SIP 133: Add DOGE as Crypto Synth Source

AuthorMaximilian Roszko, Kaleb Keny
Discussions-Tohttps://research.synthetix.io/t/sip-add-doge-crypto-synth/382
StatusApproved
Created2021-04-26

Simple Summary

Add a new long synth for Dogecoin (DOGE).

Abstract

Dogecoin has risen to a top 10 spot in the crypto market, and now boasts very high volume on centralized exchanges, in the multi-billions per day on average. With an sDOGE synth, Synthetix can capture a sizeable share of that market, generating more fees for the Synthetix protocol. The synth would pair nicely with renDOGE, a 1:1 Dogecoin token on Ethereum backed 1:1 by the Ren project, enabling highly liquid cross-pool synth swaps.

Motivation

Adding a DOGE synth could bring considerable volume to the Synthetix protocol, particularly as it pairs well with renDOGE token, enabling synthswaps. sDOGE provides a unique on-chain offering for traders looking to get exposure on DOGE because of its high volatility and memability.

Specification

Overview

The Synth will be implemented in the same way as other crypto Synths.

Rationale

The rationale for proposing Dogecoin above other assets is partly because it has risen to the top 10 in the crypto market, with considerable volume clocking in on an average of $3 billion in USD daily on Binance alone, and partly because there exists a permissionless bridge by the Ren project from Dogecoin to Ethereum, allowing anyone anytime to wrap Dogecoin into renDOGE 1:1, and allow anyone to redeem renDOGE to native DOGE 1:1. Through cross-pool synthswap, anyone could then go from native DOGE to BTC/ETH/USD/SNX with very little slippage.

Liquidity Analysis

The tables below showcase statistics on the cost of pushing the price of DOGE on binance (on the DOGEUSDT pair) by the percentage mentioned in the header (denoted in bp):

Dump 25 bp 50 bp 75 bp 100 bp 150 bp 200 bp 400 bp 600 bp 800 bp 1000 bp
mean $279,060 $475,277 $631,114 $881,853 $1,289,456 $1,859,488 $4,276,595 $8,258,811 $12,647,329 $13,709,724
median $238,763 $420,729 $733,582 $1,041,979 $1,555,858 $1,949,968 $3,874,127 $9,348,589 $11,456,019 $15,426,933
std $204,323 $230,551 $245,734 $423,740 $607,798 $895,837 $1,781,917 $3,096,282 $4,661,254 $4,947,714
Pump 25 bp 50 bp 75 bp 100 bp 150 bp 200 bp 400 bp 600 bp 800 bp 1000 bp
mean $293,018 $516,829 $812,557 $1,081,582 $1,586,705 $2,158,952 $4,049,976 $5,617,329 $7,188,346 $8,447,416
median $291,712 $561,970 $837,899 $1,095,394 $1,463,830 $2,138,647 $4,149,759 $5,873,893 $6,716,624 $8,672,853
std $106,631 $240,205 $458,337 $621,213 $902,833 $956,687 $1,233,881 $1,811,088 $1,382,046 $1,269,824

Bad actors in the space would need a signficant amount of capital in order to have a substantial impact on the price, therefore from a liquidity standpoint, DOGE appears to maintain reasonable amounts of liquidity on CEX. In addition, the average bid/ask spread is around 5 bp which is considered to be approporiate.

Volatility Overview

Doge coin is extemely volatile, the below aims to provide some metrics on the price swings since the begining of the year, in order to give the council information on bringing sDOGE to Synthetix.

Log Scaled Price Chart

The graph here shows the price chart of DOGE since the beginning of the year, with the y-axis in log scale. From the graph we see that volatility had picked up significantly since Elon started his twitter campaign about the prospects of Doge.

While this chart shows the volatility on the 1-minute data where the peak was around a 15% move up.

Returns Distribution

The below table displays the standard stats on returns (in bp) for different time intervals. For example, we can see that the average return is null on the 1-minute and 3-minute window but is positive at 7 bp on the 1-hour window. The table reveals that minimum price decrease during a 1-minute window was 13.61% (a significant level) while the max return was 14.22%.

Normally this type of statistical table is used to try and understand the shape of the distribution of returns. We can note that between the 25% and 50% quantiles, returns are in a reasonable range at around 30 bps to 60 bp on the up to 5-minute interval. However, there are significant fat tail events, where prices can move by 42.9% and 36.4% in a 1-hour time frame (at the extremes).

Stats 1m 3m 5m 15m 1hr
mean - - + 1 bp + 2 bp + 7 bp
std + 37 bp + 64 bp + 81 bp + 135 bp + 255 bp
min - 1361 bp - 2317 bp - 2811 bp - 2706 bp - 4290 bp
10% - 28 bp - 48 bp - 61 bp - 104 bp - 192 bp
25% - 10 bp - 18 bp - 24 bp - 40 bp - 75 bp
50% - - - 1 bp - 1 bp - 1 bp
75% + 10 bp + 17 bp + 23 bp + 39 bp + 72 bp
90% + 29 bp + 49 bp + 63 bp + 105 bp + 197 bp
max + 1422 bp + 2195 bp + 1647 bp + 2210 bp + 3641 bp

Returns Frequency

The below table showcases the empirical frequency of observing a certain absolute price move (in bp) within a certain time frame. For example, looking at the first row, second column, we see that there is at least a 39% chance of seeing a price move of at least 25 bp within a 3-minute window. The table reveals that seeing 5% price moves is not a frequent event (as the probability is less than 1%).

moves\timeframe 1m 3m 5m 15m 1hr
25 bp 23% 39% 47% 65% 80%
50 bp 9% 19% 26% 42% 63%
75 bp 4% 11% 16% 29% 49%
100 bp 2% 7% 11% 21% 40%
200 bp 0.40% 2% 3% 8% 19%
300 bp 0.12% 1% 1% 4% 11%
500 bp 0.02% 0.14% 0.26% 1% 5%
1000 bp 0.00% 0% 0.03% 0.17% 1%

Some Final Thoughts

It is obvious from the data see here, that DOGE is more volatile than the average altcoin. However, contingencies in place in the form of fee reclamation should help protect the debt pool from the risk of people taking advantage. In addition, prices can be set at 5% at inception and then reduced gradually if necessary.

The benefit of adding DOGE is that it provides a unique proposition to traders who are on the hunt for volatility, we might be able to provide it as an experiment, to see how far we can push the boundaries of what is feasible to include in our offerings.

Technical Specification

N/A

Test Cases

N/A

Configurable Values (Via SCCP)

N/A

Copyright and related rights waived via CC0.