratio. To prevent liquidation risks, CDP holders will be able to deposit syAssets into this vault to maintain parity with the value of the Debt Pool.