19:43 | 28/01/2021 Print
Synthetix is an Ethereum-based protocol for the issuance of synthetic assets. Analogous to derivatives in legacy finance, synthetic assets are financial instruments in the form of ERC-20 smart contracts known as “Synths” that track and provide the returns of another asset without requiring you to hold that asset.
You can trade Synths — which range from cryptocurrencies, indexes, inverses, and real-world assets like gold — on Kwenta, Synthetix’s decentralized exchange (DEX). Synthetix’s native token, the Synthetix Network Token (SNX), is used to provide collateral against Synths that are issued.
To understand Synthetix, it is necessary to understand the utility of Synths and their role in the decentralized finance (DeFi) ecosystem, according to Gemini.
Synthetix started as a stablecoin project called Havven and was founded by Kain Warwick, the current CEO. Synthetix is now one of the biggest projects in DeFi with over $180 million worth of SNX tokens locked up in the protocol in December 2019.
Synthetix uses a multi-token infrastructure based on a system of collateral, staking, inflation, and fees. The system uses two types of tokens–the main Synthetix Network Token (SNX) and synthetic assets or Synths. The system is similar to MakerDAO’s where ETH is locked up to create DAI. In Synthetix, SNX is locked up to create sUSD (synthetic USD). The sUSD acts as debt while SNX acts as the collateral. The main difference between Synthetix and MakerDAO is SNX is staked as collateral to potentially create any synthetic asset–not just sUSD.
One of the core requirements of the Synthetix system is the ability to get accurate information from the “outside world” such as the price of the Japanese Yen – and eventually the price of stocks like Tesla. To get this price information, Synthetix was previously using centralized price feeds or oracles, which were vulnerable to manipulation and exploitation. Now they have partnered with ChainLink and their decentralized oracle system to reliably bring information to the blockchain without needing to trust a central party – very DeFi, Decrypt expressed.
The SNX token is the backbone of the Synthetix protocol. It is SNX which is used as collateral in Synthetix to create new synthetic tokens. This is similar to how ETH is used as collateral in MakerDAO to mint DAI. Similar to DAI, once a Synth token is created, anyone can trade it. It’s possible to trade Synthetix tokens on the Synth marketplace, you don’t have to mint your own. That being said, there are a couple of reasons to stake SNX and mint your own tokens.
|SNX stakers can earn a percentage of all of the fees that are generated from traders using the Synthetix exchange. |
SNX is an inflationary currency. From March of 2019 to August of 2023 there will be an additional 160 million SNX tokens created. All of these tokens will be distributed to SNX stakers, which means that someone who stakes for that entire duration could possibly see the amount of SNX that they’re holding double, Exodus sited.
Synthetix has a built-in DEX interface that enables users to trade without an account. The DEX currently offers 19 assets to trade and 31 trading pairs. All you need to do is visit the Synthetix exchange and connect any web3 wallet like MetaMask. It has a slick but simple interface that eases users’ experience while trading.
Synthetic exchange charges both maker and taker fees with 0.30% which is higher than the industry standard of 0.05-0.25%. The fees will be used to reward the stakers for providing liquidity to the platform.
Furthermore, users will also be charged Gas fees by the Ethereum network. For now, all these fees could add up which might be a hindrance from the greater market to fully adopt DEXes for all their trading needs.
In time, when Ethereum finally scales, gas fees should be low enough to become negligible. DEXes like Synthetix don’t require withdrawal fees (except for Gas) since trades are conducted directly from wallet to wallet, Boxmining noted.
Synthetix is a protocol that mints new synthetic assets with cryptocurrencies, such as Ether (ETH), as collateral. This allows users to borrow and trade various assets with many cryptocurrencies on a DeFi derivatives platform.
Staking is another feature that is likely attracting users due to its relatively high annualized percentage yield based on the protocol’s cash flow mechanism. Essentially, the fees that occur from trading on Synthetix are collected and distributed pro-rata to SNX stakers.
The combination of a spike in interest in Synthetix from the Coinbase listing and the platform’s overall rise in user activity likely triggered the 100% rally since late November.
According to DeFi Pulse, which tracks the total value locked in the DeFi ecosystem, Synthetix now ranks fifth, just behind Uniswap. Over $1.2 billion worth of assets are now locked in or staked in the Synthetix ecosystem, posting massive growth over the past month.
On Nov. 3, the total value locked (TVL) in Synthetix was around $421 million, which means the TVL has almost tripled in less than two months, Cointelegraph reported.
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