Lafa’s guide to the galaxy (of synthetics)
Don’t trade without it.
don’t panic DEUS V2 is here
Synthetics protocols are so much more than just the amount of assets they support. They must tackle the conflict of interest between the protocol and the traders.
DEUS V1 is similar to Synthetix, and Synthetix works just fine how it is, right?DEUS adds more possible assets to the system, and that’s why DEUS is better than SNX, right?
Of course, that’s what we all think, and it’s true. Synthetix currently supports around 30 assets, while DEUS V1 supports about 550.
There is a lot more to a synthetics protocol than the number of assets it supports and it’s getting more apparent by the day that Synthetix has some things it is struggling with. It all comes down to the fact that the counterparty is the SNX staker, and that’s a critical point.
Who will you favor as a protocol, as the project developer, as a DAO member of the project, and as the token holder? The trader or the staker?
Additionally, when your collateral token is your protocol token, there is without a doubt a conflict of interest.
As a reference, we can take these current Events “Simp2win” describes in his recent Twitter posts:
The post was removed afterwards but it was about SNX liquidating a position of a trader who went short on REN.
I can’t verify the claims he made, neither do I believe them blindly.
Still, as I said before, it clearly shows there is a conflict of interest between Protocol (developers & token holders) & Traders. #
The tweet of “Simp2win” was pointing that out (in his way) very clearly.
DEUS V2 democratizes the Trader <> Protocol relationship
Providing the platform for peer-to-peer synthetic contract handling
DEUS V2 will democratize and decentralize the “Trader & Protocol” relationship by introducing the “Trader <> Contractor” relationship.
Through open market evolution, the best Contractor will eventually win all the traders. DEUS will provide the platform for this peer-to-peer synthetic contract handling.
In the following months, we will be addressing more topics around this and how we will solve them with DEUS V2 on our road to create the first fully self-sustainable and, therefore, most significant decentralized derivatives marketplace in finance history.
Let’s start with a simple but critical topic: Optimizing collateralization.
DEUS V2 will be a big evolutionary step, creating an optimized collateralization model and better incentives for liquidity providers.
Synthetix uses a similar Collateralization model as DEUS V1 but incentivizes liquidity providers with newly minted tokens, which we at DEUS opposed initially.
The DEUS system should be self-sustainable without injecting “money out of thin air.” Something Synthetix is basically doing.
We have been working with our economics team on major improvements to the DEUS Engine for almost seven months now.
From the Launch of the first 500 Stocks on xDAI, we knew that the current model wouldn’t be the final design of DEUS. We have now been working on creating an even better, optimized collateralization model and incentives for Liquidity Providers.
DEUS v2 will be another big evolutionary step.
In the current version of DEUS, a vault staker that hedges himself vs a vault staker that doesn’t hedge himself. So the “hedged Staker” will always be the one that is winning.
Meaning, passive Vault stakers should become active or find someone who actively manages the Liquidity themselves. All of this makes the Liquidity provision for a Passive LP less attractive than it could potentially be. That is why Synthetix and Mirror have Liquidity Incentives programs, without it, there would be zero incentive to become a liquidity provider.
This is something that I repeatedly talked about in Live streams or when I spoke about Models like Synthetix or Mirror
Announcing DEUS Contractors
Self-regulating and self-organized vaults, offering excellent capital efficiency, with contractors creating markets how they imagine them.
DEUS V2 will enable anyone to decide which positions he will take and which positions he won’t take.
We call this new Feature of DEUS, Contractors. The Vaults will be one of much self-regulating and self-organized “DEUS Contractors.”
The current DEUS V1 Vaults are a basic version of a Contractor. They are always auto accepting Orders for all Assets listed and have a minimum / maximum spread of 1%; all of this should sound a little familiar.
What I just described as “DEUS V1 Vault” is the current setup of the Synchronizer that lets you trade currently around 500 Stocks on xDAI.
In the future, this will only be one of many Contractors that can operate in the DEUS Exchange Engine.
What does this mean for Users or LPs?
It will bring excellent capital efficiency for LPs and practically every asset possible for traders with any leverage. Contractors can create markets how they imagine them, a Wall Street Sandbox for everyone to play in.
From the first moment I created this Protocol, the goal of DEUS was to become the uniswap, the central hub for paper trading or “derivatives.”
With DEUS V2, this vision will come more and more true.
Contractors will be able to farm liquidations, funding rates of traders, general spreads, and fees while being capital efficient.
We are currently expecting to require contractors to have at least 10% of the margin in their accounts before they get liquidated.
Let’s say you maintain a margin of 15–20% to sleep well at night. That’s 17,500% improved capital efficiency than DEUS V1, with an over-collateralization rate of 3000% (we are still playing safe here.)
But that’s all of it for now.
There will be much more documentation to come and a lot of things to talk about in the live stream.