What is Synonym Finance? The Universal Cross-Chain Credit Layer

The cross-chain lending sector remains underdeveloped despite significant investments in lending primitives and cross-chain infrastructure. Few solutions offer a user-friendly cross-chain money market with access to desirable chains and assets. Recent advancements in cross-chain DeFi, including leverage-focused and stablecoin-centric protocols, show promise but still leave a gap for a flexible cross-chain money market.

Synonym aims to fill this gap by providing a highly flexible cross-chain lending protocol that delivers liquidity and borrowing volumes into new ecosystems. As inter-rollup and appchain-specific transactions grow, especially among power users, Synonym is positioned to meet these demands.

What is Synonym?

Source: Synonym website

In decentralized finance (DeFi), professionals are constantly seeking efficient and seamless ways to manage their assets across multiple blockchains. Enter Synonym, a universal cross-chain credit layer designed specifically for the needs of busy DeFi professionals. Synonym is pioneering a new era of cross-chain lending and borrowing, delivering the streamlined, user-centric experience that the DeFi community deserves.

Powered by the robust Wormhole cross-chain technology stack, Synonym enables users to earn yield, borrow, repay, and withdraw assets from any blockchain through a single, unified interface. This means no more juggling multiple platforms or dealing with the complexities of wrapping, unwrapping, and swapping cross-chain assets. Synonym’s innovative approach ensures that all transactions are truly cross-collateralized. Users can leverage collateral from one chain to borrow on another, seamlessly integrating multiple blockchain ecosystems without additional steps or applications.

One of the key advantages of Synonym lies in its use of advanced technologies to enhance performance and user experience. By leveraging the unique strengths of Arbitrum, a leading layer-2 scaling solution, and Circle’s Cross-Chain Transfer Protocol (CCTP)-enabled USDC, Synonym ensures fast, efficient, and secure transactions across its platform. This integration not only boosts the overall performance but also provides users with deeper liquidity and unmatched cross-chain efficiency.

As the DeFi sector continues to grow and mature, the need for a highly flexible, cross-chain money market becomes ever more apparent. Existing solutions often fall short, burdened by aging architectures and fragmented liquidity, resulting in subpar user experiences. Synonym addresses these challenges head-on with its modernized cross-chain architecture, positioning itself as the go-to platform for DeFi professionals seeking to maximize their opportunities across multiple blockchains.

Architecture of the Synonym Protocol

Hub & Spoke Model

Synonym leverages a distinctive hub-and-spoke architecture for its cross-chain money market, designed to scale efficiently across multiple blockchains. This approach contrasts with the more conventional point-to-point model, where each chain operates independently, and Wormhole messages facilitate accounting. In the point-to-point model, assets remain on their native chains without wrapping, but the need to maintain synchronized states across chains introduces complexity and potential errors, particularly with interest rate calculations that depend on user behavior.

In the hub-and-spoke model, Synonym centralizes either accounting or liquidity on a single hub chain, with spoke chains handling either accounting messages or wrapped token transfers. This hub chain serves as the authoritative source of state information, ensuring that all updates are atomic and synchronized. For example, if a user deposits ETH on an Ethereum spoke and borrows SOL on a Solana spoke, the hub manages all accounting, ensuring seamless state updates and eliminating asynchronicity issues.

The hub-and-spoke model addresses the challenges of the point-to-point model, where the protocol must continually update and synchronize interest indices across chains. In a point-to-point setup, any cross-chain borrow or repay action requires precise synchronization to prevent errors, as states are not updated atomically. This makes the process prone to miss sequencing and requires enforcement of sequential processing of messages.

By centralizing these operations on a hub chain, Synonym ensures that all transactions are handled more efficiently. Users might need to wrap and unwrap assets when moving them between chains, but this process is managed seamlessly through the platform’s frontend. This design simplifies cross-chain operations, providing a more robust and user-friendly experience.

Wormhole Integration

Synonym is built on the powerful Wormhole xChain technology stack, enabling seamless cross-chain transactions via scalable and secure generalized messaging technologies. Supported by the Wormhole Foundation, which is dedicated to expanding the Wormhole ecosystem, this technology stack facilitates integration across dozens of chains. Synonym chose Wormhole over competing messaging technologies for several key reasons:

• Transparency: Wormhole is entirely open source and developed transparently. Competing messaging solutions often lack this level of openness, featuring opaque validation libraries and mechanism designs. Wormhole’s Guardian system, built in the open, provides clear and well-understood validation processes.

• Security Improvements: Wormhole has significantly enhanced its security practices, introducing features such as global accounting, rate limiting, and system governors. These improvements have mitigated previous risks, making the system more robust and secure.
• Connectivity: Currently connected to 29 blockchains with ongoing expansions, Wormhole supports Synonym’s focus on inter-rollup transactions and modularity. This high degree of connectivity is crucial for Synonym’s architecture, enabling extensive cross-chain interactions.
• Catalysts: The Wormhole ecosystem is poised for substantial growth, driven by initiatives from the Wormhole Foundation. As a leading protocol within this ecosystem, Synonym stands to benefit directly from these developments.

Features of the Synonym Protocol

Synonym offers a range of advanced features tailored for DeFi professionals which are now live and accessible.

Supplying

To supply assets, navigate to the “Portfolio” or “Markets” pages and select “Supply” for the desired asset. Choose the chain and amount, then submit your transaction. Due to the cross-chain nature of Synonym, transactions from chains other than Arbitrum may take up to 20 minutes, though future optimizations aim to reduce this time significantly.

Source: Synonym Whitepaper

Source: Synonym Whitepaper

Supplying USDC

Thanks to Circle’s Cross-Chain Transfer Protocol (CCTP), Synonym enables seamless USDC transactions across supported chains. For instance, users can supply USDC on Arbitrum even if their balance is on Ethereum, without needing separate bridging and deposit steps.

Collateral

All supplied assets are automatically used as collateral. If you prefer not to use certain assets as collateral, consider using a different wallet. The collateralization ratio indicates the safety of your deposits against borrowed assets. At a 100% ratio, liquidation occurs.

Earnings

Suppliers earn interest payments based on the average borrow rate and utilization rate. Each asset’s annual percentage yield (APY) varies according to its unique interest rate curve and market demand. Detailed APY information is available on the Markets Page.

Supply Limits

There are no minimum supply amounts, but be mindful of gas and relay costs. Each asset has a maximum supply limit for risk management, detailed on the Markets Page.

Withdrawing

To withdraw assets, go to the “Portfolio” page and select “Withdraw” under the desired asset. Note that withdrawing reduces collateral, potentially increasing the risk of liquidation if you have borrowed assets.

Borrowing

Before borrowing, supply any asset as collateral. Synonym’s cross-chain collateral functionality allows borrowing on any supported chain without bridging. Select the asset and chain, then set the borrowing amount based on available collateral.

Managing Collateralization Ratio

Your collateralization ratio fluctuates with the value changes of your supplies and borrows. A higher ratio lowers liquidation risk, while a lower ratio increases it.

Repaying

To repay a loan, go to “Portfolio” and select “Repay” under Borrowed assets. Repay with the same asset and chain you borrowed from.

Repaying USDC

Synonym’s integration with Circle’s CCTP also simplifies USDC loan repayments across chains, bundling bridging and repayment into one transaction.

Interest Rates

Borrowing interest rates depend on the asset’s utilization rate and its unique interest rate curve. For detailed information, refer to the Markets page.

Circle CCTP: Enhancing Stablecoin Liquidity

Circle’s Cross-Chain Transfer Protocol (CCTP) significantly boosts stablecoin liquidity within the Synonym protocol. CCTP is a permissionless on-chain messaging system that securely facilitates USDC transfers between blockchains through native burning and minting.

By integrating CCTP, Synonym enables native minting and burning of USDC, allowing for cross-chain pooling of liquidity. USDC supplied from any network is pooled on the Arbitrum Hub, unifying liquidity and addressing fragmentation. For example, USDC supplied on Optimism is instantly bridged to Arbitrum, making it available for borrowers across all supported networks. This unified pool enhances asset utilization efficiency and provides more predictable interest rates.

Source: Synonym Whitepaper

Debt Pricing & Risk Management

Synonym employs a confidence-interval pricing approach to manage cross-chain liquidations during periods of volatility.

Confidence Intervals & Asset Looping

Pyth oracles, used by Synonym, implement confidence margins, which differ from other providers. These margins are subtracted from deposit values and added to debt values, potentially leading to liquidations even when borrowing the same asset during high volatility. This approach accounts for cross-chain communication and messaging delays, ensuring proper liquidation processes and mitigating the risk of bad debt.

Formula Explanation

The collateral and debt prices are adjusted based on confidence intervals to manage volatility:

• Collateral price: “price - 4.24 * confidence”

• Debt price: “price + 4.24 * confidence”

For example, if the ETH price is $3240.699 and the confidence is $2.624, the prices are adjusted as follows:

• Collateral price: $3229.573

• Debt price: $3251.825

During high volatility, the confidence intervals widen, increasing the difference between collateral and debt prices. Users are advised to maintain a high collateralization ratio to account for these fluctuations.

Synonym Tokenomics

Source: Synonym Whitepaper

Token Distribution

Synonym’s native token, $SYNO, is a fungible utility token used within the protocol. With a total supply of 800M $SYNO, the token is allocated as follows:

• Existing Supply (tSYNO): 38% of SYNO tokens are allocated to existing NEWO holders, convertible on a 1:1 basis with a mandatory 15-month staking period. Early unstaking incurs a penalty, starting at 90% and decreasing linearly.
• Reserve (7%): Reserved for unexpected opportunities and growth costs, ensuring flexibility for strategic initiatives.
• Ecosystem (5%): Dedicated to ecosystem support and partnerships, supplementing regular emissions.
• Emissions (20%): Distributed to drive adoption and usage, with ongoing distributions planned.
• Team (20%): Allocated to the Synonym development team, which comprises experts from diverse DeFi sectors.
• Early Purchasers (10%): Set aside for early investors to support initial funding.

Circulating Supply Dynamics

The design ensures that not all tokens will be in circulation simultaneously, maintaining a balance between liquidity and scarcity to support the token’s value. The allocation strategy is crafted to promote sustainable growth and active participation in the Synonym ecosystem.

Utility and Incentives

SYNO is integral to Synonym’s ecosystem, providing economic incentives for user participation. Users earn SYNO through their activities, ensuring a fair distribution based on actual contributions. The token is a utility asset within Synonym, without conferring ownership rights or financial returns.

Synonym Governance Approach

Synonym Finance DAO’s governance framework is designed to ensure clarity and inclusivity in decision-making processes, fostering a community-first approach.

Governance Structure

The governance framework outlines processes for proposing and voting on changes within the DAO.

Phase 1: Synonym Board Meeting (SBM)

Proposals begin in the SBM phase, posted on the Commonwealth forum for feedback. This phase lasts a minimum of 24 hours, with a recommended 48-hour discussion period. DAO members are encouraged to provide feedback, suggestions, and concerns.

Phase 2: Synonym Board Proposals (SBP)

After the SBM phase, proposals move to the SBP phase, where they are finalized and reposted on Commonwealth with any necessary revisions. They are also posted on Snapshot for a vote, with a 48-hour minimum and a 72-hour recommended voting period.

Phase 3: Implementation

If a majority of Snapshot votes are in favor and the quorum is met, the proposal is implemented. If not, the proposal is closed and not implemented.

Proposal Removal

Proposals deemed unreasonable or disruptive will be removed to maintain a positive and productive environment.

Types of Proposals

• Updating risk parameters of an asset

• Listing or removing an asset

• Allocating $SYNO emissions to an asset

• Updating SYNO/tSYNO/vlSYNO tokenomics

- Other proposals contributing to protocol growth.

How to buy $SYNO on Gate.io

Purchasing $SYNO on Gate.io involves a series of straightforward steps. Here’s a simplified guide to help you through the process:

1. Create an Account: If you haven’t already, sign up on Gate.io. Ensure you complete all necessary security verifications for your account.

2. Deposit Funds: Deposit funds into your Gate.io account using cryptocurrencies you already own or by purchasing crypto directly on the platform using fiat currency.

3. Search for $SYNO: Once your funds are available, navigate to the ‘Spot Trading’ section and search for the $SYNO token.

4. Place an Order: Decide on the type of order you want to place. A ‘limit order’ allows you to set the price at which you want to buy $SYNO, while a ‘market order’ will purchase at the current market price.

5. Confirm the Order: After setting the amount of $SYNO you wish to buy and the price, confirm your order.

6. Check Your Balance: Once the order is executed, check your balance to ensure that your $SYNO tokens have been credited to your account.

Conclusion

Synonym is not just another DeFi platform; it is a groundbreaking solution that simplifies and enhances the cross-chain financial operations of DeFi professionals. By providing a comprehensive, user-friendly interface backed by cutting-edge technology, Synonym is set to revolutionize the way users interact with and benefit from the DeFi ecosystem.