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Synonym is built on top of an innovative hub & spoke architecture, powered by the Wormhole xChain Technology Stack.
Synonym Finance is being built by a highly experienced development team. Our team has rich cross-chain experience and has contributed to multiple cross-chain specific deployments and DeFi protocols. Our team has worked closely with the Wormhole Foundation to develop Synonym based on Wormhole’s Cross-Chain Lending & Borrowing Proof of Concept design.
We recommend you explore this PoC for the most technical description of our architecture. A summary of key architecture decisions can be found below.
Our design uses the same hub and spoke architecture explored by the Wormhole Foundation. The hub and spoke architecture is superior when compared to a point-to-point model because it eliminates the need to track an exponentially expanding number of interest rate pairs as connected chains increase. In a point-to-point model, interest rates between different assets will vary across chains due to different execution environments and blocktimes (atomic state update problem).
This interest rate asynchronicity becomes a major issue when rates desync significantly across chains, especially as the number of chains increases. This could result in reversions, erroneous liquidations and generally poor UX. Using a central hub to process transactions avoids these issues entirely as all interest rate states and interactions occur on the same chain before being communicated to relevant spokes.
Everything links to the Synonym Hub.
Beyond interest rate asynchronicity and architecture complexities, Synonym also benefits from the hub and spoke model from an efficiency perspective. Since all actions are communicated by Wormhole messages, Synonym avoids the capital inefficiency problems that would emerge from multiple different minimum collateralization ratios present in other models.
Synonym uses Wormhole’s generalized messaging capabilities to pass messages between the hub contract and registered spokes. In practice, the hub serves as the operational and accounting hub for the entire system. Synonym will be able to communicate with any chain that is 1) supported by Wormhole and 2) has a deployed Synonym Spoke contract.
New chain deployments will be controlled by Synonym and will eventually be subject to governance. There is currently a massive expansion opportunity available via Wormhole, which currently supports 23 blockchains across 6 unique runtimes.
Liquidations on Synonym money market positions will be made available on Arbitrum, the chain on which the Synonym Hub is deployed. While allowing liquidations on spokes could attract more diverse liquidation bots across markets, it does come with significant downsides. These downsides include potential issues with fluctuating prices across chains causing invalid liquidations, the possibility of users needing to reverse repayment actions due to a competitive race to liquidate, and challenges related to transferring multiple token types during liquidation repayment due to the lack of batch VAAs (currently in development by Wormhole). Despite the potential benefits, the complications associated with these downsides led to the conclusion that enabling liquidation on Synonym Spokes would lead to poor outcomes.
Synonym uses the Pyth price oracle model for providing high-fidelity, precise prices for different price feeds. Pyth has some unique capabilities that we use to maximize the stability and safety of Synonym overall. Pyth includes a confidence interval alongside its aggregate price estimate. These two parameters help define a price distribution, with the aggregate price as the distribution's mean and the confidence interval as its standard deviation. By considering that approximately 95% of the distribution's probability lies within 4.24 standard deviations from the mean, conservative prices are used to favor the protocol in collateral and debt evaluations. Collateral asset prices are calculated with a "lower bound" by subtracting 4.24 times the confidence from the aggregate price, while debt asset prices are calculated with an "upper bound" by adding 4.24 times the confidence to the aggregate price.