- by @yamete699 as a casual writer for blocmates - written 5/10/2023
Disclaimer: This writing is purely for entertainment purposes only and not financial advice. Views expressed are solely my own. I do not currently own any SNX tokens.
Introduction
The last two years of the bear market have seen massive growth in volume, protocols and innovations happening in the perpetual futures (perps) derivative sector of the DeFi ecosystem. The race to dominate this sector was led by the launch of dYdX in 2021 to much fanfare, then the baton passed to GMX who had every DeFi enthusiast absolutely giga-simping over their impressive growth and god-tier tokenomics design.
Today, the success of GMX has inadvertently spawned many GMX-like bastards looking to seduce traders and their liquidity. While many traders have successfully fallen head-over-heels for these new curvaceous yields, these pretenders are merely inferior imitations that offer little innovation to compete with centralised giga-giants Binance and Coinbase.
A new competitor at the starting line set to join this race is Infinex by the Synthetix (SNX) team. This new decentralised perps trading exchange is looking to bring on-chain perps to the masses by offering one key yet simple innovation; a superior centralised-like user experience unrivalled within the current decentralised trading space.
Let’s dive in.
The lay of the land… just trust me, bro
The global crypto trading market is dominated by two behemoths; Coinbase and Binance. These titans have many things in common but chief among them are; their founders are both bald, and they are very centralised.
These two exchanges have amassed their large user base by being early innovators and pioneers. Other than deep liquidity, they have kept these users loyal over the years by offering a sleek, smooth and silky user experience. Say what you will about Emperor CZ but Binance is by far the best trading platform I have ever used. The only problem is you have to kneel and submit before the throne of centralisation and trust that his empire is solvent and legitimate.
Throughout 2022, our industry has learned harsh lessons about trust and legitimacy. Do Kwon, Su Zhu, Kyle Davies, and lastly He-Who-Shall-Not-Be-Named were trusted people counted amongst the very upper echelon of crypto nobility. These chosen ones were meant to be our saviours, instead, they were unmasked as (in some cases, allegedly) charlatans and fraudsters.
Given past trauma, there is a growing appetite for transparency, trustless trading and especially decentralised perps.
Size and numbers
Everyone knows that one of the most profitable businesses in crypto is exchanges. They are cash cows with clear product-market fit and revenue streams. Due to the opaque nature of centralised entities, we cannot know for sure exactly what their revenues are but we can conservatively say it's in the billions given their volumes.
Sourced from @picoloresearch on Twitter, courtesy of Laevitas
When we peer into the decentralised space with the power of blockchain transparency, we can see both volume and revenue (fees).
Sourced from @picoloresearch on Twitter, courtesy of Token Terminal
Volumes are under $10bn a month which is not bad for a young and fledgling industry but tiny compared to who we want to supplant. There’s market share out there and it’s ripe for taking.
What’s the problem
The two colossal advantages that centralised perps have over their decentralised counterparts are:
1) Liquidity, and
2) User experience
In this piece, we’ll be mainly focusing on user experience.
In my opinion, user experience is one of the most important drivers of mass adoption. Yes, it seems simple and obvious but somehow in crypto we just keep building things that are very complex.
Let’s be real, the vast majority of on-chain apps are slow, clunky, expensive and difficult to use. It requires at the very least, a fundamental understanding of the different crypto networks, bridges, keys management, wallet safety etc. This poor user experience results in users rug-pulling themselves by phishing scams or simply sending tokens to the wrong address or wrong network.
In regards to the shortcomings of decentralised perps specifically:
- Outages; some protocols literally do not work during periods of high volatility!
- Scattered liquidity and chains; require connecting, bridging, and depositing to various home chains of chosen perps exchange.
- Signing friction; having to sign a wallet transaction every time you either log on, open the app, open a trade, close a trade etc.
- Lack of professional trading tools; advanced order types, one-click take-profit and stop-loss, on-chart order adjustments, advanced cross margin etc.
Crypto natives have accepted and adapted to these inefficiencies, however, to push mass adoption we need simplicity.
Infinex fixes this
“Infinex's ethos is simple: nothing is sacred but the user experience. The objective is to erase any doubts about whether decentralised Perps can compete directly with CEXs.” Infinex Founder, Kain
To understand Infinex we first must talk a bit about its parent protocol.
Synthetix (SNX) is a back-end liquidity protocol founded by Kain Warwick (famous for his enjoyment of Australian mansions) during the 2018-19 bear market. The protocol allows users to stake their SNX tokens to mint synthetic assets. These “synths” assets are then used to provide liquidity for a plethora of front-end derivatives protocols such as Kwenta, Lyra, Thales and many more.
Infinex is the latest protocol in their ecosystem built specifically to tackle the user experience problem. The goal is to abstract all the friction inherent in blockchains into the background to provide a seamless trading experience.
Sneak peek at the Infinex user interface:
How does it work?
Infinex’s core piece of innovation aiming to provide a superior user experience is centred around email/password sign-up and login. This is something the masses use every day and are familiar with and helps abstract the complexities of the blockchain into the background.
- No need to sign every action with a wallet
- Automatically source liquidity across chains
- Ability for high performance and stability in periods of volatility
- Advanced trading tools/order types
- Withdraw passwords and whitelist
- 2FA/email authentications
The process:
- Users sign up and log in with email
- Public-private key is generated and stored client side in the browser, this is used to sign transactions but cannot withdraw funds
- A unique deposit address is generated for the user (USDC, USDT, sUSD compatible), these funds are swept into the margin pool controlled via governance.
- A margin address and account are created on Optimism. Funds verifiable on-chain. Traders use USDC/T as margin and Infinex loans them sUSD to trade.
- Users choose the market, leverage and click buy/sell.
Oh no! Decentralisation and tech maxis look away! This is not pure decentralisation as many of these features are done off-chain. While this is true, all money-related actions such as deposits, withdrawals, trade execution and liquidity sourcing are executed on-chain. The verifiability of the blockchain provides transparency to remove fraud risks that are prevalent in the centralised world.
This is a hybrid model combining the best of both worlds. Trade-offs are made to achieve high performance.
Tokenomics, value accrual
A very important topic brypto people look at when pondering investability. “Okay, bro, sounds good and all but what does the token do and how can I benefit?”
Good question! Kain (founder) has explicitly said that there is no Infinex token. The protocol will be governed by SNX with fees and value accrual flowing back to SNX holders and stakers. Essentially the Infinex token is the SNX token.
Infinex revenue is accrued via:
- Incremental trading fees
- Integration fees via SNX integration program
- Fees from SNX LPing
All revenues will be used to accumulate SNX tokens to LP and increase liquidity. This is essentially a traditional buy-back except the tokens are staked to provide utility instead of being burned. I foresee the beloved fLyWhEeL effect being formed.
Everyone loves a good flywheel!
Hopium time
The chads over at Picolo Research also did some fine analysis. If we assume that crypto is not dead, and the DeFi sector continues to grow in users and volume with SNX taking a leading role, it makes sense for the value accrual mechanism to work its magic and push SNX higher over the years.
Sourced from @picoloresearch on Twitter
At the time of writing the price is $2.00.
Counter thesis
What’s the FUD?
The first risk is inherent in all crypto protocols and that is smart contract and exploit risks. Mistakes and bugs in the code happen all the time and often have devastating effects. SNX is going through a protocol upgrade with launching V3 which can elevate this risk.
Secondly, there is a constant regulatory risk. Ambiguity exists about SNX token being a potential unregistered security especially with fee generation and value accrual bringing it within the domain of the Howey Test (who knew that sound tokenomics and revenue sharing would be bearish!).
Liquidity remains a problem when trying to attract the biggest whales. Since liquidity is sourced from SNX stakers, this means the size of the liquidity is capped by the number of stakers and the market cap of SNX. The buy-back and stake will help but the team also plans to allow ETH staking as well.
Wen launch?
Based on recent discord calls and publicly available information, the closed alpha of Infinex should go live in late October or early November 2023 with the open beta a few weeks afterwards.
One painful lesson I have learned in crypto over the years is to never trust the dev’s timeframe. Personally, I add between three weeks to three months (depending on past records) onto their given launch dates.
So in my opinion December 2024 or Q1 2024 seems more likely.
Thesis summary
- Centralised exchanges are too risky but they have god-tier user experience
- Need to move to decentralised exchanges but they suck
- Enter Infinex and SNX, combining the best of both worlds, hybrid product
- If crypto doesn't die and DeFi continues to grow then…
- Infinex and SNX will continue to grow in users and volume too (take CEX market share)
- Volume drives up revenues, buy-backs and SNX price
About and references
If you enjoyed this one, go and give the legend a follow on Twitter @Yamete699 and of course, catch more of his work on blocmates.com.
- @picoloresearch on Twitter
- Derivatives data https://app.laevitas.ch/home
- https://mirror.xyz/kain.eth/NHmuyvkRPXB4ck7R38v_ityer-VMZAaIwLGHu1hIDtE
- Infinex https://twitter.com/infinex_app
- Kain https://twitter.com/kaiynne
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