What’s behind Synapse ($SYN) 96% surge in a week?

Synapse ($SYN), a crypto interoperability protocol, has experienced its most significant week yet, with the $SYN token soaring by 96% during the third week of August 2024.

A major portion of this increase occurred on August 16, 2024, when the token surged by 58% following Binance's introduction of SYN perpetual futures contracts on its platform.

After reaching an all-time low of $0.267 earlier in August 2024, SYN investors are optimistic that the worst is now behind them.

This article delves into why the Synapse Protocol is more than just a simple cross-chain bridge and explores how it is addressing the critical issue of liquidity fragmentation in the cryptocurrency space.

What is Synapse Protocol?

Synapse Protocol is a cross-chain interoperability network designed to facilitate the bridging and swapping of cryptocurrencies across various blockchains.

Initially launched in 2021 as a cross-chain bridge for EVM-compatible networks, Synapse has since expanded into a comprehensive interoperability ecosystem. This infrastructure includes two key components: the Synapse Chain and the Synapse Interchain Network.

Here’s a breakdown of how each component functions:

1. Synapse Bridge

The Synapse Bridge connects 22 Ethereum Virtual Machine (EVM) chains, such as Ethereum (ETH), Arbitrum (ARB), Avalanche (AVAX), Base, Blast (BLAST), BNB Chain (BNB), Optimism (OP), and Polygon (POL). Additionally, it includes a Solana Bridge, linking Solana (SOL) with Ethereum, Arbitrum, Optimism, and Base.

As of August 19, 2024, Synapse ranked as the 10th largest cross-chain bridge, with a monthly volume of $272.3 million across its supported chains. In contrast, Stargate held the top position with a volume of $1.39 billion, according to DeFiLlama.

The Synapse platform also features token swap capabilities powered by its liquidity pools. Liquidity providers can select from various pools to earn a share of bridging fees and SYN token emissions.

2. Synapse Interchain Network

The Synapse Interchain Network is an optimistic proof-of-stake (PoS) blockchain designed to facilitate communication and settlement among connected cryptocurrency networks. Currently in its testnet phase, this network aims to unify liquidity across different chains and enable seamless interaction with decentralized applications (dApps) across various blockchains.

It operates with three off-chain agents: notary, guard, and executor:

• Notary: This agent transmits transaction messages from one chain (Chain A) to another (Chain B). Notaries must deposit a stake to perform their duties and earn a portion of the bridging fees upon successful completion.
• Guard: The guard monitors for fraudulent activity and verifies the notary’s data. If fraud is detected, the guard earns the staked crypto from the notary. Guards must also stake a certain amount, which can be forfeited if they are found guilty of fraud or false reporting.
• Executor: Once the fraud-check period ends, an executor finalizes the transaction on the destination chain, earning a share of the transaction fees. Executors do not need to stake to participate.

3. Synapse Chain

The Synapse Chain is an Ethereum-based optimistic rollup that serves as both the data availability and execution layer for the Synapse Interchain Network. It maintains the state of all chains connected to the network and processes transactions routed through it.

Additionally, the Synapse Chain acts as an interchain hub where developers can build and deploy applications, and it also manages the stakes deposited by notaries and guards.

Overall, Synapse Protocol addresses the challenge of liquidity fragmentation in the cryptocurrency space by offering robust cross-chain interoperability and efficient transaction processing.

Synapse & Ethereum’s rollup-centric scaling roadmap

Supporters of Synapse are increasingly optimistic about the protocol’s alignment with Ethereum’s rollup-centric scaling strategy. According to L2 Beat, Ethereum currently hosts 71 layer-2 chains, a number poised to rise as rollup-as-a-service models and blockchain modularity solutions simplify the creation of new rollup chains.

Daniel Cheung, co-founder of Syncracy Capital, highlighted this perspective, stating, “While cross-chain bridging volumes will continue to grow exponentially as the crypto economy expands multichain, bridging is just scratching the surface of the opportunity. The future is generic cross-chain messaging systems – a superset of cross-chain exchange.”

The proliferation of layer-2 solutions has led to fragmented liquidity across various chains, causing capital inefficiencies, challenges in cross-chain asset management, and a suboptimal user experience.

Proponents of Synapse argue that the Synapse Chain and the Synapse Interchain Network could effectively address these issues by standardizing cross-chain messaging and unifying the Ethereum layer-2 ecosystem.

McKenna, co-founder of Arete Capital, emphasized the growing demand for cross-chain capabilities, writing on X, “Applications inherently want to be cross-chain to reach the widest audience and maximize protocol revenue, while users seek cross-chain compute to tap into global liquidity.” He also suggested that SYN might be undervalued, noting that “the majority of people are underestimating the demand for interchain compute over the next five years.”

$SYN token price analysis

The early trading history of the SYN token on CoinMarketCap shows it was valued between $1.30 and $2.30 in September 2021. During the crypto bull market of 2021, SYN surged to an all-time high of $5 in late October 2021.

Since 2022, however, the SYN price has largely been rangebound, struggling to surpass a significant resistance level of $2. In March 2024, SYN reached a one-year peak of $1.96, driven by a broader market uptrend following the approval of spot Bitcoin ETFs in the U.S.

Despite this rally, SYN fell to an all-time low of $0.267 by August 5, 2024. The recent introduction of SYN perpetual futures contracts on Binance spurred a reversal in fortunes, leading to a remarkable 96% gain in the third week of August 2024.

As of August 20, 2024, SYN is ranked 309th among cryptocurrencies, with a market cap exceeding $101.7 million. In comparison, other interoperability-focused projects include Wormhole (W) at 99th place with a market cap of over $563 million, Axelar (AXL) at 122nd with a market cap of over $411 million, and LayerZero (ZRO) at 131st with a market cap of over $336 million.