DeFi is moving so fast-paced that it is almost impossible to stay updated about every new project that comes out.
Hence, in a blink of an eye, an unknown platform may accrue millions in Total Value Locked (TVL) in just a few days, while a seemingly “bullish” protocol may be dying in the next few hours.
Despite all this volatility, the niche of derivatives is still growing strong, representing the most promising sector in decentralized finance.
As the leading derivatives platform in the DeFi sector, Synthetix provides the structure for Kwenta, which is a new decentralized platform where investors can trade a vast range of assets on Ethereum with unlimited liquidity.
A Quick Background
A derivative can be explained as a contract in which the value derives from the performance of an underlying asset or a set of assets. These underlying assets can vary a lot- stocks, indexes, equity, interest rates, oil, gold, and cryptocurrencies.
The leading platform in the DeFi sector of derivatives is Synthetix. Born as a stablecoin project called Havven, Synthetix rebranded and expanded its scope before its launching on mainnet in February 2019.
The platform is a decentralized synthetic asset issuance protocol, built on top of the Ethereum protocol. Investors can mint synthetic representations of real-world assets on tokens, which track the value of the said assets one by one.
For instance, Synthetix has a token called sUSD, a synthetic token that tracks the US Dollar like a stablecoin. Nonetheless, it is not a stablecoin, as it is backed up by collateralized crypto debt.
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Other widely known synthetic assets available include cryptocurrencies like sBTC, sETH, and sLink, commodities like gold (sXAU) or silver (sXAG), and even equity indexes (sFTSE, SNIKKEI). All these synthetic assets are issued in a fully trustless and decentralized way.
The platform has a native token called SNX, so SNX holders can lock in collateral (SNX, ETH, etc.) into the Mintr smart contract to mint Synths, which are freely tradeable ERC20 tokens. These Synths are backed by a unique overcollateralized pool of SNX tokens.
On September 1st, 2020, Synthetix reached a mind-blowing $1 billion worth of cryptocurrencies in Total Value Locked (TVL). Kwenta is one of the new products based on Synthetix smart contracts, powered by its derivatives liquidity to provide slippage-free trading of derivative tokens.
What Is Kwenta?
Kwenta is a fully non-custodial and trustless exchange build on Ethereum, focused on decentralized derivative products.
All trades are executed against the Synthetix smart contracts, which removes unpleasant limitations associated with a traditional trading model, such as lack of liquidity, constant slippage, and dependency on orderbooks.
Instead, Kwenta relies on a peer-to-contract model for trading, based on the Synthetix protocol’s overcollateralized liquidity pools. Hence, investors do not need direct counterparties to perform any trade, which means liquidity is virtually “infinite”.
Dig Into It
Currently, Kwenta offers profitable possibilities of trading in three different categories of derivatives – cryptocurrencies, FOREX, and commodities (including gold and silver). For those unaware, FOREX (Foreign Exchange) is the largest and most liquid market in the world.
Besides, the platform is also building a new tab for equity derivatives, which is not available yet.
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Given that the protocol is built on top of Synthetix, all trading on Kwenta must be performed between Synths (Synthetix derivatives).
While some would look at it as a restriction, smarter investors would call it an opportunity. There are no restrictions between Synths, which can be traded instantly between each other with no limitation regarding trading pairs.
Accessibility and Ease-of-Use
Kwenta’s UI is remarkably intuitive, allowing even novice traders to perform well while trading DeFi derivatives. One of the greatest advantages of the platform is the absence of order books and depth charts, which are replaced by simple price charts for each pair of assets used in transactions.
To onboard the platform, users need a supported web3 wallet (including MetaMask, WalletConnect, Ledger, Trezor, and others). Also, first-time users will need some ETH to pay the gas required for processing the transactions.
To start trading DeFi derivatives, users need Synths. Currently, the most accessible Synth on the crypto market is sUSD, available on Uniswap, Curve, and other exchanges.
In this sense, Kwenta provides a quick on-ramp for ETH holders through integration with 1Inch. This way, users can switch between ETH to sUSD easier while staying connected with the platform.
Once these steps are completed, users have access to a vast range of tradeable synthetic assets.
Everybody Hates Fees
Being a unique DApp that leverages the Synthetix protocol, Kwenta does not require any KYC whatsoever- no account creation, no deposits, no withdrawals. The platform is fully permissionless and non-custodial, enabling investors to hold control of their funds throughout the trading process.
Unfortunately, gas fees are a bit high. The platform attributes the fact to the processing requirements associated with Ethereum mining. Plus, the complexity involved in Synthetix transactions is remarkably high when compared to other DeFi projects.
A New Layer of Possibilities
Recently, the protocol debuted its layer two integration with Optimism. This brand-new program promises to be the new scalability stack for Ethereum, enabling instant transactions and scalable smart contracts.
Further reading: What’s the future of derivatives?
This program allows Kwenta’s users to stake SNX to claim issuance and trading fees with little to no costs with gas. The solution is still live on testnet only, which means the platform is exposed to high gas fees in volatile periods.
However, it indicates a remarkable effort to address the unpleasant issue of gas- luckily, it may be gone soon.
Conclusion
Kwenta is a permissionless and non-custodial platform that leverages Synthetix to expose crypto traders to a vast range of synthetic derivatives.
As all trades are executed against the Synthetix smart contracts, there is no dependency on orderbooks or exposure to constant slippage.
The platform is user-friendly, with a great combo of UI and UX to deliver an enjoyable trading experience with high levels of liquidity. All trading is based on Synths (sUSD, sBTC, sETH, etc.) so there are no trading pair limitations whatsoever.
Plus, innovation never stops, as Kwenta promises plenty of novelties in the coming few months, which includes Synthetix launches, Synthetic Futures, Synthetix Loans, and limit orders.