Another day yields another earning mechanism in the ever-shifting world of decentralized finance (DeFi), and today’s offering is a leveraged trading platform for Synthetix called Marqet.
The first protocol that combines two foundational DeFi protocols has been announced amid the Uniswap Token hype, which has driven gas prices through the roof again. Marqet takes advantage of DeFi’s composability by creating a new margin trading platform combining Aave and Synthetix.
Synth Margin Trading
The concept allows users to margin trade with long and short positions on any asset available on Synthetix by depositing an initial margin on Marqet and leveraging via Aave funding.
Decentralized margin trading platforms suffer from low liquidity and need enough to cover order books and provide low slippage markets, as large centralized exchanges currently do.
Extremely excited to work alongside people as smart as @Joe_Gerber_ , @bramanathan, @GavinMcDermott, @AndreCronjeTech, @kaiynne, @StaniKulechov and many others. Shaping a new path! https://t.co/KlrYt7qjzj
— Simone Conti (@simoneconti_) September 16, 2020
Three Arrows Capital CEO, Su Zhu, pointed out that DeFi spot markets could soon be on par with or more liquid than CeFi, and margin traders are likely to want the same facilities as they currently get on centralized platforms.
Marqet attempts to solve some of these critical issues related to decentralized margin trading platforms by leveraging Aave, where liquidity providers will be incentivized by additional yields to delegate their credit to the new platform.
Likewise, Synthetix minters will also be incentivized to mint new sUSD and make them available to Marqet traders. Liquidation will not be as painful as on a centralized exchange because the trader’s collateral is sold. However, if liquidity is lacking, slippage will increase.
This means also the liquidators don’t have to provide the funds, they just have to kick the position. A revolution compared to the traditional liquidations.
The announcement added that Marqet would migrate the protocol with Synthetix to reduce gas fees to almost zero, as soon as Layer 2 solutions are implemented.
It should be noted that traditional margin trading is high-risk but has corresponding higher rewards such as amplified returns, portfolio diversification, and asset management efficiency. On the flip side, small movements in prices can result in the rapid liquidation of leveraged positions.
A Fair DeFi Launch?
Marqet will be the first project to run under ‘Fair Launch Capital’, an organization that aims to provide grants through its sponsors to projects, enabling them to have a fair launch.
The team behind the incentive includes some of the top names in the DeFi industry, including co-founder at IDEO CoLab Joe Gerber, Yearn Finance’s Andre Cronje, Kain Warwick from Synthetix, and Aave’s Stani Kulechov.