Synonym Finance: What You Need to Know
Crosschain Lending Powered by Wormhole
In today’s edition, we’re going over Synonym Finance, a protocol that heavily leverages Wormhole technology.
The crosschain lending landscape has serious demand from DeFi users and projects alike. With an incentivized $SYNO testnet and speculation around a Wormhole airdrop, Synonym Finance may be worth using.
Over and out ⬇
Crypto Market Update:
- Top Gainer (24H) in the top 50 mcap: Injective $INJ increased in price by 16.5%.
- Top Loser (24H) in the top 50 mcap: THORChain $RUNE is down -9.6%.
- Total crypto market cap has seen a decrease by 5.3% to stand at $1.52T.
- BTC dominance in the market is currently at 53.4%.
- Median gas price on Ethereum over the past 24 hours has been 34 gwei.
News:
- Tether Freezes 161 Ethereum Wallets: Tether has blocked 161 Ethereum wallets, including one linked to a betting platform hack, from using its USDT stablecoin.
- Decrypt and Rug Radio Merge Operations: Web3 news platforms Decrypt and Rug Radio plan to merge next year, maintaining brand independence while combining their content strengths.
- DTCC Acquires Securrency to Boost Institutional DeFi: The Depository Trust and Clearing Corporation (DTCC) completes its acquisition of Securrency, aiming to advance institutional use of on-chain assets and DeFi integration.
- Bitcoin's Price Drop Cools Overheated Market: A 4% drop in Bitcoin's price helps stabilize the previously overheated crypto perpetual futures market.
- Goldman Sachs Predicts Earlier Interest Rate Cut: Goldman Sachs anticipates the Federal Reserve's first interest-rate cut to occur in the third quarter of 2024, earlier than previously forecasted.
- Ark Invest Sells Over $100 Million in Coinbase Shares: Ark Invest offloads more than $100 million worth of Coinbase shares amid the company's stock price surge.
- C1 Fund Targets Major Crypto Companies for Acquisitions: C1 Fund aims to acquire secondary shares in significant crypto firms like Animoca Brands and Chainalysis at substantial discounts.
Project Updates:
- Lyra Finance Unveils Lyra Chain: Lyra Finance announces the launch of Lyra Chain, a new blockchain platform.
- Uniswap Expands to Bitcoin Sidechain Rootstock: Uniswap, a decentralized exchange, deploys its version 3 on the Bitcoin sidechain Rootstock, enhancing Bitcoin's DeFi capabilities.
- Compound DAO Vote Fails to Reward Developer: A Compound DAO proposal to reward a developer for fixing a major bug fell short by 15,000 votes, despite significant support.
- Seamless Protocol Launches SEAM Tokens on Coinbase: Seamless Protocol, a lending and borrowing platform, releases its governance token SEAM on Coinbase, marking the first Base token listing on the exchange.
Background on Synonym Finance
Synonym Finance is a cross-chain money market, leveraging Wormhole and built on Arbitrum.
Synonym sits at the intersection of a couple of different hot narratives:
1. Crosschain Lending:
With liquidity scattered across numerous rollups, L1s, etc., there is demand for crosschain lending.
Curvance, an ‘omnichain’ money market recently raised $3.6M from an impressive list of investors and projects.
2. Wormhole is the cross-chain solution powering Portal, Jupiter DEX, Mayan Swap, Backpack, and numerous other projects.
With a potential airdrop on the way, projects leveraging Wormhole tech extensively may receive significant attention.
When the launch on mainnet comes in early 2024, the team plans to list more assets from the Arbitrum ecosystem to provide utility for their supporters.
Mainnet coincides with the native $SYNO TGE.
The team has prompted those interested to try the testnet and provide feedback, and be rewarded with $SYNO for doing so.
How Synonym Works
Synonym uses a hub on Arbitrum as a central point for accounting and state management.
Deposited collateral stays in its native form on each respective chain (e.g., Optimism).
Transactions trigger messages to the hub for accounting purposes.
Circle’s CCTP helps to eliminate the issue of wrapped asset liquidity fragmentation.
This ensures a seamless user experience without double-wrapped tokens.
Borrowing assets like USDC through Synonym avoids creating double-wrapped tokens on different chains, with the goal being to reduce liquidity fragmentation and provide a smooth user experience.
By settling in native $USDC, users can avoid multiple wrappers when moving between different chains.
On Arbitrum, for example, there are two versions: regular $USDC and CCTP-enabled $USDC. With CCTP-enabled $USDC, users can tap into the overall system liquidity of Synonym without needing additional wrapping.
By using native burn and mint functionality, Synonym ensures that users never end up with double-wrapped tokens that limit usability.
Synonym uses a ‘Hub and Spoke’ model where messages are sequenced as they enter the dApp on Arbitrum to avoid resynchronization issues.
Liquidations play a crucial role in DeFi applications' smooth functioning, requiring careful parameterization of assets across different chains.
Synonym is working on some key improvements for the protocol:
Shared sequencers could enhance security by enabling atomic cross-rollup liquidations, however, this feature is still under development.
Atomic swaps enable efficient arbitrage across different chains, aligning prices more effectively.
Atomicity in cross-rollup liquidations would ensure sufficient liquidity on every endpoint and enhance the overall robustness of the system.
Achieving atomic liquidations is still a work in progress.
The team aims to have clarity on state outcomes for large deposits or withdrawals between different rollups.
Espresso, another cross-chain messaging solution, highlighted the power of atomic transactions in terms of driving profit and improving pricing efficiency.
Collaboration with protocols like Espresso contributes to pushing boundaries in this area.
Infrastructure vs Applications
Historically, VCs have invested more in infrastructure projects rather than decentralized applications.
Beachball is a contributor at Synonym and has been in the VC industry for 4 years.
He has been involved with DeFi projects such as Notional Finance, Jones DAO, LayerZero, and New Order DAO (now Synonym Finance).
He believes the reasons behind this phenomenon, including scalability and throughput, are major concerns for funds.
He says that there is a tendency to fund infrastructure projects first because it is easier and clearer to bet on infrastructure rather than dApps.
Betting on infrastructure first has led to an explosion of infrastructure development in the blockchain industry.
At first, there was not enough infrastructure to handle the demand of crypto users, both on centralized exchanges and then on decentralized blockchains, e.g. Ethereum.
Now, infrastructure available far outpaces the demand for this blockspace with a plethora of L2s, monolithic L1s, modular DA networks, etc.
In addition to the infrastructure that is currently available, there is more on the way.
Beachball believes that user acquisition for applications built on modular infrastructures will follow a certain curve; it is unlikely to go directly from great infrastructure to applications solely built on that infrastructure.
There will be an interim stage where use cases need to be created to connect all the modular components together.
This middle stage requires finding ways to create use cases that utilize the existing infrastructure.
Beachball says that as the evolution progresses, different components will blend together, making them seamlessly interoperable.
Synonym is building for both the interim step and the future where users won't even know which chain they are using.
Robbie, contributor & host at The Rollup says that sometimes, there is a perfect alignment between apps and infrastructures where they intertwine effectively.
Other times, there may be a gap between apps and infrastructures.
For example, Uniswap became overloaded due to high demand before the infrastructure could catch up.
Currently, there is a surplus of good infrastructure but a lack of apps taking advantage of it.
Bechball highlights Wormhole's recent $225 million raise and discusses its split from Jump Trading.
Jump Trading distanced itself from crypto due to regulatory and compliance concerns.
He believes that Wormhole's capabilities won't be negatively impacted by this split.
Wormhole & Improving Infrastructure
Wormhole recently raised $225M, and has split with Jump Trading.
Jump Trading distanced itself from crypto due to regulatory and compliance concerns.
Beachball believes that Wormhole's capabilities won't be negatively impacted by this split.
Reliable, transparent, and robust relaying infrastructure is crucial for cross-chain messaging design.
Beachball praises Wormhole's automatic relayer feature but suggests pouring more resources into relayer infrastructure to make it accessible to teams.
Testing cross-chain applications requires multiple faucets and resources for different chains.
He emphasizes the need for improved testnet infrastructure to simplify testing processes.
While modularity is valuable, having reliable built-in options at the protocol level can be beneficial when building complex dApps.
Understanding Wormholescan
Recent improvements have been made to Wormholescan, which serves as a block explorer for dApps utilizing Wormhole for cross-chain activities.
It uses Verified Action Approvals (VAAs) to sign and validate messages across chains.
Users initiate a cross-chain transaction, and a message is created on the Wormhole endpoint adapter.
Guardians (large operators in DeFi) validate the message's validity.
The approved message is relayed to the destination chain for processing, and relayers compete to deliver messages securely and efficiently.
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