How SynLev Works: Walking through the Beta Version

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SynLev is a unique concept on Ethereum: synthetic leverage without KYC. In layman’s terms, you can bet with BEAR or BULL tokens on where you expect the market to go. All of this is done on-chain with the help of Chainlink’s oracles. SynLev therefore has the capacity to support synthetic leverage for any of the assets listed on Chainlink’s price feed.

If you’re a crypto trader, you’ve likely already heard of leveraged tokens before. They’ve been quite popular on the FTX Derivatives exchange which pioneered the concept. It allows traders to better leverage risk by simply purchasing a token which functions as a prediction: if ETH goes up 1%, ETHBULL goes up 3% and vice-versa.

The concept has been incredibly popular, but FTX requires KYC and many traders aren’t willing to do that. There’s really no reason this can’t be done on-chain in a decentralized, trustless way without the exchange needing to hold your funds. That’s what SynLev is hoping to do — and we now have a functioning beta to showcase how it all works.

Getting Started

On September 21st, SynLev officially deployed its beta dApp on Ethereum’s Kovan testnet. When you visit SynLev.com/beta, you are taken to the dApp which first requires you to connect to Ethereum’s blockchain. At the moment, SynLev supports MetaMask, WalletConnect, and Mew Wallet with more additions coming soon. We recommend using MetaMask and connecting to Ethereum’s Kovan testnet from there.

Once connected, you are met with this simple interface.

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This UI is by no means finished, but it allows you to interact with the basic functionality of SynLev. The dApp is composed of three main parts. Let’s talk about each of them.

Trading BEAR and BULL Tokens

First things first — the ‘Trade’ section. How does it work? As of now, the SynLev beta allows users to trade 3x ETH/USD leverage with BULL and BEAR tokens.

Unlike traditional leverage, BULL and BEAR tokens for SynLev rely on a unique model: all assets are collateralized by ETH. More ETH deposited mints more leveraged tokens. As a result, assets always have 100% liquidity. Because SynLev employs this debt-free decentralized model, the actual leverage of a given BULL or BEAR token is rarely ever exactly 3x — but it will never go higher than 4.5x or generally go lower than 1.5x. You can see the actual leverage on the Stats section of the dApp.

For more information on how SynLev balances leveraged assets in this decentralized environment, please read our litepaper release.

Purchasing BULL and BEAR tokens is easy with SynLev’s interface. Simply choose BULL or BEAR on the ‘Trade’ section and then make your trade. For the purposes of this tutorial, we’ll be buying some BULL tokens. When we bought BULL, a few things changed in the ‘Stats’ section.

  • Contract ETH increased because I purchased BULL tokens and hence added more ETH to the SynLev contract.
  • Bull Equity increased because I purchased more BULL.
  • BULL leverage decreased because more people are going long and holding BULL tokens relative to BEAR.
  • BEAR leverage increased because less people are going short and holding BEAR tokens relative to BULL.
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Since BULL equity is over 1.75x more than BEAR equity, it seems that users of SynLev are overall more bullish on Ethereum!

Due to SynLev’s unique approach to synthetic assets, you can see the balancing act between BEAR and BULL leverage live at work. The ratio of equity between BULL and BEAR tokens determines the leverage. If more people are holding BULL tokens, the leverage for BEAR increases and vice-versa. Additionally, if the equity for one becomes much greater than the other, penalties and bonuses are given to ensure that leverage stays within an acceptable range. In this case, buying BEAR tokens when equity in BULL is 1.75x would give the buyer a bonus. On the other hand, selling my BULL tokens now given that the ratio so heavily skews towards BULL would incur a penalty. Therefore, going against the crowd is rewarded.

Try playing around with the dApp and see how this dynamic works in real-time.

  1. Connect your MetaMask to Kovan network.
  2. Request some Kovan Ether from the faucet (note: you need a GitHub account to receive any).
  3. Play around with trading BULL and BEAR tokens yourself!

If you have any questions, be sure to stop by our Telegram.

The Pool: Adding and Removing Liquidity

On the top-right side of the dApp, you will see the “Pool” section. There is where users can provide liquidity and earn fees on the platform. In this case, adding ETH liquidity mints ETHBULL and ETHBEAR tokens via the SynLev vault contract. They are also burned when this same liquidity is removed. In the future, there will be more BEAR and BULL tokens for cryptocurrencies aside from Ethereum.

It should be noted that adding liquidity to a pool only earns you fees for that one specific asset pair. Staking SYN earns you the fees for the entire ecosystem — for all pairs.

When adding liquidity, you gain shares. You can see the share price and how many liquidity shares you hold in the ‘Pool’ section of the dApp. If you’re familiar with Uniswap’s “pool tokens,” these function very much the same way.

When adding liquidity, you will see some info change in the “Stats” section at the bottom. In the two pictures below, you can view how the stats changed when 0.9 ETH in liquidity was added.

  • Contract ETH increased because more ETH was added to this SynLev pair.
  • Pair liquidity increased.
  • BULL and BEAR equity both increased because providing liquidity mints both.
  • Leverage for both BULL and BEAR trend closer to 3x as more liquidity is added. This is the decentralized, balancing act in practice.
  • Price changed due to new price data being called automatically from the chainlink price aggregator.
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Adding liquidity will have a far more negligible impact on SynLev’s stats in the future, especially if liquidity reaches levels similar to that of uniswap pairs. We hope to get there sometime soon.

Breaking Down the Stats Section

On that note, let’s properly talk about the Stats section: what does each metric mean? It may seem confusing at first, but everything you need to keep track of SynLev is down here.

Contract ETH: How much ETH is in the SynLev for this particular asset pair.

Liquidity: Total amount of liquidity being provided for this particular asset pair.

BULL Equity: The amount of BULL that is currently held in ETH.

BEAR Equity: The amount of BEAR that is currently held in ETH.

Note: Because BULL and BEAR are fully collateralized, their combined equity equals Contract ETH.

BULL PRICE: How much BULL is currently trading on SynLev for this particular asset pair.

BEAR PRICE: How much BEAR is currently trading on SynLev for this particular asset pair.
BULL LEVERAGE: Potential return of BULL token.

BEAR LEVERAGE: Potential return of BEAR token.

Try It Out for Yourself

Now that you know the basics of how SynLev’s beta dApp works, try it out and experiment for yourself.

With some more tinkering, we hope to have this live soon on Ethereum mainnet.

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Defi Synthetic Leveraged token ecosystem built on Ethtereum and Chainlink oracles

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