According to a June 15 announcement, a DeFi options platform uses social logins and undercollateralized trades to attract just-launched liquidity providers. The protocol, called "Synquote," is capable of handling large trades with much less slippage than previous options platforms, the team claims. According to the announcement, Synquote achieved more than $25 million in notional trading volume during the testing period that began on March 17. The developer told that the largest trade during this period was a notional volume of $1 million and was executed without any detectable slippage.
Synquote founder Ahmed Attia explained the strategy the protocol uses to attract liquidity. First, it does not use automated market makers to determine prices. Instead, an off-chain peer-to-peer request-for-quote protocol matches traders with market m akers, Helping to provide greater flexibility in the types of orders that can be placed.
Second, the protocol allows liquidity providers to conduct undercollateralized transactions. For example, they can issue or sell "if [they're] selling short-term naked call options, the option value on USDC [USD Coin] is only one-tenth the value of the underlying asset." According to Attia, allowing undercollateralized transactions is The only way to attract large institutions to the DeFi space, he said: "We launched a fully collateralized platform before and we found that activity was limited by how much market makers were willing to trade on-chain with fully collateralized [positions]. So this is a huge improvement that frees them up to trade at scale and the ability to improve on-chain capital efficiency.”
According to the Synquote founder, social logins have also been implemented as part of the public launch. Traders can now log in using their Google credentials without downloading a wallet or duplicating seed phrases. This is possible because of the Web3Auth platform, a new wallet technology that allows for seedless wallets. In the past, some undercollateralized platforms have encountered liquidity crises when the market fluctuated greatly. For example, the Vires.Finance lending app on Waves experienced a freeze on withdrawals in April 2022 because its li quidation mechanism was unable to cope with the rapidly rising price of cryptocurrencies during that period. The app was later recapitalized through the "Renaissance Plan".
According to Attia, the Synquote team is very aware of this risk and has implemented very conservative risk management practices to help prevent such crises from happening at Synquote. "Our margin requirements are actually still pretty conservative," he said . "We've done a lot of backtesting on historical data and we've seen that even with the biggest market moves [...] even on the day that FTX went bust, the market absolutely plummeted, even on those black swan days, the system was safe , The clearing system will respond in due time.”
