The trading of futures contracts has undergone a significant evolution over the years. Taking delivery of assets is no longer a requirement for most. This allows for the introduction of synthetic futures, provided by the Synthetix platform.
The Current State of Futures
There are many different platforms competing for traction in the world of Bitcoin futures. Some of these note much higher volume compared to others, but that is to be expected. Competing with these platforms will be challenging, unless one can bring something truly unique to the table. This is where synthetic futures come into the picture, as they are a very different breed altogether.
Compared to perpetual contracts, the Synthetix implementation has a different sort of funding rate. All prices assigned to the synthetic futures are derived from ChainLink oracles. These decentralized sources of price information will ensure traders can be settled at the correct price at all times. Not having to rely on the information depicted by a centralized entity will certainly shake things up in the futures trading market. The funding rate is used to keep debt pool risk down to a bare minimum.
Synthetic futures are interesting because they don’t need a buyer and a seller for every contract. Synthetix allows for the market to be skewed, as there is no need to wait for a counterparty to match orders.
Instead, users are trading against the SNX debt pool. This ensures the demand for directional trades is captured by the debt pool at all times. A higher skew ensures the funding rate paid to the opposite side of the market is much higher than it would be normally.
As is customary when dealing with futures trading, there needs to be a degree of market leverage. Traders can open a position of up to 25x leverage, The team is exploring the option to further increase this limit in the future. Whether that limit will ever be raised, is a different matter altogether. It will all depend on synthetic futures demand, as well as how the overall platform performs.
Fees will only be charged to traders if they increase the market skew through that position. If the skew is uneven, and a position is opened on the lower side of the skew, no fees are charged. However, if the same trader plays both sides at once, they will pay a cost for one of their positions. Reducing positions on the platform is also fee-free.
Liquidating positions will also be very different from normal markets. If a liquidation threshold is crossed, the position will remain open on the market. That will remain the case until a transaction to liquidate the position is submitted. Those who are in charge of liquidating positions are granted an incentive to ensure this occurs as quickly as possible.
Traders can manually close liquidated positions too. There is no way to avoid this fate whatsoever, which is how futures trading is designed to work.
When Will Synthetic Futures go Live?
Given the complex nature of these synthetic futures, there is a lot of work and testing to be done. An incentivized testnet trading competition will occur soon. Opting for this method ensures there are no lingering bugs or exploits.
More importantly, a testnet competition will mimic real-world trading behavior. It is a viable approach, given the risk posed to the debt pool. If all things go according to plan, the testnet launch will occur in September 2020. A mainnet launch can occur as quickly as a month later.
It is expected the futures will be accessible through the Synthetix.exchange dApp. The experience might be slightly modified to accommodate for this new product. During the initial stages, there will only be three markets, Future markets will be added over time. Initial markets include Bitcoin, Ethereum, and ChainLink.
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