A decentralized finance (DeFi) options platform called Synquote launched recently, utilizing social logins and undercollateralized trading to draw in liquidity providers. The platform claims that it can handle large trades with much less slippage compared to previous options platforms. During its beta period, Synquote recorded over $25 million in notional volume, with its largest trade reaching $1 million in notional volume without any detectable slippage.
Synquote’s strategy to attract liquidity includes avoiding automated market makers (AMMs) and instead employing an off-chain, peer-to-peer request for quote (RFQ) protocol for matching buyers and sellers. This allows for greater flexibility in the types of orders that can be placed by market makers. Additionally, the platform lets liquidity providers make undercollateralized trades, which means they can issue or sell options with as little USDC (US Dollar Coin) as 1/10 of the underlying asset’s value if they are selling a short-dated naked call. In contrast, most DeFi options protocols require full collateralization.
Founder Ahmed Attia argued that allowing undercollateralized trades is the key to luring large institutions into the DeFi space. He remarked that activity on fully collateralized platforms was limited by the amount of size market makers were willing to trade on-chain with a fully collateralized position. As a result, Synquote’s undercollateralized trading offers an opportunity for market makers to trade with size and have capital efficiency on-chain.
The platform also supports social logins for its public launch. Market makers and traders can now log in using their Google credentials without needing to download a wallet or note down seed words. This is made possible by the Web3Auth platform, which enables seedless wallets.
While undercollateralized platforms have previously faced liquidity crises during large market swings, Attia assured that Synquote has put in place conservative risk-management practices to prevent such crises. The platform’s margin requirements are still quite conservative. Based on backtesting with historical data, the Synquote founder claimed the system proves to be safe even during severe market downturns, with the liquidation system responding in a timely manner.
Source: Cointelegraph
