A DeFi options platform using social logins and under-collateralized transactions to attract liquidity providers has just launched, according to a June 15 announcement. The protocol, called “Synquote”, is able to handle large trades with significantly less slippage than previous options platforms, the team claims.
According to the announcement, Synquote achieved over $25 million in notional volume during its beta period, which began on March 17. The largest trade during this period was for $1 million in notional volume, which was executed without any detectable slippage, the developers told Cointelegraph.
In a conversation with Cointelegraph, Synquote founder Ahmed Attia explained the strategy the protocol uses to attract liquidity. First, it does not use an automated market maker to determine prices. Instead, an off-chain peer-to-peer quote request protocol connects buyers and sellers, allowing greater flexibility in terms of the types of orders that market makers can place.
Second, the protocol allows liquidity providers to conduct sub-collateralized transactions. For example, they can write or sell options with “as little USDC (USD Coin) as one-tenth the value of the underlying asset if they sell a short-term naked call.” Attia argued that allowing sub-collateralized transactions is the only way to attract large institutions to the DeFi space, stating:
“We have already launched a fully collateralized platform, and found that activity was limited by the number of sizeable market makers willing to trade on-chain with a fully collateralized (position). So this is a huge improvement that allows them to trade with size and have on-chain capital efficiency.
Social logins were also implemented as part of the public launch, the Synquote founder said. Market makers and traders can now login using their Google credentials without needing to download a portfolio or copy keywords. This is possible thanks to the Web3Auth platform, a type of new wallet technology that enables seedless wallets.
Related: Anon-Powered Options: DeFi Premia Platform Goes Live
In the past, some under-collateralized platforms have suffered liquidity crises during strong market fluctuations. For example, the Vires.Finance loan application on Waves suffered frozen withdrawals in April 2022, as its liquidation mechanism was unable to cope with the rapidly falling crypto prices during this period. The application was then recapitalized thanks to a “recovery plan”.
Attia said the Synquote team is well aware of this risk and has very conservative risk management practices in place to help prevent such a crisis from occurring at Synquote.
“Our margin requirements are actually still quite conservative,” he said. “We did a lot of backtesting with historical data, and we saw that even the biggest moves in the market (…) even the day FTX went bankrupt and the market was in free fall, even in those swan days black, the system is safe, the liquidation system responds in a timely manner.
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