Many traders profited handsomely from the DeFi token surge this summer, primarily at the expense of extremely young enterprises. There were, however, some true "dinosaurs" among them, made long before the cryptocurrency community became enamored with DeFi.
One of them is Synthetix, an Australian project that, unlike most copycat "swapaloks" and "farmiloks," offers a unique ecosystem for making money from staking and trading synthetic derivatives.
Let's take a detailed look at how Synthetix works, the role of SNX token in it and the reason why investors are interested in it, without forgetting to mention the pitfalls of this project.
What is Synthetix?
Synthetix is one of the pioneers of decentralized finance. It started in 2017, long before the DeFi boom. Initially, the project was called Havven and was dedicated to the steblecoin of the same name.
In February 2018, it received a $30 million investment as part of its token ICO. In the fall of the same year, the project was rebranded to Synthetix, and its original ideas were significantly modified.
Today Synthetix is a decentralized blockchain protocol for the creation and exchange of synthetic assets (synths) on the Ethereum network.
Synths are ERC-20 tokens that track the rates of external assets like as fiat currencies, stocks, commodities, and, of course, cryptocurrencies.
Synthetics allow traders to profit from trading marketable assets without actually possessing them. That is, it functions similarly to derivatives within the Ethereum network's closed ecosystem.
At the time of this writing, Synthetix has over $700 million in blockchain, making it 8th in the top 10 overall DeFi projects and first in the Derivatives category (according to DeFi Pulse).
The principle of Synthetix
Synthetix is essentially a set of interconnected smart contracts and incentives that help maintain the synth rate. Synthetix's native token (SNX) is used to provide them, locked by smart contracts in a collateral pool.
This model enables mutual exchange of syncs without the problem of slippage due to the lack of liquidity inherent in many decentralized exchanges.
The Synthetix ecosystem currently consists of three elements:
- Mintr - the interface for stacking and issuing synths.
- Dashboard - a dashboard which contains all the summary information about the system's finances, stacking and issued syncs.
- Synthetix.Exchange - an internal exchange where the released synths in the system are traded.
The synths are traded on the exchange without the usual stock exchange. The counterparty in this case are SNX stakers, which take the debt risks of the system after the tokens are deposited in the pledge pool.
Current synth rates are provided by private oracles that are outside the system. Together, all stakers create debt, the amount of which can vary depending on the SNX rate and the number of synthetic assets within the system.
Users who participate in the system receive several types of rewards. To do so, they must provide SNX tokens with a pledge ratio of 750% (a different value may be set in the future).
Two types of actions can be taken to equalize it: if it is less than the required threshold, synthetic assets are partially burned, if it is more, their number is increased by an additional issue of synths.
Synthetix Network (SNX) is an ERC-20 utility token that acts as collateral in the system of the same name for issuing synths and receiving rewards from system participants.
It was first issued in early March 2018, a week after the ICO.
The project's monetary policy has an inflationary model, according to which SNX token issuance is expected to increase annually - from 2019 to 2024, the number of tokens should change from 100 million to 245.3 million.
During its initial listings, SNX traded at $0.45 to $0.5. The lowest price per token was seen in early 2019. At that time, the exchange rate had been looking for a bottom around $0.032 for several months.
The maximum rate was recorded at the peak of the DeFi boom in early September 2020 - $7.86.
How to start use Synthetix in Malaysia?
Buying on an exchange.
The SNX token has been traded on exchanges since March 2018. During that time, it has been poured into about a hundred exchanges. The most reliable options to buy SNX are top exchanges like Binance, Gemini, Kraken, KuCoin, Gate, Bitfinex.
If we talk about decentralized exchanges, there are also many options - Uniswap, Sushiswap, Balancer, Mooniswap, 1inch, etc.
Receiving as a reward
Members of the system who send their SNX to the pledge pool qualify for two types of rewards:
- Weekly payments from the pool, which is replenished by commissions charged on exchange transactions (0.3% of each transaction).
- Synthetix inflationary policy remuneration.
Both the commissions from the exchange and the tokens issued each year are distributed among the participants proportionally. This is taken into account when they meet the condition of maintaining the pledge ratio at the required level (at least 750%).
Important point: the remunerations accrued to the stackers can be withdrawn only after the expiration of the escrow period - after 12 months.
Creating synths in the Synthetix system and depositing SNX as a pledge (essentially, staking) is done through the Mintr web application.
To work with it, you need to authorize by connecting your ETH wallet in one of the supported ways, for example, through MetaMask.
After connecting we will see the interface, through which all the basic operations with Synthetix system are carried out. The panel on the left contains summary information about the connected wallet - current and target pledge ratio, number of SNX, ETH and synths on the balance. It also has data about free, blocked and deposited funds.
To the right will be buttons for interacting with the Synthetix system. For example, the Release command is used to release synths. Next, you need to specify the amount of sUSD (only this option is available for now) that you want to get for the pledged SNX.
The system will not let you release more sUSD than you can provide with the 750% pledge ratio (e.g. you need 750 SNX to release 100 sUSD). There you can also see the amount of commission for the release operation and edit it if necessary.
If everything is satisfactory, all you have to do is click Release and confirm the transaction.
After it is processed by the Ethereum network, the issued synths will appear on the balance and can be used for transactions via Synthetix.
Let's take a brief look at the rest of Mintr's functionality:
- Burn - allows you to burn sUSD to unlock invested SNX by increasing the pledge ratio.
- Get - tool to collect accumulated rewards (exchange commissions and for participating in the system).
- Exchange - exchange sUSD for other synths.
- Send - move your ETH, SNX, or synths to any other address in the blockchain.
- Track - statistics on the change of the pledge.
Since Synthetix runs on the Ethereum blockchain, you need to pay a commission in ETH for all transactions made through the Mintr interface.
At Synthetix.Exchange, all assets are traded in pairs with each other and with sUSD. The latter synth is pegged to the U.S. dollar exchange rate, i.e. it is a Stablecoin.
The other tokens that are available on the site come in two types:
- With the prefix "s" first - synths that directly replicate the price of the assets they are counterparts to (sBTC, sLTC, etc.).
- With the prefix "i" - inverted syntheses, which are something like short indexes on the tracked assets (iETH, iLINK, etc.).
Trading on this exchange is called P2C (peer-to-contract) - without order stacks, directly with smart contracts. The collateral pool ensures almost infinite liquidity and no price slippage problems.
To start trading, you need to go to the Trade tab. Here we see a rather minimalistic interface with a chart without any indicators and drawing tools.
Otherwise, everything is quite usual for crypto traders - in the upper left corner there is a drop-down menu for selecting a trading pair, on the right there is a sidebar for creating orders, at the bottom there is a list of orders.
How to buy or sell synth?
To buy or sell a synth, you must select the direction of the exchange, specify the amount of the transaction, and confirm the transaction by paying a fee. After that, the synthetic asset to be sold is burned, and instead the user's balance is credited with an equivalent purchased synthetic asset.
Binary options trading (Options tab) has also recently appeared on the Synthetix exchange in beta mode. Here there are no more inverted synths - bets on the rise or fall of the rate are made only in relation to the original assets.
The peculiarity is the long-term nature - here one does not play on "minutes", mainly the duration of the expiry of the options is counted in months. It is possible to open transactions in the two usual directions - long and short.
Synthetix is one of the most attractive projects to invest in because it is based on one of the most useful and sophisticated Synthetix protocols ever created on the Ethereum blockchain.