Synthetix is a decentralized digital platform that enables users to trade assets. It includes trading stocks, commodities, fiat currencies, and even cryptocurrencies such as BTC and MKR. Transactions are carried out without the interference of third parties such as central banks in traditional financing.
Synthetix was coined from the word “Synthetics”. It refers to assets created to emulate real-world assets in a market. You can operate it and make profits from it – and the user can do so without owning these assets. There are two major types of tokens available in Synthetix:
- SNX: This is the primary token accepted in Synthetix and is used to create synthetic assets. It uses the symbol SNX.
- Synths: assets in Synthetix are called synths and are used as collaterals for generating value for the fundamental assets.
Synthetix has appeared to be a very profitable DeFi protocol. It enables users to access real-life assets, mint, and trade with them in a decentralized way.
It also allows users to predict fixed outcomes of a position, if their prediction results are correct, the user wins a reward, but if not, the user loses the staked amount of cash.
Synthetix is a relatively new cryptocurrency and maybe new to you if you are new to the DeFi market. This Synthetix review will give you a clear understanding of it. So, let’s proceed to some fundamental knowledge of Synthetix.
History of Synthetix
Kain Warwick created the Synthetix protocol in 2017. It was initially created as the Havven protocol. This stablecoin raised roughly up to $30 million on estimate through the protocol’s ICO and sales of the SNX token in 2018.
Kain Warwick is a native of Sydney, Australia, and also the founder of Blueshyft. Warwick owns the largest crypto payment gateway in Australia that reaches over 1250 locations. He finally decided to hand over the role of a “benevolent dictator” in Synthetix to decentralized governance on the 29th of October, 2020.
During the early months of 2021, Warwick announced the possibility of Synthetix investors to access shares in US stock giants such as Tesla and Apple. As of the time of writing, there are over $1.5 billion locked in the Synthetix platform.
More About Synthetix
Synthetix asset, known as “Synths,” pegs its value to real-world assets. This process is done using tools called price oracles.
For a user to create new synths, they need to obtain SNX tokens and lock them in their wallets. As stated earlier, the values of the synth are equivalents of real-world asset values. So one must take note of this when engaging in a Synthetix transaction.
The SNX token is an ERC-20 token that functions on the Ethereum Blockchain. Once this token is stored in the smart contract, it enables the issuing of synths within the ecosystem. Currently, most of the Synths accessible to users are crypto pairs, currencies, silver, and gold.
Cryptocurrencies are in pairs; these are the synthetic crypto assets and inverse crypto assets. For example, one has sBTC( access to synthetic Bitcoin) and iBTC(inverse access to the Bitcoin), as the value of real Bitcoin (BTC) appreciates, so does sBTC, but when it depreciates, the value of iBTC appreciates.
How Synthetix Works
Synthetix project relies on decentralized oracles to get accurate prices for every asset it represents. Oracles are protocols that supply real-time price information to the blockchain. They bridge the gap between the blockchain and the outside world regarding asset prices.
The oracles on Synthetix enable users to hold Synths and even exchange the token. Through Synths, a crypto investor can access and trade some assets that were not previously accessible such as silver and gold.
You don’t have to own the underlying assets to use them. This is quite different from how other tokenized commodities work. For example, if it’s Paxos, once you own PAX Gold (PAXG), you’re the sole owner of the gold, while Paxos is the custodian. But if you have Synthetix sXAU, you don’t own the underlying asset but you can only trade it.
Another critical aspect of how Synthetix operates is that you can deposit Synths on Uniswap, Curve, and other DeFi projects. The reason is that the project is based on Ethereum. So, depositing Synths in the liquidity pool of other protocols enables you to earn interests.
To start the process on Synthetix, you need to get the SNX tokens in a wallet that supports them. Then connect the wallet to Synthetix exchange. If you aim to stake the tokens or mint Synths, you should lock SNX as collateral to enable you to start.
Don’t forget that you must keep your collateral at or above the required 750% to collect your staking rewards. If you’re also to mint Synths, this collateral is mandatory. After minting, everyone can use them to invest, pay transactions, trade, or do anything they please.
Synths minting makes you an expert at staking. So, you will get staking rewards depending on how many SNX you locked and the amount of SNX the system generates.
The system generates SNX through the transaction fees that users pay to use Synthetix. So, the number of people using the protocol determines the number of fees it generates. Also, the higher the fees, the higher the rewards for traders.
Most importantly, if you aim to trade, i.e., buying and selling Synth, minting is unnecessary. Get a wallet that supports ERC-20 crypto and get some Synths and ETH to pay the gas fees. You can buy sUSD with your ETH if you don’t have Synths.
But if you aim to simplify the process of staking SNX or minting Synths, you can use the Mintr DApp.
The Mintr dAPP
Mintr is a decentralized application that helps users to manage their Synths easily. It also supports other operations of the ecosystem. The interface is intuitive and user-friendly, making every Synthetix user understand and use the protocol easily.
Some of the activities you can do on the application include burning Synths, locking Synths, minting, and unlocking them. You can also collect your staking fees through Mintr, manage your collateralization ratio and send your sUSD to selling queues.
To perform all these activities, you must connect your wallet to Mintr to simplify many of these processes.
The Pegging Method on Synthetix
For the system to remain stable and provide unending liquidity, the pegged value must be stable too. To achieve that, Synthetix relies on three methods, namely: arbitrage, contributing to Uniswap sETH liquidity pool, and supporting SNX arbitrage contract.
Investors and partners
Six major investors have added huge funds to the Synthetix trading platform. Only one of the investors funded through Synthetix Initial Coin Offerings (ICO). The rest participated through varying rounds. These investors include:
- Framework Ventures –leading investor—(Venture round)
- Paradigm (Venture round)
- IOSG Ventures (Venture round)
- Coinbase Ventures (Venture round)
- Infinite Capital (ICO)
- SOSV (Convertible note)
The need for liquidity for Synthetix is to make it possible for users to trade without external interruptions. The synthetic assets in Synthethix get their values from the basic market, otherwise known as “derivatives.” Synthetix creates a platform for derivative liquidity trading and minting in Decentralized Finance.
The vital partners in Synthetix liquidity trading are:
- IOSG Ventures
- DeFiance Capital
- DTC Capital
- Framework ventures
- Hashed Capital
- Three Arrows Capital
- Spartan Ventures
- ParaFi Capital
Benefits of Synthetix
- A user can perform transactions in a permissionless way.
- Using Synthetix Exchange, Synths can be swapped with other Synths.
- The token holders provide the collaterals to the platform. These collaterals maintain stability in the network.
- Availability of peer-to-peer contract trading.
What assets are Tradable on Synthethix?
In Synthetix, one can trade Synths and inverse synths with a variety of assets. Transactions on these pair (Synth and Inverse Synth) can take place upon fiat currencies such as yen, pound sterling, Australian Dollar, Swiss franc, and lots more.
Also, cryptocurrencies like Ethereum (ETH), Tron (TRX), Chainlink (LINK), etc., have their own Synths and inverse Synths, even for silver and gold.
There is a broad possibility of trading any asset a user desires. The asset system includes commodities, equities, fiats, cryptocurrencies, and derivatives that aggregate a huge amount of money, summing up to trillions of dollars.
Lately, the FAANG (Facebook, Amazon, Apple, Netflix, and Google) stocks have been added to the platform for the users. Rewarding users with SNX tokens who provide liquidity to the Balancer pools.
- Synthetic fiat
These are real-world assets in the Ethereum network represented in Synthetic forms such as sGBP, sSFR. It’s not easy tracking real-world Fiats, but with synthetic Fiats, it’s not only possible, but it’s also easy.
- Cryptocurrency Synths
Synthetic cryptocurrency uses a price oracle to track the price of an acceptable cryptocurrency. The known price oracles for Synthetix are Synthetix Oracle or Chainlink Oracle.
- ISynths (Inverse Synths)
This tracks the inverse prices of assets using the price oracle. It’s very similar to short-selling Cryptocurrencies and is accessible for crypto and indexes.
- Foreign Exchange Synths
Foreign Exchange prices are also simulated using the price Oracle in synthetix.
Commodities such as silver or gold can be traded upon by tracking their real-world value to their synthetic values.
- Index Synth.
The prices of real-world assets are being monitored and accurately tracked by price oracle. It can include either a DeFi index or a traditional index.
Why Should You Choose Synthetix
Synthetix is a DEX that supports synthetic assets. It allows its users to issue and trade different synthetic assets in the Decentralized Finance space. On the platform, Synths represents all the synthetic assets that users can trade.
For example, users can purchase a given amount of Tesla stock, fiat currency, or even commodities in their synthetic forms. The good thing is that they can complete these transactions without intermediaries with restricting regulations.
Also, Synthetix permits them to transact while charging lower fees. This is how Synthetix creates very interesting offers for its users.
Collateralization Strategies on Synthetix
One major challenge that faces Synthetix is that of maintaining a collateralized system. Sometimes, some situations arise where the prices of Synth and SNX move inversely and keep moving further apart. The challenge now becomes how to keep the protocol collateralized when SNX price drops but Synths price rise.
To salvage that problem, developers integrated some mechanisms and features to ensure consistent collateralization, despite the prices of Synth and SNX.
Some of the features include:
- High collateralization requirement
One feature that keeps Synthetix afloat is the 750% collateralization requirement for issuing a new Synths. The simplest explanation is that before you mint synthetic USD or sUSD, you must lock up 750% of its dollar equivalent in SNX tokens.
This collateralization which many perceive as large serves as a buffer for the Decentralized exchange during unforeseen market volatility.
- Debt-driven operations
Synthetix changes locked-up Synths generated during minting operations into outstanding debts. For users to unlock the Synths they’ve locked, they’ll have to burn Synths up to the current value of Synths which they minted.
The good news is that they can repurchase the debt by using their 750% collateral locked-in SNX tokens.
- Synthetix debt pools
Synthetix developers integrated a debt pool to cushion the whole Synths in circulation. This pool is different from the one a user gets for creating Synths.
The calculation of personal debts on the exchange depends on total minted Synths, the number of Synths in circulation, the current exchange rates for SNX, and the underlying assets. The good news is that you can use any Synth to repay the debt. It mustn’t be with the particular Synth you minted. This is why Synthetix’s liquidity seems to be unending.
- Synthetix Exchange
The exchange supports buying and selling of many Synths available. This exchange operates through smart contracts, thereby eliminating the need for third parties or counter-party interferences. It is also open for investors to buy or sell without any issue of low liquidity.
To use the exchange, simply connect your web3 wallet to it. Afterward, you can carry out conversions between SNX and Synths without restrictions. On Synthetix exchange, users only pay 0.3% for using it. This fee later goes back to SNX token holder. By doing that, the system incentivizes users to provide more collateral.
This is another feature that keeps Synthetix collateralized. Developers added inflation to the system to incentivize Synth issuers into minting new Synth. Even though the feature was not in Synthetix at the beginning, developers discovered that issuers needed more than the fees to mint more Synth.
How to Get the SNX tokens
Suppose your Ethereum wallet contains some crypto, you can trade SNX on exchanges such as Uniswap and Kyber. Another way to get it is by utilizing the Mintr decentralized application that facilitates staking and trading.
On the dApp, you can stake SNX, and your staking operation will lead to creating new Synths.
Risks surrounding Synthetix
Synthetix is very beneficial in the DeFi space. It has at least helped investors to earn more returns on their investments. Also, it has opened lots of opportunities for Defi enthusiasts to utilize. However, there are some risks to using the system.
Even though there’s hope that it will last very long, there’s no guarantee to it. The developers are still working to improve on it. So, we can’t really know how long it will last in the Defi space. Another aspect is that users may have to burn many Synths above what they issued to reclaim their SNX.
A more frightening risk is that many systems like Synthetix may still be at the ideation age now, waiting for the time to launch. If peradventure they have more to offer, investors may jump ship. Other risks are related to how Synthetix relies on Ethereum, which may become worrisome tomorrow.
Also, Synthetix may face issues of fraud if it fails to track asset prices on its exchange. This challenge is responsible for the limited number of currencies and commodities on the platform. That’s why you can only find gold, silver, major currencies, and cryptocurrencies with high liquidity on Synthetix.
Finally, Synthetix may face the challenges of regulatory policies, decisions, and laws. For instance, if the authorities one day categorize Synths as financial derivatives or securities, the system will be subjected to every law and regulation governing them.
Synthetix Review Roundup
Synthetix is a leading DeFi protocol that supports the utilization of synthetic assets for good returns. It also equips users with lots of trading strategies that ensure their profits. With the way the system operates, it won’t surprise anyone if it creates a vast tokenized market on its host blockchain.
One of the things we can applaud about Synthetix is that the team aims at improving the financial market. They’re bringing more features and mechanisms to ensure that they modernize and revolutionize the market.
We can say that everything will work out perfectly. But there’s hope that Synthetix will push higher with the efforts of the team.