Figure 3: Swap between synthetic USD and synthetic ETH. This swap references the market price of ETH at the time of the swap. SYNTHR simultaneously mints syETH and syUSD at a predetermined rate provided by the oracle.
SynthSwap is the protocol's internal slippage-free DEX that will allow users to swap syAssets using the process of simultaneous minting and burning of syAssets at oracle price feeds. SynthSwap will enable users to have access to liquidity, 24/7.
- 1.Slippage-Free Swapping Engine
Slippage is defined as the difference between the expected price of a trade and the executed price of a trade. In an order book system, slippage tends to be higher during periods of high volatility or if the financial product has poor liquidity and order depth. Slippage is a cost to the trader because he/she is either buying at a small premium or selling at a small discount to meet liquidity. Whilst limit orders allow traders to circumvent this problem on centralized exchanges, traditional AMM-driven decentralized exchanges still face this issue.
Slippage is a common problem with traditional AMMs based on the X*Y=K model with liquidity bands ranging from 0 to infinity. These AMMs are capital inefficient because the liquidity of the trading pairs is spread across an infinite number of prices, which limits price discovery. The result of this inefficiency is high slippage for the user.
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 for large volume trades to be executed without any volume or liquidity requirements, as opposed to traditional AMMs. SYNTHR's capital efficiency will attract large trading volumes to the platform, leading to an upsurge in trading fees for the protocol.
2. Atomic Swaps
Atomic Swaps will allow for slippage-free, low-fee trades on DEX aggregators. By leveraging high throughput and low latency blockchain networks, SYNTHR’s Atomic Swaps implementation will enable users to experience its full suite of benefits in addition to low network fees and reduced possibility of MEV and frontrunning attack vectors.
Figure 4: DEX aggregator executes an Atomic Swap using SynthSwap to perform low-slippage swaps for its users.
Let’s consider an example of a user swapping ETH to WBTC to illustrate the workings of Atomic Swaps.
- DEX aggregator will swap ETH for syETH.
- syETH will be burnt and syBTC will be minted using ETH/BTC oracle price feeds on SynthSwap.
- DEX aggregator will swap syBTC for WBTC.
- User will receive WBTC.
All the above steps will occur in a single transaction known as an Atomic Swap, resulting in reduced frontrunning and oracle latency.