DeFi projects like Synthetix and Chainlink are addressed in the Cryptocurrency Act of 2020

A recently surfaced bill called the “Cryptocurrency Act of 2020” aims to delegate regulators power over blockchain based currency, and doesn’t fail to mention recent DeFi innovations in the literature. Specifically, the bill classifies synthetic derivatives, like those used on Synthetix exchange, as cryptocurrencies.

“synthetic derivatives that are determined by decentralized oracles or smart contracts; and collateralized by crypto-commodities, other crypto-currencies, or crypto-securities.”

Along with the clarification of synthetic derivative products, the Cryptocurrency Act defined what decentralized oracles are, probably because of their increased usage in DeFi projects.

“A ‘decentralized oracle’ means a service that sends and verifies real world data from external sources outside of a blockchain and submits such information to smart contracts that rest on the blockchain, thus triggering the execution of predefined functions of the smart contract.”

There are two protocols that come to mind when thinking of decentralized oracles and synthetic derivatives – Synthetix and Augur. Surely, there are many others that operate similarly, but these two might be the most well known.

Synthetix and Augur are both built on the Ethereum network and are classified fall under a decentralized finance category. Not only are they DeFi, Synthetix is a relatively new DeFi exchange that not many mainstream crypto traders are aware of or have participated in.

The feds have been notoriously behind the times when it comes to regulating in the crypto space, so it’s a bit surprising (and flattering) to see that they are keeping a close eye on the DeFi space. At the same time, it makes you wonder how closely they plan on monitoring decentralized products that have no fiat on ramping. Both Synthetix and Augur operate much differently than regulated exchanges do, with no KYC policies, no day trading limits, potential for leverage and the list goes on.

Sentiments of excitement and fear are being thrown around Twitter as people celebrate theF recognition and wonder what it will entail.

 

 

 

Synthetix founder compares upcoming futures products to BitMEX’s leveraged perpetual swaps

In an Unchained interview today with Laura Shin, Kain Warwick, Founder of Synthetix, had an interesting answer about new features on the exchange. He described upcoming Synthetix futures products as being comparable to BitMEX leveraged perpetual swaps.

“Essentially it (Synthetix) will be a decentralized BitMEX or Derebit or any futures exchange. You’ll be able to take a leveraged position on something like Bitcoin or Eth and open that position and it will be a perpetual future,” said Warwick.

Synthetix has already gained huge traction in the decentralized finance (DeFi) world, with the second most Ethereum locked right next to Maker. Warwick said that people were attracted to Synthetix because it’s the only place where you can exchange Bitcoin for gold, and then back to USD with no slippage.

They aren’t the only decentralized platform hoping to take on BitMEX though. A BitDEX whitepaper was released a few months ago that uses priceless contracts and no centralized oracle. Synthetix still uses a centralized oracle, which determines prices of assets, but has been manipulated by a trader before who created 2 million dollars of debt in the system and had to be bribed to revert the trade.

Warwick mentioned that they are working with Chainlink to resolve some issues that they have had with oracles, but it still will have lag compared to live price, which people will always be able to take advantage of.

DeFi’s biggest disadvantage when it comes to trading features and liquidity. With Synthetix having infinite liquidity, they could be at a huge advantage against competition as long as users are able to short, set stop losses and limit orders. Decentralized exchanges also benefit from having less regulations to comply with because FinCen sees them as a forum to match orders as they don’t hold users funds. This means that they might not need to enforce KYC in the United States.

“If a CVC trading platform only provides a forum where buyers and sellers of CVC post their bids and offers (with or without automatic matching of counterparties), and the parties themselves settle any matched transactions through an outside venue (either through individual wallets or other wallets not hosted by the trading platform), the trading platform does not qualify as a money transmitter under FinCEN regulations.” – FinCen

There is no literature that explains how Synthetix will go about implementing their leveraged perpetual swaps. After we inquired on their Discord, it seems like other people are anxious to read the technicals as well. This may be the first time Synthetix has made a direct comparison and provided a description of plans.

Here’s why DeFi is hitting all-time highs

April 2019 was the last time DeFi’s ‘value locked in Ethereum’ hit all-time highs. This month, the space has blown past the previous 2.3 million Eth record by an extra 300,000.

Still, ‘value locked in USD’ is about $20 million lower than the previous high in June 2019, when Ethereum’s USD value was almost double what it is today.

What’s been happening in DeFi?

Value locked in DeFi has been steadily increasing since 2017. Looking at the chart alone can spark interest because of how DeFi’s appeal seems to transcend the volatility we’re used to seeing in crypto assets. On DeFi Pulse, the value locked in Ethereum chart looks more like Apple stock than Bitcoin or Ethereum’s price charts.

That being said, it’s not too surprising that the DeFi space is continuously being utilized. Out of millions of use-cases crypto entrepreneurs come up with, DeFi projects produce tangible results. Right now, one can easily lock DAI into a lending protocol, receive 5% APR and pull it out whenever they want to.

On top of that, decentralized exchanges are getting more and more features, such as margin, stop losses and limit orders. Some DEXs are one stop shops for lending, borrowing and margin trading. Liquidity is still lacking which is bound to keep big players at a distance, but the space is clearly improving little by little.

Okay, but why is DeFi hitting all-time highs right now? 

MakerDAO’s DAI stablecoin is the token that makes DeFi go round. Instead of being backed by dollars, it uses algorithms and a system of incentives to keep the price pegged around $1.

Originally, DAI was only able to be backed by Ethereum, but on November 18th, Maker released an iteration that could be backed by any ERC-20 token.

The release was exciting and all, but what it really did was get Eth moving around in the Ethereum ecosystem. Maker is forcing all SAI holders (people who still use the Ethereum only DAI) to manually convert their holdings to the new version. With this, others created protocols to make the process easier.

Excitement over the most popular protocol making a new iteration of their product creates press for DeFi, encouraging new Eth to be locked, forces people to move Eth around, requires protocols interacting with DAI to introduce new features and increases potential for casual DeFi observers to see how the space has been changing and potentially test out new features.

There’s one exchange called Synthetix that has shown remarkable growth without huge releases. More recent growth in Synthetix seems to spike around the same time as the DAI release, but it doesn’t use DAI at all.

Eth locked in DeFi by the numbers

The largest Eth-locker in DeFi, SAI hit an all-time high of 100 million tokens outstanding and has dropped to 86 million since the new version of DAI has released. The new DAI is at 18 million tokens outstanding, 14 million of which were converted from the old version. This means that within a few weeks, 4 million DAI tokens were created.

According to DeFi pulse, when DAI was released on November 18th, 2.47 million Eth was locked in DeFi. Currently there are 2.62 million Eth locked. 4 million dai would only be equivalent to about 26,000 Eth, which only accounts for a minority of the growth.

Another protocol that has been rapidly locking Eth is InstaDApp, which since the release of DAI has locked 60,000 Eth. Their growth undoubtedly has to do with DAI because they recently released a “partial debt migration” system which DeFi pulse noted, was a hit.

The other 200,000 Eth mostly comes from growth on the Synthetix derivative platform. This platform has been growing slowly and steadily, but experienced a spike around the time DAI was released. On their platform, users can long or short any crypto, commodity, stocks and stake their Synthetix token for rewards.

Synthetix DEX cans mobile app… but why?

Within the past year, around $70 million has been locked in the Synthetix DEX (Decentralized Exchange). Today, the exchange announced that their mobile app was discontinued so that the team could focus on other things. 

Synthetix has sat atop the DeFi Pulse “value locked” list for quite some time, trailing closely behind Compound and Maker. Given recent hype around DeFi, it might seem strange that the DEX doesn’t find maintaining a mobile app worth while. 

If you were one of the few viewers of the DeFi.WTF event at DevCon 5, the decision wouldn’t have been as much of a surprise. 

Who uses decentralized exchanges? 

Not many people.. that’s for sure. In the past 24 hours, Synthetix has done about $1.7 million in total volume while BitMex is at $1.6 billion. 

Totle conducted research in June which resulted in a headline saying “DEX volume has tripled since January.” Still, June only held around 300 million in monthly DEX volume. Yet, the hype still lives, as YouTubers are saying that Ethereum’s DeFi will “spark the next bull run.” 

At DevCon 5, even DeFi developers didn’t seem as excited as the YouTubers.

There was a lot of talk about the lack of volume and how to handle long tail assets. Long tail assets would be referring to niche products that don’t sell much. Lack of volume solidifies the fact that things aren’t selling. 

Not many people are trading niche ERC-20 pairs, and they aren’t getting a discount on bigger tokens either. According to Tom Schmidt from 0x, aggregated exchanges are experiencing increased volume because people have wasted money by not checking prices. 

Still on an aggregated (think Priceline) DEX such as dex.ag, someone who wants to trade USDC for Ether isn’t getting a better deal than they would on Coinbase. 

Mobile apps are secondary for traders

Exchanges require more screen real estate to navigate than Instagram. Binance has a pretty solid mobile app, but most people still prefer the multi-monitor meta when it comes to planning and executing trades. 

If a company is competing in a new and constantly evolving field, it makes sense to keep things lean and mean. A mobile version of anything is welcome in my book, but for those who manage large amounts of capital, doing work on their laptop is probably native anyways.