A new decentralized synthetic asset protocol wants to help you trade the untradable
Trade the untradable—that’s the tagline of cypher, a decentralized synthetic asset protocol that launched in late June, allowing investors to trade futures on the Solana blockchain.
Futures, in investing, are defined by Investopedia as “derivative financial contracts that obligate parties to buy or sell an asset at a predetermined future date and price.” In traditional investing, that can be anything from futures on stock indexes like the S&P 500 to precious metals like silver and gold and currencies like the US Dollar.
Cypher, which was founded by Salt Lake City’s Barrett Williams, launched its mainnet on June 25 after over three months in a devnet stage.
Cypher was originally set to launch with access to pre-public markets, giving the public the ability to trade assets “representing the valuations of late-stage private companies before they go public.” The company’s original one-pager stated that users would be able to long or short an IPO depending on whether or not they thought it was over or under-valued.
However, that has shifted. Cypher core contributor Alex Whitley says it was a “regulatory sentiment decision and also a market-based decision.” Instead, cypher allows trading of cryptocurrency pair futures such as Solana-Ether (SOL/ETH), Bitcoin-Ethereum (BTC/ETH), and Solana-Avalanche (SOL/AVAX), with customers trading on the spread between those two assets.
“We are not launching with pre-IPO derivatives anymore due to the fact that we care about the regulatory landscape,” he says. “As sentiments change often, it was much easier and more palatable for institutions and market makers to trade on our platform if we did not offer pre-IPO derivatives, and the volume’s not there anyway.”
Many futures market traders do not end up seeing the contracts to their expiration, but rather make or lose their money based on the change in the futures contract’s price. The loss or gain on a futures market is the difference between the entry price and the current price. In the case of cypher, if you take a pair like SOL/ETH and go long, you expect SOL to outperform ETH. A short position is taking the opposite.
“Futures are one of the easiest derivatives to understand,” a cypher lite paper says. “A trader is simply placing a financial position on what they believe an underlying asset will be priced at, at a future date. This allows for easy adoption by both retail and institutional traders looking to deploy a variety of trading strategies. Futures markets can be both synthetic or asset-backed and be financially settled or there could be delivery of underlying. This allows the protocol to be leveraged for many use cases.”
More people are trading futures and options contracts in recent years. In January, London-based online trading provider IG Group reported a 44 percent jump in client activity around options and futures as opposed to an 18 percent growth in equity trading in the same time period.
Cypher’s devnet stage—similar to a closed beta in the web2 world—lasted from early March until late June. In the devnet stage, the money traders used wasn’t real, but it will be now. Those three months gave testers a glimpse at the product and gave the cypher team time to make sure everything was running smoothly.
“[Testers] can learn the ins and outs of the protocol, have the experience of winning and losing, and shorting and longing, and all the different strategies that would take place within this platform,” Whitley says. “In doing so, they are not risking anything financially… They get practice and also get to provide us feedback on what’s working, what’s not working, any bugs that are happening, any future markets that they would like spun up, that sort of thing. We’re collecting all that information and data and incorporating it into our mainnet.”
The cypher protocol isn’t available for users in the US at launch, with the laws and regulations not yet set up for this kind of product, but Whitley says that between the devnet’s launch in early March and mid-May, about 4,500 people used the product, with strong representation from Sweden, Germany, the United Kingdom, China, Singapore, South Korea, and Nigeria.
“That’s more than we were anticipating, so that’s really great,” Whitley says.
The cypher team hopes that the devnet stage gave people a chance to get familiar with the product and trust cypher with their trades.
The testing period is paramount to ensuring everything’s ready for launch, says Jodi Taylor, another core contributor at cypher who comes from a Wall Street background.
“I try to implement the best protection available to us to protect everyone and to keep the bad actors out. I would say that’s very important. We absolutely, morally, legally, in every sense of the word, do not want that to infiltrate our protocol.”