Maybe one of the best use cases in the DeFi ecosystem — synthetic assets, saw an increase in competition, as two new synthetic asset projects set their eyes on improving scalability and bringing new markets to seasoned traders.
Decentralized derivatives exchange Injective Protocol, for example, launched a 24/7 synthetic gold market, working on Injective’s Solstice layer-2 testnet since 4th December. Injective’s Head of Business Development, Mirza Uddin, noted that “it’s fairly interesting to explore gold for the first commodity futures on Injective because Bitcoin and Gold have fairly interesting market dynamics,” adding that “it’s natural to introduce that dynamic to the DeFi space.”
However, synthetic assets have to deal with a massive bottleneck, which is the provision of enough initial liquidity. To provide liquidity for synthetic assets that track real-world assets, an already established pool needs to be created in order to accommodate for price fluctuations. Injective Protocol tackled the problem with their decision to onboard well-funded investors as early synthetic asset users.
“We will first onboard our investors who are also market makers and build up strong liquidity support across all markets. So, we will first bootstrap liquidity with our existing investors. Our upcoming liquidity mining mechanisms will also further incentivize market makers to join the platform and create the most competitive spreads,” Uddin stated.
Injective’s new synthetic asset launch comes after the introduction of another synthetic asset platform, dubbed the Mirror Protocol. As of now, Mirror Protocol focuses on US technology stocks. The new synthetic asset protocol, however, requires a 150% collateralization in order to mint synthetic assets like mAAPL, for example. The network is created on top of the Cosmos blockchain.
The competition in the synthetic asset space caused the leader in the sector, Synthetix, to host a series of upcoming network upgrades, which are aimed at overcoming the current bottlenecks in the synthetic asset space. Synthetix, joined by other big players in the DeFi realm all plan to launch layer-2 scalability solutions, which would ultimately be a direct competitor to Ethereum, crypto analysis company Messari notes.
“Those snake-bitten by rising fees will inevitably explore alternative platforms with better transaction throughput and lower fees if they haven’t already,” Messari concludes.
Currently, there are $850 million in total value locked on Synthetix, according to their website.