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Table Of Contents
What is Synthetix?
Synthetix is a DeFi protocol built on Ethereum, which issues synthetic assets. Their native token is Synthetix Network Token (SNX). To issue synthetic assets, the native token of Synthetix SNX must be locked in a contract. The synthetic assets represent the real-world assets on Synthetix Network and are known as synths.
So what are the benefits of the collateral model that Synthetix follows for the issuance of synthetic assets? Well, it removes the need for any counterparties for conversion between synths. Instead, all conversions between synths are through smart contracts. Another benefit of this model is that it solves the infamous liquidity and slippage issues common on decentralized exchanges.
Now, let's talk about what synths are and what type of synths are available for trading on Synthetix. As we said, synths mimic the real-world asset in terms of prices. As for the assets available for trading on Synthetix, it can be any real-world asset. It isn't limited to cryptocurrencies alone. Currently, there are four types of assets available on Synthetix for trading. These are crypto, forex, equities, and commodities.
At the time of writing, there are 36 crypto synths available for trading on Synthetix, which includes sBTC, sETH, sBNB, sLTC, sLINK, sETS, sXMR, and more. As for forex, Synthetix supports trading of 7 synths, which includes sUSD, sJPY, sEUR, and more. Users can trade three equities on Synthetix: sFTE, sNIKKEI, and sTSLA. Commodities available for trading on Synthetix include sXAU, sXAG, sOIL, and iOIL.
Users also have an option to stake their SNX tokens on Synthetix. In return, they are paid a part of fees generated on the Synthetix platform in proportion to their contribution. It means that with SNX tokens, users can earn a share of fees that Synthetix earns through its exchange. Additionally, they also receive a right to participate on the Synthetix Network. If you are wondering how SNX tokens derive their value, then you have your answer here.
Synthetix is the brainchild of Cain Warwick. He holds a BSC in Genetics from UNSW Sydney. Along with his involvement in Synthetix as a founder, he is also an advisory board member & investor in The Burger Collective, Founder & Non-Executive Director of Blueshyft, and Advisory Council Member of Blockchain Australia.
The first synth on Synthetix was released on June 11, 2018, and it was nUSD, a stablecoin. At the time of launch, this project wasn't known as Synthetix. Instead, it was known as Havven. The name change took place in December of the same year. At that time Synthetix platform could support over 20 synths. Today, Synthetix has come a long way benefiting from the DeFi space growing at a rapid pace. It became one of the leading names and achieved tremendous growth within a couple of years. Now, Synthetix is one of the largest DeFi protocols with $1.66 billion worth of value locked.
What Problem Does Synthetix Solve?
The crucial problem that Synthetix solves is that it makes it possible for users to gain exposure to assets that they wouldn't have been able to otherwise. For instance, users who have no way to buy Tesla shares can, instead, go to Synthetix, collateralize SNX tokens, and receive sTSLA in return. In many places, it is very difficult for people to find a credible platform for trading real-world assets. It could be for multiple reasons, including regulatory challenges.
As Synthetix is a DeFi platform, any user in the world with an internet connection and SNX tokens in their wallet can create synths, which mimic the prices of real-world assets like Gold, Silver, Bitcoin, Ethereum, Oil, and more. Many users may also prefer trading on Synthetix as it doesn't require a user to complete the KYC process to trade on the platform, unlike the traditional financial platforms.
Another problem that Synthetix solves is slippage and liquidity, which are common among decentralized exchanges. Synthetix does not suffer from slippage and liquidity problems as no counterparties are required to facilitate trade between synths on the platform.
How Does Synthetix Work?
The most crucial part of Synthetix is decentralized oracles, using which Synths track the prices of real-world assets. Decentralized oracles feed the price of real-world assets to Synthetix in real-time. Thus, holding synths is similar to owning real-world assets as they mimic the underlying assets.
Using decentralized protocols, Synthetix allows its users to trade a variety of assets, including gold and silver. The benefit of trading synths of gold, silver, and more on Synthetix is that you can trade them easily and benefit from holding the synthetic version of real-world assets without actually owning them.
Are you wondering if synths are tokenized assets? Actually, they are not! For instance, buying tokenized assets, which are backed by real-world assets like gold, gives you the right over the underlying assets, too. On the other hand, owning Synths does not mean you are the owner of any underlying asset that exists outside Synthetix Network. Instead, buying synths only gives you exposure to the respective asset without the ownership over the underlying asset.
You can also leverage platforms like Uniswap to earn interest on synths by providing liquidity. After all, synths, too, are issued on Ethereum. Now, the question is that what crucial role do synthetic assets play? Increasing demand for synthetic assets means the market has reached a point where traders can use synthetic assets to hedge against volatility. It serves as an indication that the market is becoming mature.
Now, let's understand in short how Synthetix works. There are two cryptocurrencies that Synthetix leverages for minting synthetic assets. The first one is SNX, the native token of Synthetix. The second token is Synth, the token that represents real-world assets and mimics their prices.
Let's say a user wants to generate a synth. So first, the user must buy SNX, and then, the user will have to collateralize the SNX token on Synthetix. Once these steps are complete, the user will receive a synth of his choice from the Synthetix platform. But there is one thing that the user must remember when creating a synth – The value of the collateralized SNX tokens must be equal to or more than 750% of the synth's value. To understand the rule better, imagine a scenario where a user deposits 5000 Euros worth of SNX tokens to create sEUR. In return, the user will receive sEUR worth $666.
Synthetix Tokens (SNX)
As we said in the beginning, Synthetix wasn't always known by that name. In its early days, the project began as Havven. It had also raised a sum of $30 million through ICO. The tokens were called Havven tokens back then, and their total supply was only 100 million. But in December 2018, Havven transformed and was relaunched as Synthetix. Now, its token was called Synthetix, and its total supply was 250 million.
As per the distribution schedule of SNX tokens, the total number of SNX tokens will be 175 million in March 2020. The supply of SNX tokens will increase every year from March thereon till 2024. The first increase will be in March 2021, when the number of SNX supply will touch 212.5 million from 175 million, which would mean a 21% increase. The next increase in the supply of SNX tokens will come in March 2022, with a growth rate of 9%. The total supply of SNX tokens will become 231.25 million in March 2022.
There will be another increase of 4% in the supply of SNX tokens in March 2023, compared to the number of SNX tokens in March 2022. So, by March 2023, the supply of SNX tokens will reach 240.625 million. The final increase in the number of SNX tokens will be in March 2024. Between March 2023 to March 2024, the growth rate in the number of SNX tokens will be 2% and will touch 245,312,500 SNX.
Now, the question is why there wasn't a sudden drop in the prices of SNX tokens after Synthetix announced a considerable increase in the supply of SNX tokens. It didn't happen because Synthetix placed a safeguard mechanism to prevent a fall in the prices of SNX tokens. Any SNX tokens that users received as a reward between March 2019 to March 2020 were locked to prevent users from selling in an open market. Synthetix had to place a safeguard mechanism as a fall in the prices of SNX tokens could have been disastrous for Synthetix. It would have decreased the value of the collateralized SNX tokens Synthetix had.
Layer 2 Integration
Synthetix is an Ethereum-based platform, and we know the Ethereum blockchain is facing many issues to scalability issues due to unprecedented growth in the number of DeFi transactions. With ETH 2.0 still years away from final implementation, Synthetix has been working hard to integrate Layer 2 scaling solutions. In September 2020, Synthetix began working with Optimistic Ethereum, an independent layer 2 technology provider.
Anyone who participated on the testnet received SNX tokens as an incentive through an airdrop. Synthetix finally announced the launch of Castor, an L2 platform, in mid-January 2021. They came out with another announcement in March 2021, saying that its transition to the Layer 2 solution is progressing well. It shows that the platform, though not fully ready yet, is showing promising results for Synthetix.
How to Buy Synthetix (SNX)
Synthetix (SNX) is available on the following exchanges:
Uphold – This is one of the top exchanges for United States & UK residents that offers a wide range of cryptocurrencies. Germany & Netherlands are prohibited.
Kraken – Founded in 2011, Kraken is one of the most trusted names in the industry with over 9,000,000 users, and over $207 billion in quarterly trading volume.
The Kraken exchange offers trading access to over 190 countries including Australia, Canada, Europe, and is a top exchange for USA residents. (Excluding New York & Washington state).
WazirX – This exchange is part of the Binance Group, which ensures a high standard of quality. It is the best exchange for residents of India.
Uphold Disclaimer: Terms Apply. Cryptoassets are highly volatile. Your capital is at risk. Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment, and you should not expect to be protected if something goes wrong..
Synthetix – Decentralizing the way World Trade Assets
Synthetix is reaping the benefits of being the first mover in the synthetic assets space. Considering that the global derivatives market is worth billions of dollars, Synthetix has a lot to gain in the coming days. There is no doubt that Synthetix is among the most complicated protocols in DeFi. But at the same time, it is one of the most innovative DeFi protocols. By bringing real-world assets onto the world of blockchain, Synthetix has truly connected the traditional financial industry with DeFi. Overall, the future seems bright for Synthetix.
Gaurav started trading cryptocurrencies in 2017 and has fallen in love with the crypto space ever since. His interest in everything crypto turned him into a writer specializing in cryptocurrencies and blockchain. Soon he found himself working with crypto companies and media outlets. He is also a big-time Batman fan.
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