If you are a blockchain enthusiast, you must have heard a lot about decentralized finance. In this article, we will focus on one of the most trending topics that is Synthetix, and what role it plays in DeFi space.
Table of Contents
- Understanding Synthetix
- Deeping Dive into Synthetix
- Incentives for Stalking SNX
- Recent Announcements Related to Synthetix
- Concluding Lines
Synthetix is a decentralized, synthetic-asset exchange that plays a major role in the world of decentralized finance. Its official website describes itself as “a protocol for trading synthetic assets on Ethereum.” Such synthetic assets are collateralized by the Synthetix Network Token (SNX), which, when locked in the contract, allows the issuance of synthetic assets (Synths). This decentralized system lets users perform conversions between Synths with the smart contract directly without involving any third-party intermediaries.
It utilizes a similar concept to MakerDao, which also satisfies the definition of a synthetic token. With Maker, a user has to lock up ETH to create DAI; similarly, with Synthetix, one can lock up SNX to create synthetic USD.
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Deeping Dive into Synthetix
Synthetix is a token trading platform that allows users to mint and creates synthetic tokens and assets on Ethereum blockchain.
If you are unaware of synthetic assets, remember, just like other assets, it refers to a mix of assets that have the same value. With Synthetix, users have to bet on the prices of real-world assets using ERC-20 tokens where they can follow the price of underlying assets. At present, Synthetic supports synthetic fiat currencies, various cryptocurrencies, and commodities. Synthetix offers its own stablecoin, sUSD, but also offers other types of assets and tokens, for example, inverse tokens, which can be used to short-sell a crypto asset.
Technocrats and blockchain developers believe that this protocol has the potential to become a backbone of the DeFi space and crypto ecosystem.
Kain Warwick, the founder of Synthetix, agrees that,
“Synths provide exposure to a range of assets, so while synthetix exchange is the primary place to trade Synths, a wide distribution is critical to the success of the project.”
Here it is important to note that, for creating a new Synthe, one must stake 800% of Synth’s value in SNX tokens. Here supply and demand dynamics play a crucial role, meaning if lower the supply, the more precious it becomes and vice versa.
Incentives for Stalking SNX
SNX holders are encouraged to stake their tokens and mint Synths. The first benefit of stalking SNX is that there are exchange rewards that get generated when any user exchanges one Synth to another. which makes 0.1% – 1%, though typically 0.3% fees. Such fees are distributed to SNX stakers every other week. The second benefit of staking SNX is that the price of SNX increases.
Recent Announcements Related to Synthetix
The Synthetix (SNX) project) has recently launched the Hadar upgrade, which enabled tokenized real-world assets such as Brent oil and the Nikkei stock index, which indicates that launch will have important consequences in the crypto world. The launch was announced on 31 March 2020.
Framework Ventures’ co-founder Michael Anderson expressed his views and stated that,
“They are a fully decentralized organization. And that is an advantage because you can’t sue a token and you can’t sue a smart contract. And being able to have that regulatory arbitrage or legal buffer, whatever you want to call it, is a big advantage in terms of where they can go.”
Talking about technical vulnerabilities, Anderson mentioned that Synthetix has gone through several.
He mentioned that “From December until February, SNX has lost 65% of its value, which at the time was the only type of collateral asset in the system. If you use the benchmark of 750% like they used to, we were under-collateralized for two and a half weeks.”
As Synthetix continues to be in the limelight, in July 2020, it was announced that the team behind the synthetic asset issuance protocol Synthetix said that the project is now under control by the three distinct DAO’s namely, protocolDAO, which controls its upgrades and variable configuration, second the grantsDAO which funds public goods in the Synthetix ecosystem and synthetixDAO which manages funds to contributors and other project-related needs.
Synths are different from real assets and offer multiple advantages over the typical DEX in terms of trading, allowing full-on peer-to-contract trading and price feeds. They have occupied an excitable crowd in the global economy, which indicates it will revamp the entire DeFi space soon.