Discussion Thread: Use synthetics for collateral to avoid centralization risks

I think synths can be used if there is demand from synth holders to take loans against their synths. If we add synths, I would propose:

  • Slightly worse than standard collateralization (so sETH would be ~175% instead of 150%)
  • Low debt ceiling
  • Reasonable risk premium (due to the admin key + fundamental architecture flaws)

I think the risk here is not short term volatility but more-so synths collapsing to zero due to the system collapsing. I have plans to write-up my concerns in long form but here are some in dot point:

  • Admin key
  • Chainlink oracle, N of M multisig oracle with no OSM
  • No pricing guarantees (no funding payments, or settlement)
  • No liquidations for undercollateralized positions, related to no pricing guarantees.

While I have a pessimistic outlook on Synthetix, there could be demand for long-term hold tokens (sXAU, synthetic shares, sDEFI etc). I just wonder if its worth the tech cost of supporting if we can’t offer very attractive parameters (due to the risks)

1 Like

I guess that does bring up a good point. Is there a way for us to measure demand there? I imagine most synth holders don’t really follow what’s going on in the makerdao governance forum.

I do agree that there’s some issues, snx black swan feedback loops.

Also, I’m not sure if anything maker can offer will even be attractive [i.e low demand]. Synthetix may be able to offer more attractive leverage options from within their ecosystem. They’ll also be setup to do automatic liquidations using the synthetix exchange.

They’ll probably be able to offer a 120% margin requirement or better.

Based on what OliverNChalk has said about the synthetix protocol it sounds to me like it is WAY too risky to onboard these as collateral. A lack of a clear incentive mechanism to keep the peg on synthetix is terrifying.

Even if this did give us a token with perfect negative correlation to eth it just doesn’t seem worth it. Onboarding collateral types like this is also likely to increase demand for them, which means there will be more people using these synthetix tokens who do not understanding the risks they are subject to, which could cause a situation very similar to the current Black Thursday liquidation issue if something ever went wrong.

1 Like

I’ve always viewed SNX as a perpetual motion machine. The self-referring collateral design scares me


Inverse synths (iETH etc.) have limits of how much their price can move before they need to be “reset”. Not a huge fan of this design.

I think short perpetual swap products from futureswap/dydx etc may be more promising. https://integral.dydx.exchange/comparing-perpetual-markets/