Synthetix protocol, is a protocol for issuing synthetic assets, runs on the Ethereum blockchain. It essentially evolved the idea of stabelcoins by adding the ability to create a digital copy of a ny asset - both fiat currency and precious metals, for example. In doing so, the value of the synthetic asset is pegged to the price of the real asset. Synthetix is already up and running, its own trading platform has been launched, and early investors have received a good return on investment.
Synthetix includes an infrastructure of smart contracts and incentives that support Synthetix pricing. Synthetix network token is the basis for derivatives trading in DeFi, allowing anyone anywhere access to a wide range of financial instruments. By locking in a certain amount on a smart contract, customers can issue digital tokens linked to the value of fiat currency, gold or commodities. Players are rewarded for supporting the system. Thus, the value of SNX is directly linked to the use of the network for which it serves as digital fuel.
One of the disadvantages of traditional cryptocurrencies is that the volatility is too high. If a crypto's rate fluctuates within ±50% of its price at the beginning of the year, many would prefer to invest fiat money or spare cash in the stock market, for example.
Part of the problem is solved by the so-called stablecoin. The exchange rate of this coin is rigidly tied to a specific asset.
Who are the founders of Synthetix?
Synthetix is an Australian project founded in 2016 and used to be called Havven. After the rebranding, it has become more functional. Synthetix's founder is Blockchain Australia employee Kane Warwick.
The project's development strategy is to improve community members' participation in product development decisions. The Ethereum public smart contract network determines who owns Synthetix tokens. The Synthetix foundation, on the other hand, is in charge of developing the underlying protocol and configuring the incentive settings. Although the foundation initially compromised between centralisation and speed of development, the team aims to democratise the ecosystem. Steps in this direction are being taken by implanting decentralised governance methods.
The creators of the project went further and developed a system of 2 tokens:
- Token SNX provides liquidity in the system.
- Synths - a token whose value is linked to the price of a real asset (fiat, precious metals, shares of companies).
In theory, this solution should help popularise crypto in general, and make it easier to invest in different types of assets. Through Synth tokens, it will be possible to invest in currencies, precious metals, and stocks.
- Havven is a decentralised payment system in which settlements are made in stable coin without the involvement of intermediaries in the form of other assets. That is, sUSD can be directly exchanged for sGBP, for example.
- Nomin - a token that provides liquidity for s-tokens. The Nomin stock in the system is not constant.
SNX token characteristics:
- Token type - ERC20, uses the Ethereum blockchain
- SNX is a basic coin, used as an entry ticket for Synth tokens
- At the time of writing, the total number of tokens is 150480769 SNX
- Traded on KuCoin, Liquid, Gate.io, Kyber Network;n platform
- S-tokens are traded through Synthetix Exchange's ow
You can purchase and sell synthetic assets developed by other users on the Synthetix exchange. There is no third party between buyers and sellers on the exchange because it is completely decentralized. You do not need to register or verify your identity on the exchange; all you need to do is connect your wallet to begin trading. You can begin working with the platform after it is connected.
The exchange fee is 0.3%, which is higher than average for centralized exchanges, but at the level of other decentralized exchanges. The commission is distributed to users who have invested their cryptocurrency in the liquidity pools. This is to incentivise investment and to "freeze" SNX cryptocurrency into stacks. In addition to the transaction fees, the Ethereum [ETH] network will have to pay the transaction fees. As of March 17, 2021, the decentralized Synthetix Exchange is ranked 17th in terms of trading volume. This is not a good indicator. The market share in terms of transaction volumes is 0.28%. So far, the exchange only supports market orders. In time, the developers promise to introduce limit, stop-loss and other advanced forms of orders. The exchange supports trading with leverage.
On the Synthetix exchange, users' investments offer liquidity. The price of SNX tokens and the value of Synthetix assets can move in separate directions. For example, the value of SNX may fall while the value of sAu synthetic gold may rise. A 750 percent collateral ratio has been implemented to avoid a situation where a derivative asset is "unsecured." To put it another way, if you wanted to make $100 worth of synthetic assets, you'd have to put $750 worth of SNX tokens into the pool. This quantity is required to ensure that the pools always have enough funds and that the price has "room" to fluctuate without becoming unbalanced. When a user wishes to withdraw money from the site, the derivative assets synths he generated are burnt, and he reclaims the money.
The project's core decentralized application is Mintr. Users can invest in liquidity pools and issue synthetic derivatives through it. Any Web3-wallet can be used to connect to it.
SNX tokens are purchased - this is the backbone of the Synthetix system, without them s-tokens cannot be issued. Synth tokens can only be issued with a non-zero balance in the primary wallet.
How to start using Synthetix in the Philippines?
Token is earned by staking.
- Place SNX tokens in a compatible wallet, supported by: MetaMask, Trezor, Ledger and Coinbase Wallet.
- Go to https://mintr.synthetix.io and select the Mintr option.
- S-tokens are issued via a smart contract. In the Mintr app, you select e.g. "Buy sUSD" and depending on the amount specified, the smart contract locks a certain amount of SNX coins, using a leverage of 1 x 7.5. If you have 1000 SNX coins in your wallet and exchange rate is $0.75, you can release no more than 1000 x 0.75/7.5 = 100 sUSD.
- Blocked SNX data is recorded in XDR (Synthetix Drawing Rights). The XDR acts as a regulator and prevents excessive rate fluctuations.
- Synthetix smart contract then tells the Synth smart contract exactly how many s-tokens to issue.
When s-tokens are exchanged, a fee of 0.3% of the transaction volume is charged. A pool is formed from this money and then distributed to those who have "frozen" SNX tokens to provide liquidity within the system.
The distribution of the reward follows a proportional scheme. That is, if a total of 100,000 sUSD is issued, but your SNX has issued 1,000 sUSD, you can claim 1% of the collected commission.
If an SNX owner wants to unfreeze their crypto, they must 'burn' the same amount of sUSD that was previously created.
Where to buy?
The leading cryptocurrency exchange service is Binance. Four cryptocurrency pairs of Synthetix Network are supported here:
Ensuring a stable rate of s-token
Without a stable exchange rate of Synths tokens, the system cannot function. The constancy of the exchange rate is achieved by 3 methods:
- Arbitrage - if the rate of Synths falls below the 1-to-1 mark, those who previously secured the creation of s-tokens at the higher rate burn the s-tokens and make a profit. In doing so, the value of Synths approaches the 1-to-1 mark with the underlying asset.
- Uniswap liquidity pool consisting of sETH. On a weekly basis, a portion of the blocked SNX coins in it are redirected as a reward to those who have provided liquidity in the sETH/ETH direction.
- An arbitrage smart contract that maintains the sETH/ETH rate. If the value ratio changes by more than 1%, the contract automatically burns off some of the sETH and the rate aligns.
Note that s-tokens pegged to fiat currencies sometimes see price dips of 10+%. This is due to low liquidity.
- Easy access to synthetic assets
- Trading without warrants
- Reasonable fees
- SNX token staking
- Collaboration with defi projects (Curve, XSNX, Dhedhe)
What is the point of trading synthetic assets?
Synthetic assets give you access to an asset without requiring you to retain the underlying resource. This offers a number of advantages, including lowering friction when transitioning between assets (for example, from Apple stock to synthetic gold), expanding the availability of certain assets, and avoiding censorship.
The Synthetix exchange provides a lot of advantages over centralized exchanges. When there is no order book, all trades are made against a contract known as P2C (peer-to-peer) trading. Assets are assigned based on the exchange rate using the bank's pricing inputs.
Infinite liquidity up to the complete amount of collateral in the system, zero slippage, and indifferent chain trading are all possible with this method.
Because the mechanism transfers debt from one synth to another, no counterparty is necessary to swap. As a result, there is no need for order books or order matching, resulting in unbounded liquidity between synths. As the same value is burned out of the debt pool, there is no debt reflected in the debt pool.
Project Synthetix has a good image in the industry, its transaction volumes are growing and its tokens are showing strong growth. So far, Synthetix is the original successful project. It is the only major network in decentralised finance that specialises in derivatives. In theory, the project could claim a share of the gigantic financial markets. Grayscale, a large investment firm that invests heavily in cryptocurrencies, has a trust in Synthetix.