Intro to Crypto Synthetic Asset Trading
/ Chris Collins / 04.15.2019 /
Specifically, decentralized exchanges are being developed that focus on synthetic assets for any traditional asset (like stocks and bonds), and support derivatives (such as futures, leverage, and shorting). The counterparty for each trade could be someone on the network, but alternatively a trader could decide to create a bridge between their DEX account and their traditional fiat-based brokerage.
Where is this heading? Truly democratized access to financial markets. Two projects I’ve come across that are working toward this are UMA Protocol and Rainbow Network.
UMA Protocol was co-founded by Hart Lambur and Allison Lu. It takes the approach of creating ERC-20 tokens for traditional assets and managing synthetic exposures via smart contracts and uses DAI for margin on the synthetic tokens. In late March, the team announced the creation of USStocks, an ERC20 representing ownership of the top 500 publicly listed US companies by market cap (similar to a S&P 500 ETF).
See below Twitter thread for a simple example of how a contract would work.
Announced more recently, the Rainbow Network is in development by Dan Robinson, Research Partner at Paradigm. It aims to be implementable on Ethereum or on top of the Lightning Network, allowing for off-chain transactions. Its reliance on payment channels increases throughput and decreases transaction costs.
See below Twitter thread for Dan’s announcement of Rainbow Network.
Today I'm publishing a new design for an off-chain decentralized exchange built on synthetics: the 🌈 Rainbow Network 🌈— Dan Robinson (@danrobinson) March 20, 2019
- Supports any liquid asset (even non-crypto)
- Supports leverage and shorting
- Implementable on Ethereum, or on top of Lightninghttps://t.co/JunlYDqCOE