Synthetix is a decentralized synthetic asset issuance protocol allowing users to mint, hold and trade a diverse range of derivatives including fiat currencies, commodities, and stocks, as well as cryptocurrencies like BTC, MKR and LINK. With Synthetix, users are able to gain both long and short exposure to all assets on the platform.
The protocol’s synthetic assets, known as Synths, are collateralized by the Synthetix Network Token (SNX) to drive value and liquidity to the underlying assets. Synthetix plays a vital role to the DeFi ecosystem as it provides increased accessibility to traditional financial assets as well as a wider range of more sophisticated trading strategies.
Synthetix also offers binary options, a way to purchase a position on a Yes or No outcome over a predefined period of time. You can view a list of all options currently available here or learn more about how they work here.
Underpinning the Synthetix ecosystem is a vast number of liquidity incentives, rewarding traders for providing capital to different components of the Synthetix ecosystem. The best place to stay up with ongoing liquidity incentives is through Mintr under the LP rewards tab.
Originally founded as Havven, Synthetix raised an estimated $30M in early 2018 through an Initial Coin Offering (ICO) and the sale of their native token, SNX, from major crypto funds like Synapse Capital.
The team is led by founder Kain Warwick who has previous experience building the largest cryptocurrency payment platform in Australia. Other notable team members include CTO, Justin Moses, and Jordan Momtazi who lead Synthetix’s business development initiatives.
Why is Synthetix Important?
Derivatives and other traditional financial assets are a massive market, aggregating hundreds of trillions in total value. With that, Synthetix provides a mechanism for those legacy assets to live on Ethereum in a decentralized and permissionless fashion.
With Synthetix, anyone in the world can gain exposure to Apple or Tesla stock without having to deal with the high frictions of financial regulations. Moreover, traders have a way to easily access a basket of crypto assets in both long and short form.
With all of that in mind, Synthetix creates a permissionless, decentralized protocol for minting synthetic assets within the Ethereum ecosystem and earning a fee for doing so. Given that Ethereum is a globally accessible platform, the ability to earn a small fee from anyone in the world buying a synthetic version of Apple stock, gold, or fiat currencies becomes extremely attractive for any DeFi user with a sufficient amount of collateral to do so.
How Does it Work?
The Synthetix Network features two main assets: SNX (the native token) and Synths (the synthetic assets).
In order to mint a Synths like sUSD, token holders lock SNX as collateral. All Synths are minted relative to the value of locked SNX at a given collateralization ratio. Once minted, anyone in the world can access those synths to be used for a variety of use cases including long-term investing, trading, and remittances.
The primary Synth minted is the platform’s native stablecoin, sUSD, which offers an onramp to trade any of the other Synths offered on the Synthetix Exchange.
In return for collateralizing SNX, stakers earn rewards based on the fees generated via the Synthetix.Exchange. Seeing as all Synths are traded on the Synthetix Exchange, the more Synths minted and used for any of the aforementioned use cases, the more fees SNX stakers stand to earn from trading fees.
The collateralization ratio affects the number of Synths which can be minted at any given time. As it stands today, the minimum collateralization ratio for Synths stands at 750%. If the ratio drops below 750%, fees will be unclaimable until the ratio is brought back to 750% or above. The purpose of this mechanism to ensure SNX holders maintain the network’s collateralization ratio as well as keeping stable Synth prices.
With all of that in mind, there’s a handful of applications built on top of the Synthetix protocol in order to make minting and trading Synths as easily and accessible as humanly possible.
Mintr is the primary dApp within the Synthetix Network providing an intuitive user interface for minting Synths and participating in the ecosystem at large. With Mintr, SNX holders can perform a wide range of different actions including minting and burning Synths, managing their collateralization ratio, earn fees generated from the exchange, unlocked staked SNX, and more.
Users can connect to Mintr via web3 wallets like MetaMask, Ledger, Trezor, and Coinbase Wallet. Once connected, users can perform any of the aforementioned actions assuming they have a sufficient amount of SNX in their wallet.
Synthetix.Exchange provides an intuitive and seamless interface for users to buy and sell any Synths available on the platform. The exchange is accessed by connecting the web3 wallets mentioned above, allowing users to easily convert to and from different Synths.
As of writing, apart from ETH gas, the current fee for all Synth exchanges is 0.30%. These fees are distributed to SNX holders who are providing collateral for backing the Synths.
SNX tokens are staked as collateral in order to mint new synthetic assets (Synths). SNX Stakers are incentivized to create Synths by earning fees generated from the Synthetix Exchange. As mentioned above, the current fee for all Synth trades is 0.30%.
By minting Synths, SNX stakers incur debt. In order for users to exit the system and unlock their SNX, they must pay back the value in Synths minted via burning.
Back in March 2019, Synthetix implemented an inflationary monetary policy to incentivize SNX stakers. Upon doing so, the network saw a dramatic increase in SNX participation as well as value appreciation.
The inflationary policy stated that the total SNX supply will increase from 100,000,000 to 260,263,816 between March 2019 and August 2023, with the issuance rate decaying at a weekly rate of -1.25% every week. Once the SNX supply hits the threshold in August 2023, the protocol will shift the issuance rate to a fixed 2.5% terminal inflation rate in perpetuity.
Synthetix offers derivatives and other synthetic assets to DeFi users, effectively providing access to a range of specialized trading strategies. Given that traditional financial markets aggregate hundreds of trillions in value, Synthetix has an expansive addressable market for tokenizing those assets on Ethereum.
For those of you interested in staying up to date with Synthetix, you can join their Discord or follow them on Twitter. If you’re interested in staking SNX or minting new Synths, you can use their decentralized application, Mintr. If you’re looking to acquire or trade SNX or any of the synths, visit the Synthetix.Exchange. Lastly, if you’re simply just curious about how Synthetix is performing as a platform, you can visit the official dashboard.