Competitive Analysis: What Makes Shadows Stand Out?
The traditional global derivatives market is valued at a staggering $1.2 quadrillion across futures, options, commodities, and other financial instruments. Shadows is at the forefront of an emerging decentralized trading platform movement seeking to disrupt this legacy market and bring financial derivatives to the rapidly growing defi space using synthetic assets.
Synthetic assets or synths are tokenized derivatives that represent real assets, tracking the price of stocks, currencies, commodities, digital assets, and other financial products without directly owning the underlying. As a result, synths have become one of the most popular defi use cases, providing frictionless accessibility to these markets to mitigate risk or speculate while also generating yield for participating in this latest evolutionary step for blockchain technology.
So how do existing synthetic asset trading protocols compare, and what makes Shadows Network different?
How Do Existing Synthetic Asset Trading Protocols Compare?
Original synthetic asset trading protocols were predominantly confined to the Ethereum network, though newer platforms have begun deploying on a range of other blockchains or sidechains.
Synthetix is the current market leader in decentralized synthetic assets, becoming a backbone of permissionless defi derivative trading across the layer-1 Ethereum ecosystem while simultaneously running on layer-2 Optimistic Ethereum, enhancing scalability for the protocol with interoperability between layers.
Governed by the Synthetix Foundation, it supports the issuance and tokenized leverage trading of a range of synthetic assets including commodities like gold and silver, cryptocurrencies, and fiat, using a debt pooling mechanism and Chainlink’s decentralized oracles to monitor prices. These synthetic assets, known as sAssets, require up to a 750% collateralization ratio to sufficiently account for volatility, with collateral predominantly posted in SNX and ETH.
Each trade on the Synthetix platform generates fees that are shared proportionally between stakers of its native SNX token, which utilizes an inflationary monetary policy to help incentivize users to create synths.
Mirror protocol is powered by smart contracts on the Terra network, enabling the creation and trading of synthetic real-world assets known as Mirrored Assets or mAssets, though it does not support leverage trading. Further network interoperability is delivered via the ability to trade mAssets on Ethereum too.
Mirror’s minting process requires locking up over 150% of the current asset value in Terra stablecoins or mAssets as collateral, using an AMM pool mechanism and dedicated Terra oracle feeders that can monitor and alter the on-chain price of each mAsset as assigned via the Mirror DAO governance system.
MIR tokens are rewarded to users who stake LP tokens obtained by providing liquidity which can, in turn, be staked to receive voting rights and a share of protocol fees.
Injective Protocol is slightly different, offering a layer-2 decentralized exchange platform built on the Cosmos SDK, enabling traders to create, enter into, and execute decentralized perpetual swap contracts and CFDs on any arbitrary market. The Injective Chain also provides a two-way Ethereum peg for ETH and ERC20 token interoperability, as well as an Ethereum Virtual Machine compatible execution environment for defi applications.
Injective Protocol does not require collateral, using a fully decentralized 0x-based order book to enable sidechain order relay with on-chain settlement for both spot and derivatives trading, with integrated Chainlink price feeds to settle the user-created decentralized derivatives markets, and managed via a DAO once its mainnet goes live.
Transaction fees generated by the protocol are used as compensation for relayers who drive liquidity to the platform and to buy back and burn INJ tokens, creating a deflationary effect.
Spartan Protocol provides community-governed and programmable token emission functions to incentivize deep liquidity pools based on Binance Smart Chain. Once live, this strong liquidity base will be utilized to provide asset swaps, synthetic token generation, lending, derivatives, and leverage trading.
Using its internal Automated Market Maker pricing mechanism, Spartan Protocol uses price anchors from its liquidity pools pegged to its native SPARTA token, facilitating the creation of decentralized synthetic assets by locking liquidity pool tokens into a smart contract, becoming collateral for users to generate the synthetic assets.
The initial function is to open long and short positions with leverage using BEP20 assets. To create these synths, users must hold SPARTA tokens and BEP20 tokens used for liquidity provision in a SPARTA/BEP20 liquidity pool. SPARTA is also used for liquidity mining rewards and governance votes.
Oikos is a decentralized synthetic asset issuance and leverage protocol originally built on Tron, though transitioning to Binance Smart Chain. It provides on-chain exposure to fiat currencies, commodities, stocks, and indices, allowing crypto-native and unbanked users to trade P2C (peer-to-contract) on the Oikos Exchange without liquidity limitations.
Synthetic assets are up to 800% collateralized by the Oikos network token, OKS, a debt pooling mechanism that locks tokens into a smart contract enabling the issuance of the synths and integrating Chainlink’s decentralized oracles to monitor prices.
Users can join liquidity pools to collect fees on BNB-BEP20 pairs, with support for more complex trading instruments, a fully decentralized governance model, and the use of BNB as collateral for synth issuance next on the roadmap.
Why Is Shadows Network Different?
In contrast to competing synthetic asset trading protocols, Shadows is the first project bringing synths to both Binance Smart Chain and Polkadot’s multi-chain network, enabling the widest range of interoperable synthetic asset trading across the defi ecosystem on the most compatible platform to date.
Synthetic assets are underwritten by the native DOWS token in Shadows Network, issued by locking DOWS collateral into a smart contract, which can later be unlocked by destroying the minted synthetic asset to settle the debt. Shadows support a wide range of synthetic assets such as stablecoins (like xUSD and xEUR), other cryptocurrencies (like xBTC, xETH, and xDOT), as well as more traditional financial products such as indices (like xS&P500), commodities (like xGOLD) and stocks (like xTSLA). It uses Substrate’s Off-Chain Workers to monitor prices rather than external oracles that can introduce flaws in terms of security, scalability, and infrastructure efficiency.
Shadows’ unique debt pooling mechanism design requires a robust minimum DOWS collateral ratio of 800%, below which the collateral cannot be redeemed, though later versions will also support BTC, ETH, DOT, and other cross-chain asset collateral with ratios set according to risk profiles. Trading of synthetic assets is then simply a transfer between these debts, with Shadows’ smart contracts automatically executing swaps of one synthetic asset for another without an order book, counterparties, liquidity issues, or slippage, allowing synths to trade simply, securely, and efficiently.
As a result, synthetic assets can be frictionlessly traded between different types such as USD, Tesla shares, gold, and bitcoin. Further, these synthetic assets can utilize Shadows lending pool smart contracts to, for example, lend out xUSD to earn interest or pledge xAAPL and pay interest to access xUSD loans.
DOWS provides additional utility via staking rewards for holders, transaction pool fee distribution rewards for synth issuers, collateralized lending rewards, and system governance rights as it transitions to a full DAO model. Shadows also implement a deflationary monetary policy via a destruction mechanism for DOWS transaction and pool fees, automatically executed by smart contracts and encouraging longer-term participation.
Thanks to building on the cross-chain nature of Polkadot which can be bridged to Bitcoin, Ethereum, and other networks, Shadows provides a far higher degree of scalability and interoperability than its competitors, delivering the high throughput, low fees, and multi-chain compatibility that is ideal for swapping synthetic assets. Alongside its native deployment on Binance Smart Chain and upcoming synthetic futures and leverage capabilities, Shadows can deliver full defi ecosystem asset synthesis, trading, lending, and borrowing, opening the door to new potential markets within the crypto world and beyond.
About Shadows Network: