Synthetix is a permissionless derivatives platform built on Ethereum. Synthetic assets (called Synths) are created by staking Synthetix Network Tokens (SNX) which can be traded directly on the Synthetix exchange. Synthetic assets provide exposure to real-world derivatives without having to maintain custody of the underlying asset while avoiding slippage, delays, or exchange withdrawal fees.
In this article, we’ll dive into how to stake SNX to mint sUSD and earn rewards. But first, let's examine the overarching Synthetix economy.
Synthetix Token Economy
The Synthetix Network Token is an ERC20 utility token which powers the Synthetix ecosystem through staking and subsequent Synth minting.
Users who stake SNX receive rewards from two sources: trading fees from the Synethetix Exchange and SNX weekly via inflation. These mechanisms are designed to drive the desired behavior in the Synthetix network and reward users for staking. As a result, the vast majority of SNX is being staked, with roughly 80% of the total at any given time.
Trading Synths on Synthetix.Exchange incurs a 0.3% fee which is collected and distributed proportionally to SNX stakers pro-rata balance.
In March 2019, Synthetix introduced an inflationary money supply for extra staking rewards. An overview of the inflationary policy is shown in the table below, driven by a weekly 1.25% inflation rate decrease:
This inflationary structure will conclude in September 2023 at a supply of roughly 250 Million SNX, at which point the protocol will switch to a flat 2.5% annual issuance rate.
sUSD is Synthetix native stablecoin. sUSD is used to trade Synths on the Synthetix Exchange and is minted through SNX staking.
Users can earn incentives by providing liquidity to sUSD pools on iEarn using this tutorial.
Synths are Synthetix-native assets that trade on the Synethetix Exchange. Synths are minted into the market against the value of the SNX staked to create them. The current target collateralization ratio is 800%, meaning if a user’s collateralization ratio drops below 800% collateralization, they will be unable to claim rewards until it’s brought back above the target ratio.
SNX stakers incur debt when they mint Synths, and to exit the system this debt must be paid off by burning Synths. SNX remains staked and is non-transferrable until the proper amount is burned through Mintr.
Synths can be used for a variety of purposes including long-term investing, trading, and remittance. They currently represent assets including forex currencies, cryptocurrencies, inverse cryptocurrencies, commodities (i.e. gold and silver), and indices with price information supplied by oracles. Details on SNX and all currently available Synths can be found at https://www.synthetix.io/tokens.
Walkthrough (SNX Staking/sUSD Minting & Rewards)
Note: You may have to click ‘unlock’ after choosing SNX to approve the smart contract for trading.
After a user has acquired SNX, they will open Mintr and connect with the wallet that contains the tokens. Users will see a homepage with their wallet details on the left and functionality options on the right.
To stake SNX and mint sUSD click the ‘Mint’ box. Input the amount of sUSD you would like to mint, triggering the corresponding SNX that will be staked. Please take note of the estimated collateralization ratio (c-ratio), and Ethereum network fees. Users can easily stake all of their SNX by clicking the ‘Max’ button in the sUSD box.
In this example we staked the entirety of our whopping 10.17 SNX tokens to mint ~0.88 sUSD. After clicking ‘Mint Now’, users must approve the transaction in their wallet. Once the transaction is confirmed, the SNX is automatically staked with sUSD being returned. Users are able to monitor their current collateralization ratio in the wallet details section of Mintr.
Once a users has acquired sUSD (which can also be purchased directly on Uniswap) they can begin trading for other Synths on Synthetix.Exchange.
Please note that in order to collect rewards, the collateralization ratio must stay within 1% of the Synthetix target ratio (800%). Secondly, users must pay back their sUSD debt in order to unlock staked SNX.
By clicking the ‘Claim’ box on the Mintr homepage, users can keep track of and claim their rewards, broken down by Synth exchange fees and SNX staking rewards from inflation. It will also display when the next reward period ends and whether a claim is open or closed based on the current collateralization ratio. Rewards must be claimed within 7 days of issuance or they will be forfeited and rolled over into the fee pool.
To stop staking and free up SNX, click the ‘Burn’ option from the Mintr homepage. From here, users can burn any amount of sUSD or click ‘Fix your Collateralization Ratio’ to automatically select the sUSD amount that will bring the position to the target ratio. The amount of SNX unlocked will be proportional to the sUSD burned and based on the collateralization ratio.
Note: After minting sUSD, there is an 8 hour waiting period before you can burn it.
Staking SNX is a great way to put your assets to work. We largely recognize that 800% collaterlization makes it difficult to earn substantial fees, however the process of learning how to stake and collect rewards is valuable in and of itself.
In the coming months we will update this tutorial with how to create Synths using the new Skinny ETH option, effectively allowing users to mint new Synths using Ether, rather than only being able to do so with SNX.
If one thing is for sure, Synthetix continues to deliver a strong suite of opportunities for users to earn passive income by leveraging their products. To learn more about how else you can earn a return by using Synthetix, check out this tutorial on sETH & sUSD liquidity incentives.