Synonym Finance joins $22bn DeFi money market with Ethereum, Arbitrum, and Optimism launch

DeFi loans are a $22 billion market (almost half the total DeFi market size), but much of that liquidity is isolated in native protocols of different blockchains.

Synonym Finance launched on Tuesday and aims to solve just that.

While the ultimate goal is universal DeFi money market liquidity, the cross-chain protocol says it will only link to “high-quality ecosystems.”

“We are launching Ethereum, Arbitrum and Optimism, all very high-quality ecosystems,” said Synonym Finance pseudonymous founder 0xbeachball. DL News.

0xbeachball has previously contributed to LayerZero Labs, developers of the DeFi interoperability protocol of the same name and the Notional Finance crypto lending app.

"Our thresholds for inclusion in our markets are extremely high: we will not connect to poor networks."

— 0xbeachball, co-founder of Synonym Finance

The Ethereum, Arbitrum, and Optimism lending market size is $11.9 billion, more than half of the DeFi lending market. Most of that sum is in Ethereum.

Those three blockchains are also EVM networks. EVM stands for "Ethereum Virtual Machine" and describes a class of blockchains that use smart contract logic similar to that of Ethereum.

0xbeachball, however, added that support for Solana is in the works.

This would allow users to take out collateralized loans on EVM chains and deliver USDC liquidity to DeFi protocols on Solana.

While cross-chain lending is relatively new to DeFi, Synonym Finance is not alone.

Lending giants like Aave and Compound have already launched new versions that enable cross-chain lending – borrowing cryptocurrencies on one blockchain to get collateral posted on a different network.

USDC gets the nod

For Synonym Finance, the USDC liquidity migration is crucial to its focus on unifying DeFi liquidity. The protocol plans to achieve this goal through a bridge version of USDC called CCTP-enabled USDC.

The CCTP bridge allows users to transfer tokens, in this case USDC, across blockchains.

The USDC that is sent is natively minted on the sender's blockchain and an equivalent amount of USDC is natively minted on the receiver's blockchain.

“We are planning to support blue-chip assets and stablecoins like USDC in the future, which can provide higher quality collateral in terms of stability and depth of liquidity,” 0xbeachball said.

Security concerns

While most developer activity has became multichainuser participation last year was still mainly transactions on a single chainaccording to a recent report from crypto intelligence company Flipside Crypto.

Users who transacted cross-chain mostly did so to position themselves for airdrop opportunities.

But while protocols like Synonym Finance are pushing users to do more cross-chain activities, the security risks of a multi-chain world are high.

Some of the biggest hacks in the industry have occurred through exploits in different cryptographic bridges.

In 2022, for example, Chainalysis reported that $2 billion had been lost due to the exploits of the chain bridge. The Heco bridge was attacked $86 million in 2023.

Cross-chain money market operations further focus on transaction ordering, dynamic pricing, and interest rate rebalancing, which are essential to preventing bad debts in DeFi lending positions.

Crypto collateral is volatile and price swings affect supply and demand.

Trading robots also target this volatility for arbitrage opportunities that can be exploited for profits through specially ordered transactions on the blockchain.

0xbeachball said that current cross-chain lending protocol designs have failed to address these issues, but Synonym Finance has a solution.

“We are built on a hub and spoke model with a hub that lives in Arbitrum,” said 0xbeachball. “All rate pairing, rebalancing and ordering is done at the hub and subsequently communicated to the spokes.”

Since all operations occur in a single center, coordination across the system is easier, 0xbeachball said.

No airdrop

Regarding airdrops, 0xbeachball said that the project will not take the beaten path of initiating user participation via any airdrop reward.

The protocol will seek liquidity by encouraging users to lock their deposits into the protocol for yield.

“For us, the early liquidity of the system and the clear proof of utility that Synonym provides are best served by users who participate from the day,” one0xbeachball said.

Osato Avan-Nomayo is our DeFi correspondent based in Nigeria. Covers DeFi and technology. To share story tips or information, contact him at osato@dlnews.com.