DeFi Revelations - Synonym Finance

In this episode of DeFi Revelations which took place on August 8, 2024, Kirk from Revelo Intel hosted Beachball from Synonym to discuss the evolving landscape of DeFi, the integration of exotic assets, architectural decisions in building Synonym Finance, the challenges and strategies of operating across multiple blockchains, and more! Read our notes below to learn more.

Background

Kirk (Host) – Head of Business Development at Revelo Intel

Beachball (Guest) – Core Contributor at Synonym Finance

Synonym Finance – a universal multi-chain money market

Cross-Chain Innovation and Strategic Partnerships: Synonym Finance’s Journey

Kirk introduces Beachball, a core contributor to Synonym Finance, a cross-chain lending platform. He expresses excitement about Synonym’s innovative approach, particularly in onboarding exotic assets like GMX LP tokens and enabling cross-chain lending and borrowing.
Beachball shares his journey into crypto, starting from an early interest in Bitcoin, through DeFi summer, and eventually working full-time in the crypto space. He explains his transition from a general VC fund to contributing to various DAOs, including Notional Finance, Jones DAO, and a BD role at LayerZero, before joining the team to build Synonym Finance. He highlights the need for a step forward in the lending and borrowing space, which led to the creation of Synonym.
Kirk asks about Synonym’s relationship with New Order DAO and the origin of their merger. Beachball explains that New Order was an incubation DAO focused on innovative DeFi projects but faced challenges operationally and legally. The merger with Synonym provided an opportunity to pivot and create more value for stakeholders.
Kirk asks about Synonym’s choice to build on Wormhole architecture despite Beachball’s background with LayerZero.
Beachball explains that while LayerZero is respected, Wormhole was chosen due to its comprehensive suite of products, including generalized messaging, the most widely used token bridge, and other tools like Native Token Transfers, Wormhole queries, and automatic relayers.
He highlights that the availability of these tools from day one was crucial for building Synonym’s complex product. He also praises Wormhole’s supportive engineering team and community, which played a significant role in their decision.

Exploring Synonym Finance’s Architecture: Hub and Spoke vs. Point-to-Point Models

Kirk dives into the architecture of Synonym Finance, asking Beachball about their decision to use a hub and spoke model versus a point-to-point model.
Beachball explains that they chose the hub and spoke model for security and stability reasons. He highlights that in a point-to-point model, the exponential growth in tracking interest rate pairs between numerous assets could lead to desynchronization, bad debt, and potential protocol failure. The hub and spoke model, by contrast, allows Synonym to manage all pairs, balances, and states centrally, reducing these risks.
However, he notes that this model can be slower, especially when transactions involve cross-chain messaging. They are working on an upgrade to reduce wait times, particularly for smaller transactions.
Kirk asks about transaction times, particularly when initiating transactions from Arbitrum compared to other chains.
Beachball confirms that transactions initiated on Arbitrum are faster, as they don’t require cross-chain messaging. However, for transactions involving multiple chains, there is a delay. He mentions an upcoming upgrade that will allow them to front assets up to a certain limit, reducing the perceived wait time for users.
Kirk then asks about the competitive landscape in the cross-chain lending space, mentioning recent developments like Tapioca.
Beachball acknowledges that while there are strong incumbents like Aave and new players like Radiant, Synonym differentiates itself by focusing on a more familiar lending market experience with advanced underlying technology. He notes that competition is healthy and that different protocols may cater to different user needs, particularly those interested in more exotic assets.
He also highlights the importance of balancing risk with the desire to onboard diverse assets, which can provide an edge in the competitive landscape.
Kirk agrees, pointing out that protocols offering more exotic assets while managing risk effectively might gain a competitive advantage, especially as traditional assets are well-covered by entrenched players like Aave.
Beachball explains that Synonym works closely with Gauntlet to assess risks and set parameters for lending and borrowing. They rigorously evaluate on-chain liquidity conditions across all relevant chains before listing an asset. This comprehensive approach helps ensure that they can liquidate positions effectively, maintaining protocol security.
Kirk asks about future asset listings that Synonym is keen to onboard.
Beachball mentions that Pendle PT assets are high on their list, though they are exploring ways to manage the expiration challenges associated with these assets. He also discusses their interest in listing Ethena stables and additional large liquid staking tokens (LSTs) like $SOL once their Solana deployment is ready. He encourages users to suggest assets in their Discord, noting that user feedback has already influenced asset listing decisions.

Exploring Synonym Finance’s Strategic Deployment

Kirk then asks about the integration of LP tokens, particularly GMX LP tokens, into Synonym Finance. He wants to know what challenges are involved in adding these types of assets to the platform.
Beachball explains that the primary challenges with integrating LP tokens are related to Oracle availability and the ability of liquidators to efficiently unwind these positions. He mentions that GMX assets were integrated because they offered deep liquidity, robust Oracle support, and technical backing from the GMX team.
He also notes that not all LP tokens are suitable for integration, especially if there’s limited liquidity or complex cross-chain mechanics that could hinder liquidation processes.
Kirk asks what criteria Synonym considers before expanding to new chains, especially with the multitude of options available in the market.
Beachball responds that Synonym looks at user demand, TVL growth, and the quality of the underlying assets on a chain before deciding to deploy. He highlights the importance of deep stablecoin liquidity and active participation from cross-chain farmers.
He adds that while being a first mover on a chain could be beneficial, Synonym’s stringent security and liquidity requirements often make this challenging. Additionally, community interest and excitement around a chain, such as those seen with Monad or Berachain, are increasingly important factors in their decision-making process.
Kirk also inquires about Synonym’s approach to handling assets on emerging chains, noting the integration of Scroll. Beachball explains that Scroll’s inclusion was based on its potential for growth and the flexibility Synonym provides to users wanting to capitalize on new chain opportunities without selling their assets.
Kirk brings up Synonym’s token $SYNO, asking about its role and utility within the ecosystem.
Beachball explains that Synonym’s token $SYNO is primarily used for fees and governance. From day one, fees generated from the protocol’s operations have been distributed to token holders in $ETH. Users can maximize their earnings by locking their tokens into $vlSYNO, which provides a larger share of fees based on the duration of the lock. The governance aspect allows token holders to vote on and approve proposals, with plans to further decentralize decision-making over time.
He highlights the importance of balancing fee distribution with the growth needs of the protocol, ensuring that incentives align with the long-term health of the platform.

DeFi Evolution: Balancing Development and Risk Management in Cross-Chain Protocols

Kirk asks Beachball about the potential risks and fallback measures in case of issues with cross-chain messaging providers like Wormhole.
Beachball explains that Synonym Finance’s hub and spoke architecture provides an advantage in handling worst-case scenarios. If Wormhole were to experience a critical failure, the centralized hub would allow them to manage liquidations and potentially switch to another messaging provider. This is contrasted with the point-to-point model, which would be more complicated to manage in such a scenario.
He also mentions that Synonym is building an insurance fund from fees, although it’s still in the early stages. Additionally, they plan to implement multi-messaging support as a fallback measure in the future, with Oracle support from Pyth, Chainlink, and Redstone already in place.
Kirk asks Beachball about the most exciting upcoming developments for Synonym.
Beachball enthusiastically discusses two key features: optimistic finality and the Solana launch. Optimistic finality will significantly reduce cross-chain transaction wait times to almost nothing for most users, enhancing the user experience. The Solana deployment will allow users to remotely borrow against their LRTs into $USDC on Solana, eliminating the need for token bridges or centralized exchanges. He expresses excitement about these upgrades, which he believes will offer a compelling improvement in both user experience and functionality.

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Show Information

Medium: YouTube (Video)

Show: Revelo Intel – DeFi Revelations

Show Title: Synonym Finance: The Ultimate Universal Money Market

Show Date: August 8, 2024