DeFi Options Platform Revolutionizes Liquidity Provision

According to an announcement dated June 15, a DeFi options platform using social logins and undercollateralized trading to attract liquidity providers has just been inaugurated.

The team claims that the protocol, named “Synquote,” can manage large trades with significantly less slippage than previous options platforms.

According to the announcement, Synquote’s beta period, which began on March 17, generated over $25 million in notional volume.

The most significant trade during this period was a $1 million fictitious volume transaction with no detectable slippage.

Ahmed Attia, the originator of Synquote, described the protocol’s strategy for attracting liquidity. First, prices are not determined by an automated market maker.

In its place, an off-chain, peer-to-peer request-for-quote protocol matches traders and market makers, allowing for greater flexibility in order types.

Second, the protocol permits liquidity providers to execute transactions with insufficient collateral. For instance, they can issue or sell options with “as little as one-tenth of the underlying asset’s value” when selling a short-dated naked call.

Attia argued that permitting undercollateralized trades is the only way to attract large institutions to the DeFi space, 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 huge improvement that unlocks the ability for them to trade with size and have capital efficiency on-chain.”

The Synquote founder said that social logins were also implemented as part of the public launch. Traders can now sign in with their Google credentials instead of downloading a wallet or writing down seed words.

This is made feasible by the Web3Auth platform, a new wallet technology that enables seedless wallets.

Historically, some undercollateralized platforms have experienced liquidity crises during large market fluctuations.

In April 2022, for instance, the Vires.Finance lending app on Waves experienced frozen withdrawals because its liquidation mechanism could not keep up with the rapidly escalating decline in cryptocurrency prices.

The application was later revitalized via a “revival plan.”

Attia stated that the Synquote team knows about this danger and has implemented extremely conservative risk-management practices to prevent such a crisis.

“Our margin requirements are still relatively conservative,” he explained.

“We’ve performed extensive backtesting with historical data, and we’ve observed that even the largest market movements—even on the day FTX went bankrupt and the market plummeted, even on those black swan days—the system is safe, with the liquidation system responding on time.”