What is a metronome synthesizer? [Sponsored]

As banks and exchanges suffer from a loss of trust, Decentralized Finance (DeFi) continues to push the frontiers of innovation. One of these DeFi vanguards is Metronome Synth, a multi-collateral, multi-synthetic protocol that expands users’ ability to trade and farm digital assets.

Before diving into that, it is important to understand the role of synthetic assets in the DeFi space.

Synthetic landscape explained

You’ve no doubt heard of liquid staking. The concept is simple. When you participate in proof-of-stake blockchain networks, your staked cryptos often experience lockdown, meaning you cannot use them.

So your assets become illiquid as they are blocked anyway. This is a liquidity stake that unlocks that liquidity by issuing a token equal to the value of the funds wagered. For example, Lido Finance issues stETH for the same amount of ETH staked. Users can then use this stETH token in a variety of dApps as if they were using the ETH itself, for example as collateral for a loan.

From this it is easy to conclude that liquid stake tokens and synthetic tokens belong to the same category. Finally, a synthetic token is created through a smart contract to track the price of its source security. Yet this is not true.

Synthetic tokens are specially minted to mimic the price of an underlying asset, be it a commodity, stock or cryptocurrency without holding it. In other words, synthesizers provide access to the price movements of the underlying asset.

For example, a synthetic bitcoin could be minted using collateralized ETH, with the BTC synth price then being pegged to the price of real bitcoin. This flexibility increases user convenience in both trading and hedging. For example, if a synthesizer is tied to the price of gold, traders could sell gold (the physical commodity) without owning gold if they think the price will go down. The same could happen with a synthesizer that mimics the price of the S&P 500 index.

What metronomes bring to the synth table

At this early stage of synthesizer development, the early bird catches the worm. The Synthetix Platform (SNX) was one of the first to allow users to create synthesizers using a wide range of underlying assets. As a result, Synthetic grew to a respectable total value (TVL) of $443.8 million.

Metronome Synth was launched relatively recently, in January 2023, and has already raised $4 million in TVL while it was still in beta. After the successful audits and tests of the smart contracts, the project is running at full speed on April 18th.

Developed by the Bloq DeFi team, Metronome Synth stems from the previous Metronome project which raised $12.1 million during the ICO fundraiser in July 2018.

With the motto “Unleashing Limitless Liquidity”, Metronome Synth allows DeFi users to deposit multiple types of cryptos as collateral for synth manufacturing. This ranges from stablecoins (DAI, USDC) to leading cryptocurrencies (Bitcoin, Ethereum).

In addition, liquid stake tokens can also serve this purpose. As of March 2023, the above stETH is known as VastETH, where “va” refers to the Vesper Finance protocol. Thanks to this integration, DeFi users can deposit Vesper Lido Staked ETH (vastETH) with Metronome to mint a variety of synths.

As you might expect, these metronome synthesizers are prefixed with “ms”, e.g. B. msBTC, msETH and msUSD. To mint any of these, users can deposit their preferred collateral, but each has its own terms.

Examined exposure of metronome synthesizers

Let’s say you are a Bitcoin maximalist who only owns BTC. Still, you still want to take advantage of different DeFi protocols. In this case, you would first deposit your BTC in one of the BTC-to-WBTC protocols like Bitgo or Kyber Network.

These logs would then mint wrapped BTC (WBTC) according to the value of your deposited BTC. If your wallet is stuffed with WBTC, then connect it to the Metronome Synth app, where you’ll instantly get a clear overview of possible Mint synth securities.

Currently, the deposit limit for WBTC is 311 bitcoins, with a collateralization rate of 80% and a liquidation penalty of 18%. This means that to mint 10 msBTC of Metronome Synth, you would need to deposit at least 12 WBTC to maintain the 80% minimum collateral ratio.

If the value of your WBTC collateral falls below 80%, Metronome Synth would liquidate the collateral and pay an additional 18% as a penalty. But wait, there’s something very important to consider – slippage!

If you mint 10 msBTC with 12 WBTC as collateral, the price of both the collateral and the synthesizer are considered to be subject to a fixed one-to-one exchange rate. After all, both are pegged to the real price of Bitcoin. In practice, market liquidity causes the price of synthetic tokens to deviate from the expected price.

For other dApps, this could result in achieving 9.5 WBTC per msBTC, but not for Metronome Synth. When it comes to swapping synths, you can do it without slippage.

Smart Farming by Metronome

If anything is the rationale behind DeFi, it is yield farming. Users can transform themselves into virtual banks, receiving interest in exchange for their liquidity services, whether for staking to secure a PoS chain or borrowing.

Standalone yield farming is a simple concept. DeFi’s smart contracts and self-custodial wallets allow people to become their own virtual banks. But what if you want to expand your farming position to achieve higher yields? This is where smart farming comes in to improve your position with synths.

When users provide liquidity to a credit/DEX protocol like Curve or Uniswap, they earn interest on their liquidity service. Just like a traditional bank would do. To amplify these yield increases, Liquidity Providers (LPs) could increase their liquidity footprint by borrowing funds.

This is looped yield farming. By using synthetic tokens, traders can maximize their yields, creating advanced smart farming. Metronome Synths partners with Vesper Finance as preferred return aggregator.

Combining metronome and vespers, a typical synth scenario would look like this:

1. Deposit $1,000 worth of USDC stablecoins into Vesper Finance’s USDC pool.
2. In return, you will receive vaUSDC tokens as high-yield tokens.
3. Deposit vaUSDC as collateral with Metronome Synth to generate a synthetic asset of your choice.

Alternatively, one could deposit their vaUSDC position directly into Smart Farming to do the following:

1. Adjust the yield loop of your deposit according to your risk preference.
2. Metronome Synth then mints msUSD, which is automatically exchanged for USDC on a decentralized exchange (DEX).
3. Finally, Metronome deposits this freshly swapped USDC back into the Vesper Finance pool, returning vaUSDC and increasing your initial APY. Since vaUSDC is posted as collateral for Metronome’s position, this means that your overall position is certainly over-collateralised.

When the yield farming period ends, the farmer withdraws his earnings and pays back the borrowed USDC plus interest. The farmers can then use the profits they make to pay off the synthesizer debt. Metronome Synth users pay a 1% synth credit fee.

Outside of smart farming, Metronome’s ability to integrate more customized strategies with the support of vaAssets allows users to leverage yield-producing collateral and support for directed trading and zero-slippage swapping with both EVM and non-EVM assets .

Pushing the spirit of multi-dApp integration, Metronome users have access to Vesper and Curve pools to boost their yield. Once users have deposited their funds into Vesper, yield farming will be automated based on their collateral position in Metronome.

This is the essence of Metronome’s smart farming, as farmers simply need to set the yield loop amount on their synth. Metronome’s smart farming protocol will take care of everything else and return to Vesper’s original position, as seen below.

So Metronome eliminates the need to switch between multiple dApps to maximize farming yield. Not only does this improve the user experience, but it also saves huge amounts on gas fees. Once the APY return loop is adjusted, a user’s only job is to monitor the health of their Metronome collateral position.

Depending on the circuit’s smart farming position, users can view their estimated APY potential as well as monitor their circuit’s health.

With looped smart farming positions, you can optimize your yield and watch your profits grow. Keep an eye on your estimated APY potential and monitor the real-time health of your circuit as you grow your earnings.

Who Developed the Metronome Synthesizer?

The core team behind Metronome Synth consists of experienced developers who have contributed to large DeFi projects such as SpaceChain, Bloq and VesperFi:

• Jeff Garzik
• Jordan Kruger
• Matthew Roszak
• Manoj Patidar
• Zane Huffman

Metronome Synth smart contracts have been fully audited by Halborn and Quantstamp. Thanks to Metronome’s clever combination of zero slippage between synthesizers and integration with the wider reach of Vesper Finance, DeFi has become significantly easier to handle.

While synthetic assets may still be alien to even some crypto-natives, access to the synthesizer landscape is being reduced. Ultimately, Metronome Synth is shaping the future of the DeFi space. One that’s more viable and sustainable than getting on the next monkey-JPEG train.

Note: This explainer was sponsored by Metronome Synth

Disclaimer for the series:

This series article is intended only as a general guide and information for beginners looking at cryptocurrencies and DeFi. Nothing in this article should be construed as legal, business, investment or tax advice. You should consult your advisers for all legal, business, investment and tax implications and advice. The Defiant is not responsible for lost funds. Please use your best judgment and exercise due diligence before interacting with Smart Contracts.

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