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The beta release of Synthetix Perps V1 has been a success; it has generated upwards of $5.2b+ in trading volume and $18.1m in exchange fees since its March 2022 release. All of these trades have originated on Kwenta, which is a frontend for Synthetix Perps.
It’s important to note that Synthetix Perps has been in beta since release. While trading volume has been positive thus far, the current Synthetix perps market design is constrained in terms of scalability and efficiency. The most notable limitations are capital inefficiency (restrictive open interest limits), funding rate volatility, and high fees / wide spreads.
Synthetix Perps V2 hopes to rectify these restrictions and enable (1) unconstrained open interest limits, (2) broader asset compatibility, and (3) low fee execution by introducing three significant features to Perps V2. The path to enabling the above-said goals is by utilizing a new off-chain oracle system to decrease latency and trading fees, an adjusted funding rate mechanism which incorporates skew and time into funding rate calculations, and a premium/discount function based on the current skew of the market.
To review, the goals of Perps V2 are as follows:
Goals of Perps V2
Risk Minimization
Increased capital efficiency
Which then enables:
Low fee execution
Unconstrained open interest limits
Broader asset compatibility
How will Perps V2 support these goals? - Features of SNX Perps V2
New Off-chain oracle system - Synthetix is pioneering a new off-chain system for perps v2. These new oracles will feature a pull-based system, where an off-chain oracle constantly saves prices, and then only connects them with a trade once a trader initiates a transaction. The trader will receive the off-chain price at the timestamp (or block) that they initiated their order at. This pull-based system minimizes the risk of frontrunning and allows Synthetix to greatly decrease trading fees.
Adjusted Funding Rate Mechanism - In practice, the effect of this change is that funding rates will continuously drift higher/lower in the presence of long/short skew, creating a natural price discovery mechanism for funding rates.
Mathematical change: Instead of r = c * skew, is now changed to dr/dt = c * skew to calculate funding rates.
Ex: If a market currently has 2m in long skew, and stays there for 24 hours without any additional trades, the funding rate will continually move upwards until the long skew is decreased.
This long skew can be decreased by a new trader taking the short side, or by longs exiting the market.
Premium / Discount function - This new premium/discount function will apply a premium or discount to prices quoted by the market, dependent on the current skew of the market.
Example: If the market currently has 2m in longs, and 1m in shorts, it is currently long skew. This will cause two things:
A premium in price for those longing, as they’re increasing the long skew.
A discount in price for those shorting, as they’re decreasing the long skew.
Synthetix recently held a deep explainer of Synthetix Perps V2 with CCs Afif and Matt, discussing how these mechanisms work in great detail. Learn more about it below
Synthetix is excited to announce the SNX Youtube channel.
Our first video features @0xAfif, where Perps V2 is deeply explained. You'll learn about 👇
1️⃣ Basics of perps
2️⃣ Current landscape for DeFi perps
3️⃣ SNX Perps V2Listen and subscribe now! ⚔️https://t.co/M7ToOmHY3g
— Synthetix ⚔️ (@synthetix_io) October 25, 2022
The Perps V2 scope and feature set are subject to change due to additional SIPs from the Synthetix Spartan Council, the governing body elected by Synthetix stakers.
SIP-279 - https://sips.synthetix.io/sips/sip-279/
SIP-280 - https://sips.synthetix.io/sips/sip-280/
SIP-281 - https://sips.synthetix.io/sips/sip-281/
The beta release of Synthetix Perps V1 has been a success; it has generated upwards of $5.2b+ in trading volume and $18.1m in exchange fees since its March 2022 release. All of these trades have originated on Kwenta, which is a frontend for Synthetix Perps.
It’s important to note that Synthetix Perps has been in beta since release. While trading volume has been positive thus far, the current Synthetix perps market design is constrained in terms of scalability and efficiency. The most notable limitations are capital inefficiency (restrictive open interest limits), funding rate volatility, and high fees / wide spreads.
Synthetix Perps V2 hopes to rectify these restrictions and enable (1) unconstrained open interest limits, (2) broader asset compatibility, and (3) low fee execution by introducing three significant features to Perps V2. The path to enabling the above-said goals is by utilizing a new off-chain oracle system to decrease latency and trading fees, an adjusted funding rate mechanism which incorporates skew and time into funding rate calculations, and a premium/discount function based on the current skew of the market.
To review, the goals of Perps V2 are as follows:
Goals of Perps V2
Risk Minimization
Increased capital efficiency
Which then enables:
Low fee execution
Unconstrained open interest limits
Broader asset compatibility
How will Perps V2 support these goals? - Features of SNX Perps V2
New Off-chain oracle system - Synthetix is pioneering a new off-chain system for perps v2. These new oracles will feature a pull-based system, where an off-chain oracle constantly saves prices, and then only connects them with a trade once a trader initiates a transaction. The trader will receive the off-chain price at the timestamp (or block) that they initiated their order at. This pull-based system minimizes the risk of frontrunning and allows Synthetix to greatly decrease trading fees.
Adjusted Funding Rate Mechanism - In practice, the effect of this change is that funding rates will continuously drift higher/lower in the presence of long/short skew, creating a natural price discovery mechanism for funding rates.
Mathematical change: Instead of r = c * skew, is now changed to dr/dt = c * skew to calculate funding rates.
Ex: If a market currently has 2m in long skew, and stays there for 24 hours without any additional trades, the funding rate will continually move upwards until the long skew is decreased.
This long skew can be decreased by a new trader taking the short side, or by longs exiting the market.
Premium / Discount function - This new premium/discount function will apply a premium or discount to prices quoted by the market, dependent on the current skew of the market.
Example: If the market currently has 2m in longs, and 1m in shorts, it is currently long skew. This will cause two things:
A premium in price for those longing, as they’re increasing the long skew.
A discount in price for those shorting, as they’re decreasing the long skew.
Synthetix recently held a deep explainer of Synthetix Perps V2 with CCs Afif and Matt, discussing how these mechanisms work in great detail. Learn more about it below
Synthetix is excited to announce the SNX Youtube channel.
Our first video features @0xAfif, where Perps V2 is deeply explained. You'll learn about 👇
1️⃣ Basics of perps
2️⃣ Current landscape for DeFi perps
3️⃣ SNX Perps V2Listen and subscribe now! ⚔️https://t.co/M7ToOmHY3g
— Synthetix ⚔️ (@synthetix_io) October 25, 2022
The Perps V2 scope and feature set are subject to change due to additional SIPs from the Synthetix Spartan Council, the governing body elected by Synthetix stakers.
SIP-279 - https://sips.synthetix.io/sips/sip-279/
SIP-280 - https://sips.synthetix.io/sips/sip-280/
SIP-281 - https://sips.synthetix.io/sips/sip-281/
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