What is Syndr?
Syndr is an institutional-grade options and futures exchange that aims to become the leading platform for trading options and perpetual contracts (perps) on the blockchain. It offers a range of features and advantages that set it apart from other platforms in the decentralized finance (DeFi) infrastructure landscape.
One of Syndr's key strengths is its low latency and high throughput capabilities. Users can trade on the platform's orderbook with exceptionally fast execution times of 1 to 30 milliseconds. This level of performance allows for thousands of orders to be processed per second, which is unprecedented in the DeFi space.
Capital efficiency is another focus of Syndr. The platform provides traders and market-makers with the ability to execute delta-hedged strategies while reducing collateral requirements. This is made possible through Syndr's portfolio/SPAN margining system. As of September 2022, Syndr was the only platform in the entire DeFi industry to offer portfolio margining, which helps optimize capital allocation.
In addition to options and futures, Syndr supports perpetual contracts (perps) and dated futures. This enables users to easily hedge their options exposure on the same platform. By offering a variety of derivative products, Syndr provides traders with comprehensive tools to manage risk and maximize opportunities.
Syndr also caters to institutional traders with its block-trading capabilities. The platform natively supports block-trading platforms and facilitates easy integrations through request-for-quote (RFQ) platforms. Institutions can execute one-click trades for spreads, combination products, and other complex strategies, enhancing their trading experience and efficiency.
Furthermore, Syndr offers multi-collateral support, allowing users to deposit a range of assets beyond stablecoins as collateral. This includes popular cryptocurrencies such as USDC, USDT, ETH, WBTC, and more. By providing flexibility in collateral options, Syndr enables users to leverage a wider range of assets for their trading activities.
Notably, Syndr has developed its entire system from scratch with full-stack vertical integration. This means that the platform has built its technology infrastructure in-house, providing greater control over the performance, security, and user experience.
In summary, Syndr is an options and futures exchange that distinguishes itself through low latency, high throughput, capital efficiency, support for various derivatives products, block-trading integrations, multi-collateral support, easy onboarding, low fees, extensive API integration capabilities, vertically integrated system. With these features, Syndr aims to become the leading platform for options and perpetual contracts trading on the blockchain.
Problem and Market Opportunity
The derivatives trading market has been negatively affected after the likes of FTX went bankrupt. Retail and crypto financial institutions are trying to move away from the centralized venues but derivatives in the current DeFi landscape have various problems like high fees, and lack of liquidity, On-chain AMM risk engines are fragile and don’t know how to price non-linear derivatives like options. Consequently, there are no liquid markets for options on-chain anywhere in DeFi. Both retail and institutional traders are now searching for trading venues that are decentralized, efficient, offer lower fees, and have ample liquidity.
The target market for Syndr would be general retail traders and possibly institutions as well who want to move away from centralized exchanges to an equally good or better DeFi protocol.
Market Size and Growth Potential
The global crypto derivatives market on Centralized exchanges has hit an all-time high in 2023 to a whopping $2.15 Trillion. While the decentralized derivatives market is relatively small, it's not long before traders start exploring equally good decentralized venues to trade derivatives on.
The growth potential could be exponential given the current market have no good DeFi protocol that offers efficient derivatives trading. There are protocols like Deri, Dopex, and Lyra but all of them lack liquidity, have limitations due to AMM architecture, and have low liquidity.
- Orderbook matching:
Syndr operates an off-chain high-performance limit orderbook. This orderbook receives trades in the form of signed messages. Trades sign these using their unique keys linked to their device and/or account. These signed orders are generated automatically if trading via our custom interface. Order signing can also be done simply on a trader's machine if trading exclusively via APIs. These signed orders are then sent to the orderbook for processing. A validation service is responsible for rejecting all improperly signed/formatted messages. After validation, the message is forwarded to our risk engine, which calculates if the trader has sufficient margin to open this position.
Syndr's matching engine uses the FIFO algorithm for matching all incoming orders. FIFO is based upon a Price-time priority mechanism where the price and time are the only criteria used for filling incoming orders. Orders are executed based on price-time priority as received by the matching engine after passing through the risk engine. The matching engine also restricts users from trading with themselves, and any orders which try and execute with counter orders from the same account are rejected.
- Risk Management:
The backbone of Syndr is its risk engine. Post initial validation, all incoming orders, block trades, and withdrawals first get sent directly to the risk engine before any further processing.
The risk management system of Syndr covers roughly the following major components -
Onchain Custody using on-chain smart contracts
The liquidation is an automated mechanism to handle all the risky positions on the platform to reach a healthy margin state and/or a delta-neutral portfolio. During the liquidation process, the liquidation engine can restrict user access, close open orders/positions, and even open new positions to hedge risk. The liquidation engine can close at-risk account positions using the LP pool liquidity or the orderbook liquidity.
Initial Margin - The amount of margin reserved to open a position.
Maintenance Margin - The amount of margin reserved to keep a position open. This is lower than the initial margin required.
Liquidation Price: At Liquidation Price, the difference between position margins and Unrealized PnL is equal to the Maintenance Margin.
Bankruptcy Price: At Bankruptcy Price, the Unrealized Loss of a position is equal to the Position Margin.
- Liquidations for portfolio margin accounts:
When liquidating a portfolio margin account, the liquidation engine will try to reduce the margin requirement using a combination of reducing the portfolio delta and scaling down open positions. The scaling down process works similarly to the standard cross-margin account.
All open orders in portfolio-margined contracts are canceled.
The margin requirement for the portfolio is recomputed after assuming that the delta risk of the portfolio has been completely hedged by taking an appropriate position in the perpetual contract underlying
They compute the percentage reduction in the sizes of all positions in the hypothetical delta-hedged portfolio
- Margin requirement reduction through delta hedging:
Theoretically, a portfolio could be delta hedged by trading either futures or options contracts. However, since liquidity in futures is typically greater than in options, only futures are traded to make the portfolio delta neutral.
The liquidation engine will try to open a position in the underlying perpetual market using either the orderbook or the perpetual LP pool.
- Insurance Fund and OI Caps:
Syndr will maintain an on-chain insurance fund for covering bankruptcies. The insurance fund will be seeded at launch and will continue to grow over time funded by platform fees.
The maximum OI for all markets will be capped as a function of the size of Syndr's insurance fund.
If the insurance fund gets depleted, any other occurring bankruptcies will be socialized among the winning traders. However, it is our goal to never experience any socialized losses. Therefore, if at risk of socialized losses, margin requirements will be made more strict as soon as more bankruptcies occur.
- Custody of User funds:
Syndr is a non-custodial exchange and does not take custody of any user funds.
All user fund deposits remain in the custody of on-chain smart contracts
Non-custodial access: User is always in complete control of their assets.
Withdrawals from the exchange can only be done by the account owner via an on-chain transaction.
All withdrawals must first clear the risk engine to account for the current state of the user's portfolio.
- Standard Cross Margining:
What is Cross Margin?
In this margining method, the margin is shared between open positions and orders. In cross-margin, each position/ order is allocated the minimum margin required to keep the position/ order open. This means that all positions and orders are opened/ kept at the highest allowed leverage.
In cross-margin, the entire balance in an account is available to be utilized to keep positions/ orders open and avoid liquidations. The margining system automatically allocates (i.e. adds or removes) margin as prices move. Therefore, liquidation is triggered only when the entire account balance has been used up.
Cross margin also provides PNL offsetting. This means that the unrealized profit from an open position can be used to support a loss-making position or to place new orders.
By default, All accounts on Syndr use Standard Cross-margining.
- Portfolio Margin:
What is Portfolio Margin?
Portfolio margin computes the maximum loss that a portfolio can have given certain risk parameters like spot/vol shocks. This maximum loss calculated is taken as the margin requirement, and hence the name portfolio margin.
Portfolio margining is a risk-based approach to margining that allows for effective margin coverage while ensuring efficient use of capital. In this method, the risk of a group of positions and orders in futures and options with the same underlying is analyzed together to compute the combined margin requirement for the entire group.
Portfolio margin tends to be more capital efficient than isolated or standard cross margin, i.e. requires less margin for the same set of positions. This capital efficiency emerges when a portfolio has positions/ orders with offsetting risks. With standard cross margin, the margin requirement for a group of positions is simply the sum of the margin requirement for each position individually. So, recognition of offsetting risks is just not possible. Portfolio margin overcomes this limitation by assessing the risk of the entire group together.
Obvious examples of such portfolios are option spreads and futures calendar spreads. The combination of long and short positions in spread trades makes them much less risky than standalone long or short positions in the same contracts. This lowering of risk is taken into account in the portfolio margin, unlike in the case of isolated or cross margin.
- Multi-currency cross-margining:
Syndr supports multiple collateral assets which are dynamically priced using individual price feeds as well as a corresponding balance weight.
Syndr will essentially aim to only include coins with large market caps and trading history as collateral assets.
Sufficient prior notice will be provided to all users on the platform before adding/removing new and existing collateral assets.
The balance weight is essentially a fraction between [0,1] which determines the amount any given collateral asset can contribute towards account equity while margining. This factor is introduced to account for uncertain market conditions like depegging risks and high-volatility price events. Syndr's risk engine will try to dynamically update the balance weights and
For example, WBTC, WETH & major stablecoins can have collateral weights set to 1 but for other assets, this weight can be less than 1 as well.
- Multi-collateral settlements:
When settling different instruments, all the collateral assets in a user's account are utilized. For certain instruments, base currencies will be given priority during settlements, followed by other assets.
- Index Prices:
Syndr uses high-frequency aggregated price feeds powered by the Pyth network(opens in a new tab) to construct market indices.
- Mark Prices:
Options: Mark prices for options are derived using a combination of average bid-ask prices(from all sources) and theoretical mark prices derived from the below-described volatility surfaces for each option instrument.
Perpetuals: Mark price is derived using both the index price as well the fair price.
Mark price = Index price + 30s EMA(Fair Price - Index Price)
Fair Price = ((Fair Impact Bid + Fair Impact Ask) / 2) + (Avg. LP Pool impact)
Mark price = Index price + 30s EMA(Market Price - Index Price)
See Contract specs for more details about the mark price calculations
- Options Price Feeds:
The core necessity for calculating an accurate mark price for option contracts is implied volatility(IV), which is not unknown prior to examination or analysis. The simplest way of calculating IV is via using the Black-Scholes formula to back solve for IV from option price, since option price is known for every matched order. But this solution works, it is flawed in the real-world scenario as it Black-Scholes model assumes IV to be constant, which is not true empirically.
In practice, IV rises further out-the-money or in-the-money you go as compared to at-the-money. Plotting IV as a function of strike price gives us a “U”-like shape resembling a smile. This is called a Volatility smile(opens in a new tab).
Also as we move closer to expiry, the IV tends to increase as well.
- Block Trading Engine:
Block trades are large trades with a fixed price that are privately negotiated between two parties. 2 counterparties can negotiate and agree on a fixed price for a given transaction which is then submitted to Syndr for execution, clearing, and settlement. Block trades on Syndr must exceed certain minimum quantity thresholds.
- Benefits of Block-trading:
Reduced Slippage - Insufficient liquidity makes it risky for traders to place large-size orders directly on the orderbook. Block trades present a convenient alternative that can guarantee execution at the required target price without orderbook slippage risks.
Minimized market impact - Large-size orders can have an outsized impact on the market price of an instrument. As block trades are negotiated privately away from the orderbook at a fixed price, their impact on the market is minimized.
- How does Block trading work on Syndr?:
2 parties - Party 1 and Party 2 negotiate and agree on details for a given trade, with Party 1 as the maker and Party 2 as the taker.
Party 1 creates a signed block-trade message with all the relevant details, including price, size, instrument, etc.
Party 1 shares this with Party 2
Party 2 reviews the trade details and countersigns this shared message
This message, signed by both parties, is shared with Syndr for execution, clearing, and settlement.
Settlements and Risk management for block trades work the same way like orderbook trades
Traders on Syndr can execute block trades directly via Syndr using the interface or via the API. Syndr will also launch a telegram RFQ group allowing traders to request and reply to quotes for block trades on Syndr.
- 3rd Party platforms and groups:
Syndr Block trading solutions can be integrated with external 3rd party platforms and institutional liquidity networks. We are interested in platforms that allow a dedicated suite of institutional trading tools like automated RFQs, option & futures analytics, audit trails, directories of potential counterparties with selective KYC/AML, compliance providers, etc.
Team and expertise
Both of the founders come from a Web3 tech background. One of the co-founders Vyom worked at Blockpunks as a Full-stack developer and before that he was a Blockchain Engineer at Veri Smart AI. The second co-founder Madhur worked at Messari as a researcher, he got an offer to join AAVE protocol but rejected it and started Syndr with Vyom.
Competitive Landscape & Differentiation
There are currently no competitors to Syndr as they are the only ones doing all-in-one decentralized derivatives but we can still explore some notable perp DEXs and a centralized derivatives exchange.
GMX (Global Markets Exchange) operates as a decentralized exchange across the Arbitrum and Avalanche networks. Its core focus is the provision of perpetual futures contracts. Facilitated by GMX's multi-asset Global Liquidity Pool ($GLP), a diverse range of cryptocurrencies is supported. To safeguard against abrupt market fluctuations and potential losses arising from sudden price drops, GMX has established the Floor Price Fund, which functions as an insurance mechanism. This fund serves the dual purpose of ensuring ample liquidity, furnishing dependable ETH rewards for staked GMX, and upholding a minimum GMX price in relation to ETH. GMX implements a consistent trading fee of 0.1%. Supplementary charges are levied for actions such as initiating a trigger or engaging in GMX staking.
They recently introduced GMX V2 to increase the efficiency of the GLP pool and also reduced the overall trading fees. With the new model, they are concentrating the liquidity on the most traded pair by isolating each liquidity pool called GM pools.
Deribit is a centralized cryptocurrency derivatives exchange that has gained popularity for offering a wide range of trading products and services, primarily focusing on options and futures contracts related to cryptocurrencies. Founded in 2016 by John Jansen, a former equity options trader, and Sebastian Smyczýnski, a software engineer, Deribit has grown to become one of the leading platforms in the crypto derivatives market.
Deribit has secured $140M in total funding from big tier-1 investors in their Series-C round. Derbit currently controls more than 90% of the total crypto options trading market with more than half a trillion dollars in volumes in the previous year.
Dydx is a perpetual futures exchange built on top of Ethereum and Starkware. Dydx supports trading of more than 30 tokens including $BTC $ETH $CRV $LINK $MATIC etc. Dydx has more volumes than any other perp DEX out there with an annualized trading volume of almost $200B. Unlike Syndr, dydx doesn’t offer options, dated futures, and structured products.
Comparing Syndr and Deribit
Deribit, despite being the biggest exchange for derivatives has its own limitations like centralization and only ETH BTC collateral support possibly due to US regulations. Furthermore, settlement/margin currency is also ETH/BTC which complicates the position value and increases the volatility.
Syndr comes super close when it comes to the overall fee structure for the derivatives, keeping in mind that Deribit has billions of dollars worth of daily volume. The sentiment embraces decentralization, and Syndr will be playing around with that sentiment for derivatives.
In conclusion, Syndr emerges as a promising contender in the evolving landscape of decentralized finance. With a firm focus on addressing the challenges in the derivatives market and leveraging the sentiment towards decentralization, Syndr aims to offer efficient solutions for traders and institutions alike. As the global crypto derivatives market continues to expand, Syndr's unique approach and commitment to innovation position it to capture a significant share of this growing space. With its co-founders' expertise and a solid foundation, Syndr is set to reshape the way derivatives trading is perceived and executed on the blockchain.