Reducing the Risk of Synthetic Protocols with Metronome Synth
Synthetic protocols, like any emerging protocols, come with their share of risks and limitations, but how does Metronome Synth reduce them?
Liquidity is a necessity for any functioning synthetics platform. As the potential for low liquidity with synthetic assets is a major concern, Metronome has implemented measures to prevent funds from becoming inaccessible, minimizing the risk of significant losses.
To address the issue directly, Metronome has introduced Protocol Owned Liquidity (POL). This is liquidity that has been provided by the Metronome Treasury to ensure stability. By providing this liquidity, Metronome guarantees there will always be some level of liquidity available for synth pairs, even during periods of low market activity, thus minimizing the associated risks.
In addition to providing liquidity, Metronome may also use other DEXes, such as Uniswap V3, to take on more efficient and concentrated positions. The POL may be used to pair synths against different assets, such as pairing msETH against rETH or another productive asset.
Smart contracts rely heavily on the integrity of their code, however, flaws in the software can enable misuse by bad actors. This risk is further compounded by the fact that many synthetic protocols are built on top of Ethereum. As a result, it can be difficult to fully understand and mitigate these risks.
However, Metronome smart contracts undergo a thorough auditing process to ensure their security. The contracts are submitted to accredited web3 security risk assessors such as Quantstamp, who then conduct a series of tests. If any issues are found, they are carefully addressed and resolved before the contracts are released. In the future, all contracts developed by the Metronome team will undergo this same process before being pushed to Mainnet.
What’s more, The Role of Governance in Decentralized Finance is extremely important, and with MakerDAO’s proven structure, many protocols are now able to mitigate the risks typically associated with governance models simply by adapting their formula.
Much like MakerDAO, Metronome incorporates an antifragile framework comprised of autonomous workstreams that handle the day-to-day operations. This type of DAO structure empowers the community and provides them with the means to actively participate in the development and growth of the ecosystem. The transparency provided inspires confidence, which the space has been lacking recently.
Synthetic protocols, such as Metronome Synth, provide users with access to assets that may have been previously out of reach. However, these technologies also come with their own set of challenges and risks that must be carefully considered. Metronome Synth aims to address these issues, giving users peace of mind when interacting with synthetic protocols.
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