Gm Degens
Today we’re talking about a new way to access credit cross chain.
The problem
You see today, if you want to move funds around and go to new chains, you have to constantly, swap assets and bridge before you can then utilise them. Its a laborious process that taxes you on time, fees, smart contract risk and effort.
We now live in a cross chain world. There are tons of blockchains popping up left, right and centre these days. I myself am a big fan of using many of these including Ethereum, Solana and the various Ethereum L2s with optimistic rollups like Arbitrum and Optimism, to even the newer zk rollups like Scroll and zkSync. The issue however, that these chains bring is the on going fragmentation of ecosystems and liquidity that this causes.
In todays world, we have cross chain messaging layers. The likes of Wormhole and Layer Zero, both of which have grown massively in the last 12 months. So the question is, why can’t we use these cross chain messaging layers to help solve the issues with chain fragmentation, especially when it comes to credit markets?
Finally we can and today we’ll talk about how you can do this via Synonym Finance.
What is Synonym?
Synonym is a cross chain credit layer that enables users to provide collateral of an asset on any supported chain and then to borrow any supported asset on another chain. They do this via Wormhole which is the messaging system enabling this.
Synonym offer a hub and spoke model. The hub chain is currently Arbitrum and this is where all the messages and accounts are stored. You can think of this as an ‘accounting layer’ as if messages were stored on all different chains, the balances, health factor and LTVs of everyone’s positions wouldn’t sync correctly. All other chains on Synonym are spoke chains. Users who perform any action first send a message to the hub chain, which once recorded allows the users to provide collateral. When borrowing, the same thing happens again whereby messages are sent to the hub chain. The only time this doesn’t happen is when users are using the hub chain itself as the actions are already on the chain, the message doesn’t need to be sent.
Ultimately, this enables users to interact between chains and provides a number of benefits:
Users do not have to sell assets if they want to bridge over
Users don’t have to worry about having issues with asset types (some may not be compatible with other chains)
Users can avoid 3rd party higher risk bridge solutions
Users can earn yield on multiple chains at once
Easily access opportunities on multiple chains
Synonym currently supports a wide variety of EVM chains including ETH mainnet, Arbitrum, Optimism, Base and now the newly released, Scroll. The interface supports a few different assets including ETH and ETH derivatives (wstETH and weETH), wBTC and stables like USDC.
Users can supply any of these assets on any chain and then borrow against this collateral from any of the supported assets on any of the supported chains. Ultimately, this means you can supply wETH on Scroll, and borrow USDC on Optimism. This is all powered by Wormhole who facilitate the cross chain messaging system for this to work as mentioned above.
The latest launch on Scroll is interesting as it sparks the first of the ZK L2’s to launch following the previous optimistic roll ups, with Arbitrum, Optimism and Base. Being one of the most anticipated tokenless L2 chains is another interesting feature that I think can, and will benefit Synonym in the coming weeks and months.
To learn more about how Synonym works, be sure to check out the deep dive I did which I posted on my channel not too long ago.
How to benefit from Synonym today?
Synonym just launched their newly supported chain - Scroll.
One of the things you can do is use Synonym to provide collateral, on Scroll, of which you have the choice between ETH and USDC. Doing this can be pretty lucrative at the moment because of the rewards which currently consist of the following:
Yield - if lending
$SYNO token emissions
BIPS - a programme that consists of getting points based on the collateral supplied or borrowed. This consists of rewards that will be paid out in both the Wormhole token and the Arbitrum Token ($W and $ARB). On Scroll, these BIPS rewards currently have a boost which you can take advantage of.
Scroll marks - points for network activity within Scroll
Ultimately, this means earning 4 tokens within one activity - $SYNO, $W, $ARB, and lastly $SCROLL. (Scroll is yet to come out into the market yet).
One of the ways to increase the rewards you get is to leverage up. This can be done on money markets like Synonym pretty easily. Users need to simply supply an asset like ETH, then borrow stables like USDC against this. The USDC can then be swapped into ETH and collateral can be provided again and USDC can be re-borrowed. The more this is done, the higher the leverage. This is perfect for a ‘bull ETH case’ and the inverse (supplying USDC, borrowing ETH) is a strategy for a ‘bear ETH case’. In either case, both strategies offer users bonuses and increased rewards.
All in all, Synonym is an interesting, exciting and unique innovation in the money market space, and providing the opportunity to connect with different chains directly opens a world of new doors and helps to solve one of the biggest issues we’ve had in a long time within the world of DeFi - fragmentation. Following the launch of Scroll, we now have some very new ways to speculate and I will be farming as mentioned in my last farms of the month, given the good rewards currently on offer. Let me know what you guys think in the comments below!