Episode 19
SynFutures: Enabling permissionless derivatives trading

Our guest today is Mark Lee, CMO of SynFutures. SynFutures is a decentralized derivatives exchange that employs an Amazon-like business model, giving users the tools to freely trade any assets and list arbitrary futures contracts within seconds.

In this episode, we chatted about how SynFutures enables permissionless trading of virtually any crypto asset with a reliable price feed, how the protocol is positioned within the decentralized perps ecosystem, as well as get a sneak peek into the exciting features lined up for their V3 launch.



Hey everyone, this is Dawei from Exponential and you're listening to Degen Responsibly, a podcast where we invite protocol builders to showcase their innovations, how they work, as well as do a deep dive on risk. Exponential is an investment platform that makes it easy to discover, assess, and invest in DeFi yield opportunities. We want to help you understand the tradeoffs and opportunities so you can degen responsibly. In this episode, we're joined by Mark Lee, the Chief Marketing Officer of SynFutures. Mark sheds light on how SynFutures is revolutionizing the crypto derivative space by enabling leveraged trading of virtually any crypto asset. We also explore SynFutures' unique position in the decentralized perps ecosystem, as well as get a sneak peek into the exciting features lineup for their V3 launch. Thanks Mark for joining the podcast to talk about SynFutures and what you guys are building. I think it'd be great, before we dive deeper into the protocol itself, could you just talk about your background in DeFi or in crypto and how that led to SynFutures? Yeah, sure. I think like a lot of people in DeFi and crypto in general, I started from a very traditional trad fi background, although I wasn't a trader. A lot of the core team at SynFutures, they actually come from traditional trading backgrounds at major banks like Deutsche Bank, Credit Suisse, Nomura. I actually come from a private equity background, so I majored in finance in undergrad, and then I worked for a boutique private equity firm working mid-market manufacturing and technology companies. So it's very different, but I think during my undergrad days, I did get familiar with financial markets and just the high level concepts behind trading. And so I've always been kind of interested in this space. And then after doing private equity for like five years, I decided to leave and do something completely different. And I started a PR and marketing agency for early stage technology companies. So think a lot of like Silicon Valley startups, I guess what we would call Web 2.0 companies, Web 2.0 companies that were in fintech, enterprise software, AR, VR, and things like that. So really, I was focused on working with emerging technology companies. And because of that, around 2017, 2018, I came across blockchain companies, and it was like a novel concept to me back then. But it was interesting because I was starting to see a lot of talent from not only Silicon Valley, but from other startup hubs around the world, kind of start making their way into this, what we now call Web 3.0 space. So I kind of pivoted pretty early on and started working with a lot of the, what are now household kind of crypto names. I did that for a couple of years. And ultimately, the core team at SynFutures, I started working with them two years ago, just as the right before the product launch. This is the V1 back in 2021. And yeah, I just felt like we were really well-positioned to kind of tackle the problem that some of the tribe-fi kind of industry wasn't approaching, namely the decentralization, the permissionless aspect of finance, like the open-fi concept. And so we started very simple with a futures exchange, which is very different from what you see on the market today, because I think in crypto, everyone focuses on perpetual swaps. We started with traditional futures because of our tribe-fi background, which is, for those who aren't familiar, futures are perps but with expiry, right? So they're dated futures, could be quarterly, could be weekly, could be monthly, et cetera. So that was like the genesis of SynFutures. Again, it was quite a long time ago now, two years ago, and we've since made a ton of progress. And I'm happy to expand on that later on in the interview. Got it. Yeah. So yeah, I think we can go into some of the specifics that you mentioned around what you guys are building at SynFutures. You mentioned the decentralized nature of the exchange, the permissionlessness of it as well, I think being a key feature of SynFutures. Could you highlight, I guess, some of the benefits you see versus like a centralized exchange? Yeah, for sure. So let me take a step back and I'll just give a quick overview of SynFutures. So SynFutures, we're a decentralized derivatives exchange for trading perps and futures, right? I mentioned in V1, we started with futures pretty quickly. We kind of added perps just because it happens to be the most popular form of derivatives within the crypto industry. And so on our platform, we're a DEX, we're a perps DEX, and anyone can come and list any pair and create a futures or perps market, right? So I think on the CeFi side, it would be similar to like a Binance futures exchange or derivatives exchange, not their spot products, obviously, OKEx, Bybit, et cetera. But the added benefit of being decentralized is, A, it's open and transparent, B, we're non-custodial, right? So we don't take control of users' assets, everything is dictated by the smart contract. And I think most people would agree that this is a very appealing alternative, especially what we're seeing right now. I mean, FTX is on trial right now, and it kind of reminds us of some of the major challenges in CeFi, right? I think as long as there's kind of like this human intervention aspect of it, there could be misappropriated funds, there could be, you know, there's a lot of like vectors that could fail. And so I think the decentralized nature of it really helps kind of open that Pandora's box up so that everyone can kind of participate in a more fair and transparent way. Yeah, for sure. And I guess, can we go a little bit more into the details of how exactly SendFutures accomplishes this? Like how are you enabling these decentralized trades of futures and perps? Yeah. OK. So, you know, I mentioned the decentralized aspect because I think it's important to know that there are other derivatives DEXs out there, but they all have like varying levels of decentralization. The most common form is like they have this hybrid model where some of the transactions, some of the input is off-chain and some on-chain, right? Typically you find this in order book DEXs because they have to be involved in the matching of trades, right? For us, we're not order book based, we're completely AMM based, which means users are, you know, we're not the ones matching orders. Users are trading just like a Uniswap or any other AMM based techs. Users are trading against the AMM pool, right? So that just means in order for users to be able to trade, someone has to come in, provide the liquidity for the pair. As liquidity providers, in return, they, at least for some users in return, they get about 80, I think about 85% of the trading fee for providing that liquidity and with that liquidity that enables users to trade against that. I mean, when we first started it, I mean, we looked at Uniswap and the other DEXs, the spot DEXs, and we looked at the constant formula and we just adapted that. We ended up adapting that to a more complex financial product, which are derivatives, futures and perps. Got it. So, yeah, so a trader would come to SendFutures and they'll have to deposit a certain asset as collateral before they can trade. Is that right? That's right. But one thing that's unique about us is we provide single token liquidity provision, which just means typically for derivatives, when you're trading a pair, you have to provide liquidity in both tokens, right? So if you're trading ETH to USDC, then you have to provide both tokens as liquidity. We've done it so users only have to provide that liquidity in one form. And we did this because we wanted to lower the entry barriers or the UX barriers for users to simplify some of the process so that they can get to trading quicker. Got it. And then for each of these single liquidity pools, are these isolated from one another? Yes. OK. So every pair has its own liquidity pool. OK. So, for example, you have maybe like the Giddy USDC pool. And if something were to occur to the Giddy token and that impacts that pool, that wouldn't have a follow on effect on the rest. Exactly. It would be limited to that pool. OK. Gotcha. Yeah. Makes sense. And then, you know, we talked about this a bit, but the permissionless nature of SendFutures, you know, other decentralized DEXs, you know, they typically have like maybe a DAO governance process to list new assets. Going back to the liquidity pool model, you have like incremental risk for each asset that's added. But I guess with their isolated model, you're able to add more long tail assets. But how does that achieve exactly from a user perspective? So just like you mentioned, a lot of other derivatives DEXs, they do require some kind of team intervention, right? It's either the team single handedly decides what gets listed. And that's why you see a lot of these kind of DEXs slow to list new tokens, right? Sometimes they have 10, 15, you know, between 10 and 30 seems to be like the range for most derivatives DEXs. And then you have others that have a DAO and so someone needs to put up a proposal. And this could take, you know, this could take weeks to pass if it even passes, right? That kind of goes against our kind of vision for decentralized finance, right? Decentralized finance should be completely open and completely free for anyone to participate in any way they feel, right? So that means not only trading anything they see on the platform, but being able to list an asset that they don't see on the platform. We want to give that kind of power to the users. And so what we did was, you know, it's very similar to the Uniswap V3 model for the spot market where anyone can come and provide liquidity and launch that token, right? We've done the same for the derivatives side for our purpose and futures. And so, you know, any market maker, any liquidity provider who may want to speculate on like this new token that's trending, right, could come and provide that initial liquidity to jumpstart some trading for, you know, assuming there's demand on the trader, on the taker side, the makers could come and launch that pair. And because of that, we've been able to create a really vast kind of selection of tokens for trading. RV1, for example, to date, we've had about 200, I think, I believe about 250 or 260 different pairs listed. Now, I mean, that doesn't mean all 260 have liquidity at any given point to be able to trade, but it just means at some point during the V1 lifecycle, someone has seen interest in a pair like that. They wanted to see a launch, they came and launched it and, you know, there could have been some trades on the user side. But yeah, we wanted to, you know, one of the core concepts that we thought about very early on is we're thinking about how to create like almost like the Amazon of derivatives, right? Where we support just an endless array of different assets and we give, you know, we empower users with the ability to list and trade anything they'd like with, you know, just a few clicks. Yeah, for sure. I think that's definitely one of the coolest parts of this exchange you're building. I mean, it feels the closest to like Uniswap in terms of its permissionless nature where anyone can just create a market for a new pool pairing. Exactly. But I guess from the user perspective, there still has to be some type of limitations on what assets they could list, right? Like they would need like an Oracle feed from either Chainlink or Dex. Yeah. So typically, so we use both Chainlink and we'll work with like, we'll use the price feed from the dominant Dex of the network we're on. So it depends, you know, for Polygon or ZkSync or any of the other chains we're on. So as long as they can, as long as those tokens are trading on that Dex, we can support a derivatives market for. Gotcha. And so where have you seen more of the product fit so far? I mean, I guess a related question is where do you see sort of Sendfuture's niche being within the decentralized purpose landscape? Yeah, that's a good question. And it's changing based on developments in our product. So I think for V1 and V2, one of our, you know, the strongest kind of value proposition for us was that permissionless aspect, right? The asset diversity. And the reason is we kind of limited the leverage users could take. So, you know, other platforms were offering 20, 50X leverage. We wanted to keep it a bit more reasonable. So very early on, we weren't really targeting, let's say, the degen traders. We were trying to build a much more sustainable product that's less akin to gambling and crypto. A lot of our focus, though, was around this permissionless aspect, building out this, you know, as this space was downloaded via Spacesdown.com, visit to download your spaces today, the ecosystem. And that's really what attracted what we believe attracted users to the platform, right? When they're trending tokens. we would see kind of like an uptick in activity for some of these long-tail assets. I mean, what's interesting is users may come for some of these long-tail assets and then they end up staying to trade the majors, right? But the challenge with that is liquidity. Like it's very hard to attract and maintain liquidity for so many different pairs. And so I think beyond v2, we, you know, we started thinking we need to solve the liquidity problem. We need to become much more capital efficient as a platform. And that's kind of the thinking that that grew into what is about to launch, which is our v3. And I can go into that in a bit more detail. But I would say to answer your question, I would say, you know, our initial niche and our fit in the market was the concept of this permissionless listing. Of course, we offered a lot of other things, you know, like we offer the single token liquidity provision. We feel like we had some of the best UI UX in the market. You know, we really simplified what derivatives should be. You know, when we designed it, we thought we want to offer essentially the unit swap, but for derivatives, right? Which means creating a seamless user journey and also simplifying a lot of the steps, and even in things like the design of the platform. But I think that's, you know, that was our first iteration of the platform. Now we're getting into v3. And it's a, it's kind of an expanded thinking on where we see DeFi derivatives going as a whole. Yeah, to your point on the liquidity being sort of the king of for DEXs. I mean, you see with GMX, their GLP pool has most of the liquidity. And so you see a lot of the volume going there for BTC and ETH volume. But yeah, you mentioned v3, I guess, what are some of the next improvements planned for SynFutures there versus v2? Yeah, so the major upgrade is to our AMM, right? With this AMM, we're trying to offer the most capital efficient experience in DeFi derivatives. And the way we're doing that is we're combining limit orders with concentrated liquidity. So think of it as like a concentrated liquidity AMM and then limit orders like an order book. And we're combining this, but we're combining it fully on chain, right? So we're not using the hybrid model. We're bringing everything on chain to keep it as decentralized and, you know, web3 native as we can. Because users are able to kind of, liquidity providers are able to deploy different strategies. They could have an active strategy with the limit orders, and they can have a passive strategy with the concentrated liquidity AMM. I think it opens up a lot of opportunities, but it also gives them the ability to lever up their capital, right? So through a liquidity boost. So theoretically, there would be unlimited liquidity boost that they can tap into depending on how they control their, you know, LP strategy. And doing this, we'll be able to get more liquidity onto the platform, attract more liquidity onto the platform, and help support our kind of permissionless listing strategy. Because it's like I mentioned earlier, that's the major problem with supporting long tail assets is being able to have sufficient liquidity for each asset because each of them are their own pools, right? And, you know, I think more broadly speaking, when we think about DEXs, one of the challenges with derivatives DEXs, and you mentioned GMX, and they have quite a bit of liquidity to be able to trade the majors, but it's still not sufficient for the most active traders or like, you know, institutional traders, whales, etc. And that's mostly why we see a lot of the derivatives trading still on centralized exchanges. If you look at just in general, if you look at spot trading versus derivatives trading, the market dynamics is that derivatives should be multiples bigger than the spot, right? This is true in TriFi markets, like the equities markets. This is true in crypto once you get to CeFi. So to give an example, you know, Binance Spot is just a small piece of the total trading. Binance Futures is a much larger portion of that pie. But once you get to derivatives, you don't see the same thing. So Uniswap and all these spot DEXs, they still make up a significant portion of the total DEX trading volume. And part of the reason is the lack of liquidity in a lot of these derivatives DEXs. We think by creating an AMM that gives, that enables more capital efficiency, it'll help attract more liquidity and help platforms like ours better compete with the centralized exchanges. So really what's interesting is like our mindset has kind of changed to, you know, we used to think we're competing with other derivatives DEXs. Now we've expanded that thought and said, hey, maybe it's not just other derivatives DEXs. How do we compete with like the Binance and OKExes of the world? Right. Yeah, that's an interesting point that you make about the spot DEXs today still being the overwhelming majority of volume relative to derivatives. And I guess you're saying one reason for that is just the inefficiency and for capital currently in DEXs. And so with the concentrated liquidity that you guys will introduce in V3, is the idea that the liquidity providers there will generate more fees and then that will attract more, I guess, users to provide liquidity? Well, they could because, you know, with the liquidity boost, they can make their LP dollars go further for them. Right. So I think we'll continue to keep the model that they are liquidity providers will take up, take the vast majority of the trading fees generated on the platform. But it's also about having those dollars work harder for them, which is really where the capital efficiency piece comes in. Gotcha. And. I mean, obviously, there's also risks of being an LP, right? Given the sort of the AMN model, you have impermanent loss risk. Yeah. Is that something that's heightened in the V3 model with concentrated liquidity or is that still functioning? Yeah, it's still fun. I mean, you know, there's always going to be risk of impermanent loss, socialized loss, but we still control it within kind of, you know, it's not very different from our V2. And I don't so and I don't want to get into too much detail yet just because we haven't released the full details of our V3. But, yeah, risk management is something that's very important for us, you know, not only from the LP side from but even from our own operational treasury side. Right. So it's something that we've thought about from day one. You know, that's kind of the benefit of like having a team that comes from a TradFi background is they really think about this from the very early days. And so, you know, we're proud to say that we haven't had any major incidents on our platform, even during like these major market movements. We've been able to protect not only our treasury assets, but also, you know, we've been able to shelter some of that risk for LPs. I guess for someone who who comes as a user to the platform and they see, you know, the single side liquidity pools, they typically would just assume their exposures. to asset price itself, but with the way the SAMM model works, could you kind of just explain the mechanics behind why there's some permanent loss? And then I believe there's also maybe liquidation risk as well for being an LP. Yeah, so there's definitely liquidation risk and we do something that's pretty standard, which is we have bots that will, you know, so anyone can come in liquidated position once it reaches that threshold. But there are also bots, liquidation bots that'll do it to keep the markets balanced and efficient. Yeah, I think impermanent loss, I think it's similar to many of the other DEXs out there. We do have an insurance fund where, so, you know, I mentioned that about 85% of the trading fees go sell, gets paid out to LPs, the remaining 15%, it's not exactly 15, it's just roughly around 15%, gets sent to our insurance fund and that's the fund that'll cover any excess losses. Okay. And then this is for, there's a separate insurance fund for each liquidity pool, I'm assuming? No, it's one big one. Oh, so it's one big pool covering all markets? Yeah. Gotcha. And then what about the scenarios where the insurance fund is not, I guess, sufficient to cover the deficit? Yeah. So that's when there'll be socialized loss where it'll be spread. So let's say for a given pool, it would be spread pro rata across all participants. And that's why it's called, you know, that's why it's called socialized loss, right? Right. Okay. And that's for a specific asset pool though? Exactly. Okay. Yeah. All right. Awesome. In terms of the risk management side, are there any other measures you guys have in place to, you know, prevent these price manipulations of some of these long tail assets? Yeah. I mean, there are a few different ways we do it. Another common way is using time-weighted average prices, right? So it's less prone to sudden kind of price manipulation. So I think, yeah, mostly the standard ways that most DEXs would approach them. We have a few different measures in place, but yeah, I think with B3, there's some updates and probably not something that we'll cover right away. Okay. Gotcha. Let's move on to sort of the fee side. You mentioned that LPs get about 85% of the fee revenue and then remaining 15% or so goes to the insurance fund. But does the protocol itself accrue any fees? No, not right now. So it all goes to either the insurance fund or the LPs. And the exact split is actually five to one, which is why I say roughly 85%, but it's just easier to, you know, approximate. Gotcha. And right now there's no token, I believe. And so are there plans for, you know, decentralization of governance? Yeah, for sure. So, you know, we are definitely planning for a token in the roadmap. It's been, you know, it's something that our community asks about pretty often. Our first product came out in September 2021. So we've been in the market quite some time now. The thing is, you know, we've been kind of busy with some of the product development, but with v3, I think we're in a pretty good place to, you know, really look at the next kind of milestones. And, you know, the decentralized governance that comes with having a token is certainly something that we're kind of eyeing right now. And so, yeah, well, you know, just the short, I guess the short answer is we are considering a token, but we don't have a definitive timeline in place yet. Just curious now in terms of, you know, you have v3 coming up, I guess your plans to sort of migrate the liquidity over from v2 to v3 in the coming months. But what other, I guess, improvements do you have for the platform in terms of maybe there being cross-chain expansions to other layers? Yeah. Yeah. So our v2 right now, just, you know, to provide a little bit of context, our v2 right now is deployed on Polygon, Polygon POS, not ZKVM and ZK-Sync. So you know, initially our intention was to bring v2 to more chains, but we kind of made a lot of progress on v3 sooner than we expected. And so we kind of started focusing our resources to v3 deployment really early on in the v2 deployment. Just to give you a little bit of timeline, so v3, we have our public testnet launching toward the end of October, and then we hope to have the mainnet out by the end of the year. I mean, that's subject to change depending on what we see in the testnet phase, but that's the rough timeline. And so I think with v3, one of the priorities for the initial launch phase is we've already started kind of doing the research into like what chains we want to be on, because we definitely want to make sure v3 adopts a very expansive multi-chain strategy. So you know, I'm sure we'll be back on Polygon fairly early on, ZK-Sync, but we're also looking at chains like Arbitrum, Linea, et cetera. I think wherever kind of we believe the users are at, wherever there are an expansive network of assets that could use the derivatives markets for, we want to be there. So yeah, I think it's still early for us because we're now only just launching our public testnet at the end of the month. But yeah, we definitely want to deploy a multi-chain strategy and make that one of our highest priorities for v3. Just some questions from my end. For v3, do you plan for that to be, I guess, open to all users from the beginning? Because I think just on v2, I see that's right now currently in buy only for at least a single token liquidity provision. Oh yeah, yeah. That's because we were still rolling out v2 in phases. Like I mentioned, we kind of made a ton of progress on v3, so we're kind of expediting the v3 launch ahead of schedule. So we didn't actually get to deploy the full v2 product, right? So the LP side of it was still permissioned at the time by invite only. But yeah, eventually the v3 is going to be completely open on both sides. Okay. I see. That makes sense. Will there be like a yield or APR indicator somewhere? Yeah, there will be. Okay. Yeah. It's just, I think a lot of users kind of look towards the yield in terms of where they want to allocate their capital. So I think, yeah, that'll be pretty interesting to see where the yields can be on v3. Yeah. I think v3 is a much more expensive product, like even beyond the AMM and the capital efficiency through like the new functionality, like limit orders, concentrated liquidity. We've also added new product features that make our product much more competitive in the decentralized derivatives space. So to give an example. you know, we were increasing leverage, right? So we limited leverage for V1, we limited to 10X and then V2, we started with 5X leverage and then we slowly increased it from there. With V3, without, you know, committing to a number right now it's gonna be very competitive with some of the popular derivatives taxes you see out there in terms of the amount of leverage we provide. And part of that is just, you know, it's what the users want, right? Especially in this market, a lot of who's trading are like the, you know, DeFi natives, the D-gens and they do wanna have more kind of flexibility over the way they trade. You know, we're adding better charting, right? So something that a lot of your users have asked for. Like I mentioned, V1, V2, we try to like really create a simple product but we realized that there are a lot of users who wanna see, you know, more professional level features, right? And so we've designed V3 to be a very good balance for like newer users but also for power users. Right, that makes sense. And just going back to the fees again, do you think you'll be competitive or more competitive on V3 fee-wise? I mean, right now I think you guys charge 30 bits for trades that have a less than 10% price impact and 120 bits on those that have outsized impact. I think that makes sense for like your, for more long tail assets, but in terms of like the majors and stuff, fee-wise you may not be as competitive. Is that something you guys thought about? Yeah, we've definitely thought about it and it's, yeah, I don't wanna release the details just yet but yeah, it's something we've thought about. Okay, got it, got it, cool. Well, I think that's a good place to wrap it on my end. Anything else that you would like to address Mark about some features or V3? No, I think that covers most of it. I mean, we're really excited to be, you know, we're right now in testing, private testing with a bunch of market makers. So we're getting ready for launch in the next couple of weeks. We're really excited for this next phase of Sinfutures. We do think like that solving that liquidity problem is gonna be, you know, necessary for like the next phase of DeFi, right? So beyond DeFi 1.0, going into like the next market, whenever, you know, market cycle, whenever they may come, we do need a much more efficient DeFi ecosystem. And so this is just our way of kind of approaching that problem. Other projects are working on many different aspects of it as well. But yeah, really excited to get V3 moving. Awesome, well, yeah, I mean, definitely excited for to see all the V3 updates and how that those changes impact the system. Just wanted to thank you, Mark, for jumping on Degen responsibly. You know, it's been a pretty informative episode on the Dexland, the derivatives Dexland state band, what you guys are building at Sinfutures. Awesome, thanks for having me. It was great chatting with you. And I hope to be back on one day when we have our next major milestone. Yeah, for sure. We should get you on the V3 maybe. Yeah, definitely. And then we can go into details on some of the things you touched on. Yeah, awesome. All right, well, have a good day, everyone. This show was brought to you by Exponential. Exponential is on a mission to democratize access to the best yield opportunities in DeFi. Join exponential.fi now to start your DeFi investing journey.