A DeFi options platform using social logins and undercollateralized trading to attract liquidity providers has recently launched, as announced on June 15. The platform, called “Synquote,” claims to handle large trades with minimal slippage compared to previous options platforms.
The announcement reveals that Synquote achieved over $25 million in notional volume during its beta period, which started on March 17. The largest trade during this period involved $1 million in notional volume and was executed without experiencing any noticeable slippage, according to developers interviewed by Cointelegraph.
In a conversation with Cointelegraph, Synquote founder Ahmed Attia explained the protocol’s strategy for attracting liquidity. Firstly, it avoids using an automated market maker to determine prices. Instead, it employs an off-chain, peer-to-peer request-for-quote protocol that matches traders and market makers, providing greater flexibility in terms of the types of orders that can be placed.
Secondly, the protocol allows liquidity providers to make undercollateralized trades. For instance, they can issue or sell options with as little as one-tenth of the underlying asset’s value in USD Coin (USDC) if they are selling a short-dated naked call. Attia argues that enabling undercollateralized trades is crucial for enticing large institutions to participate in the DeFi sector, stating:
“We launched a fully collateralized platform before, and we saw that activity was limited by the amount of size market makers were willing to trade on-chain with a fully collateralized position. So this is a significant improvement that unlocks the ability for them to trade with size and have capital efficiency on-chain.”
Furthermore, the public launch of Synquote includes the implementation of social logins. Traders now have the option to log in using their Google credentials, eliminating the need to download a wallet or take note of seed words. This is made possible through the use of Web3Auth platform, a new wallet technology that enables seedless wallets.
Related: Anon-powered options: DeFi platform Premia goes live
In the past, some undercollateralized platforms faced liquidity crises during significant market swings. For example, the Vires.Finance lending app on Waves experienced frozen withdrawals in April 2022, as its liquidation mechanism could not cope with the rapid decline in crypto prices at that time. The app was later recapitalized through a “revival plan.”
Attia assures that the Synquote team is well aware of this risk and has implemented highly conservative risk-management practices to prevent such a crisis from occurring on their platform.
“Our margin requirements are actually quite conservative,” he said. “We have extensively backtested with historical data and observed that even during the most significant market moves, such as the day FTX went bankrupt and the market was plummeting, the system remains safe, with the liquidation system responding promptly.”
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