Decentralised synthetic assets

Atomic Swaps - Synthetix's Mainnet Usecase

Atomic Swaps - Synthetix's Mainnet Usecase

Fee Reclamation - A Quick Refresher

Whenever a trade occurs on Synthetix on mainnet, there is a waiting period (10 mins). During this waiting period, users cannot exchange, transfer, or burn the Synth they have just traded into. This waiting period gives the oracles enough time to check the difference between the initial price and the new price — in other words, they check to see if a trade was affected by a lag in price updates. Read more about Fee Reclamation.

While this fee reclamation waiting period protects stakers from front-running, it is a subpar trading experience for most traders. On Optimism, block speeds are much faster, and speeds are lower, which is why fee reclamations aren’t necessary and oracle latency is much less of a problem on Optimism. Waiting 10 minutes to find out what price your trade settled at isn’t ideal for traders, which is why Atomic Exchanges were introduced.

Atomic Exchanges - Synthetix’s Mainnet Usecase

The atomic exchange function has been in effect since early November of 2021. This change provided a new exchange function allowing users to atomically exchange assets without fee reclamation by pricing synths via a combination of Chainlink and DEX oracles (Uniswap V3). Atomic Exchanges protect stakers from frontrunning and allow traders to access low slippage and low fees from Synthetix. This functionality will only be available on Ethereum's base layer (L1).

Atomic exchanges are the reason for most of Synthetix’s mainnet volume on Curve, 1inch, fixed forex, and many other aggregators and integrators. It is a powerful tool that leads to significant volume without frontrunnable risk because of the unique pricing model.

This upgrade changes two major things about Atomic Exchanges:

  1. Allow trading at the pure chainlink price for certain synths.
  2. Remove the restriction on the Source or Destination Currencies being sUSD.

An analysis run on both EUR and GBP, whereby we looked at the price differential between the pure chainlink price against the prices seen on centralized exchanges, reveals that Synthetix can provide highly competitive forex pricing without incurring the risk of oracle front-running.

Regarding the use case, synth stables on ETH have gained significant market share due to the integration with FixedForex project and demand for these synths on Curve Finance for farming purposes. At the time of writing, the synth-forex market cap is around $220m in various forex markets.

Hence, we should expect some volume with atomic forex trading across different curve pools for curve farming and an upcoming integration with Popcorn Finance.

Read more about the Atomic Exchange Function updates in SIP-198