Trading in the world of cryptocurrencies is what actually has driven much of innovation happening on-chain.
At first, Man created Bitcoin. Later on, man traded Bitcoin. Being a (crypto)currency, Bitcoin gained value the more it was traded. Blessed with an increasing rate of scarcity, Bitcoin was gaining more and more value as demand increased, leading to the development of many centralised exchanges (CEX).
Enter Ethereum. The future of blockain brought with it the innovation of the Ethereum Virtual Machine and smart contracts. Now people could exchange assets in a trustless manner. In the old days you had to use a CEX or trade with trusting participants. Not so much anymore.
Now you can trade inside the Ethereum chain (and inside BINANCE chain and other chains that support smart contracts).But you couldn't still trade your ETH for anything else than what tokens the smart contracts issued, and you could not sell it for BTC because every chain is limited into itself, like a little universe. Not until the core innovation that was the concept of wrapped assets (1)
With the wrapped assets holding a peg to a store of value, the Decentralised Exchanges (DEXes) (2) built online with smart contracts, people could trade wBTC against wETH or other tokens as they pleased without the need for a CEX. This lead to new methods of financial distribution since the DEX would function with Liquidity Pools (LP) that are funded by users in a decentralised manner.
Along of course came problems of exploits in smart contracts, problems with available liquidity on certain projects and high spreads, and also problems concerning price manipulation of the Automated Market Makers (3)
Problems concerning liquidity where difficult to overcome, as where problems with pegging of the synthetic BTC. Another critical matter was how to use advanced financial instruments such as futures and options through a DEX.
Synthetic asset protocols aimed to solve both problems at once: By issuing a synthetic asset via a contract, along with the usage of an Oracle price feed (4)
Synthetic assets where afflicted with their own set of problems, namely capital efficiency due to overcollateralisation, leverage/deleverage spirals and nature of the collateral placed.
In the meantime, developers try to test the idea of cross-chain interoperability. A DEX that can accept native coins and trade them with each other, effectively merging those universes together. Thorchain is one such example.
Cross-chain interoperability means that you can hold native BTC and gain interest in it, along with holding native BNB or ETH and trading between them as you please, without being limited to one chain, and without the risk of a peg missing in one of the assets. The pegs are guaranteed to be followed at all times. Cross-chain bridges in protocols can let you transfer your wealth from one chain to another, something that synthetic asset protocols, of course cannot (for the time being, unless a bridge is deployed cross chain).
But even this solution that sounds so sweet is not without it's problems. Smart contracts are difficult and cross-chain smart contracts even more so. Cross chain solutions are not exploit-free themselves. Also by accepting a cross-chain solution you accept the risks of being exposed to another chain, thus multiplying your risk factor.
Chain exposure has its risks (5). Proof-of-work chains like Bitcoin have the risk of DDoS and being exposed to a 51% attack, and proof-of-stake chains have also their own forms of vulnerabilities. Being exposed to two chains means multiplying your risk.
Zerogoki Protocol (6) is a synthetic assets protocol that issues leveraged algorithmic tokens. It doesn't use the traditional margin-overcollateralisation method presented in more popular synthetic asset protocols, instead it is taking a bold move towards increasing capital efficiency. This means that for every dollar (or sat's) worth of capital, an equal worth of assets is minted. Also the minted asset is trade-able on-chain making it even more efficient than the mint/redeem method. Purchasing a BTC LX3 (long BTC x3 leveraged) is cheaper than minting one. Selling an asset is better than redeeming it. Providing liquidity with BTC Lx3 and ETH paired can be very profitable instead of mint/redeem all the time.
A synthetic assets protocol has the distinct advantage of issuing any type of synthetics. Zerogoki Protocol has a unique basket of assets such as leveraged Gold products, Goverment Bonds x20 longed, Metaverse Index shorts and longs, and others coming on the way. Many people buy BTC because they speculate on the price, and like to provide liquidity with it to create a form of "passive income". With a synthetic assets protocol like zerogoki, you may not have native BTC, but you can have [BTC Lx3 paired with Goverment Bondsx20] on your liquidity pool and redefine the nature of "passive income". The freedom of creativity and dexterity in synthetic assets is orders of magnitudes greater than cross-chain solutions. At least for now.
Of course this isn't a contest. Merits exist in both solutions if you have followed me so far. And as the risk multiplies from a cross-chain solution, so do the rewards. Synthetic asset protocols like Zerogoki can issue leveraged tokens, and cross-chain protocols like Thorchain(7) can make them liquid across the chains. This is something that can end up as a "dream marriage". Imagine being able to issue your BTC longs and able to trade them in Thorchain. Imagine having cross-chain liquidity for GovermentBondsX20? How would this change the financial world?
What are your thoughts on this debate?
What do you think the future holds?
What would you like to see?
