Synquote, a new DeFi options platform, has launched and it is using social logins and undercollateralized trading to attract liquidity providers. This protocol is capable of handling large trades with much less slippage than previous options platforms. According to the team, the platform did over $25 million of notional volume during its beta period which began on March 17. During this period, the largest trade executed was for $1 million in notional volume without any detectable slippage.
Synquote founder, Ahmed Attia, explained the strategy used by the protocol to attract liquidity providers. Firstly, the platform does not use an automated market maker to determine prices. Instead, an off-chain, peer-to-peer request-for-quote protocol matches traders and market makers, which helps to allow greater flexibility in terms of the types of orders that can be placed. Secondly, the protocol allows liquidity providers to make undercollateralized trades. For example, they can issue or sell options with “as little USDC [USD Coin] as one-tenth of the underlying asset’s value if [they’re] selling a short-dated naked call.”
Attia stated that allowing undercollateralized trades is the only way to attract large institutions to the DeFi space, stating that they launched a fully collateralized platform before which was limited by the amount of size market makers were willing to trade on-chain with a fully collateralized position. The social logins have also been implemented as part of the public launch, making it possible for traders to log in using their Google credentials without needing to download a wallet or copy down seed words. This is made possible by the Web3Auth platform, a new wallet tech that allows for seedless wallets.
Risk-Management Practices
In the past, some undercollateralized platforms have suffered liquidity crises during large swings in the market. For example, the Vires.Finance lending app on Waves suffered frozen withdrawals in April 2022, as its liquidation mechanism was unable to cope with the rapidly escalating fall of crypto prices during that time period. The app was later recapitalized through a “revival plan.”
Attia stated that the Synquote team is well aware of this risk and has implemented very conservative risk-management practices in order to help prevent such a crisis from occurring on Synquote. The margin requirements are actually pretty conservative and the team has done a lot of backtesting with historical data. They have seen that even the biggest market moves, such as the day FTX went bankrupt and the market was absolutely plummeting, the system is safe, with the liquidation system responding in an appropriate amount of time.
Synquote’s new DeFi options platform has launched, and it is using social logins and undercollateralized trading to attract liquidity providers. The platform is capable of handling large trades with much less slippage than previous options platforms, while its risk-management practices are conservative enough to help prevent liquidity crises. The implementation of social logins makes it easier for traders to access the platform without needing to download a wallet or copy down seed words.