What Is Synthetix and how does it work – Complete Guide
Built on Ethereum, Synthetix is a token trading platform that lets its users create real-world assets, such as shares and stocks that can be bought and traded on the platform using cryptocurrency. It started as a stablecoin before moving over to DeFi.
Users bet on “Synths” – the crypto asset, stock, precious metal, currency, or, others, item – using ERC20 tokens. The asset price has been copied from the real world and assigned to the “Synth” on the Ethereum blockchain. While holding as Synth is not the same as holding the real asset, users can still bet on the asset’s price.
Read on to learn more about Synthetix, Synths, and how this cryptocurrency trading platform works.
A Brief History of Synthetix
Known initially as Havven, Synthetix had its first ICO sometime in February 2018 for its ERC20 token, HAV. At the time, one HAV was valued at $0.67. At launch, the company’s goal was to set up a decentralized payment system that used dual tokens to issue stablecoins that were back with HAV as collateral. Holders of HAV tokens received a percentage of the fee generated by all of the stable coin transactions as a reward for keeping it stable.
By November of 2018, the company realized that they could do more than just create stable coins. The rebranded and became Synthetix in November 2018. HAV became known as SNX.
Synthetix Technology & Advantages
Using a multi-token infrastructure, Synthetix is based on a system of collateral, staking, inflation, and fees. It uses two types of tokens, SNX and Synths. SNX is locked up to create sUSD – or a synthetic USD. The sUSD acts as the debt, and the SNX is the collateral. SNX can also be staked as collateral to create any type of synthetic asset, not just the sUSD.
For this to happen, Synthetix needs to get accurate information from the real world. For example, it needs to know the current price of everything from the Japanese Yen or the stock value of companies like Tesla. Thanks to a partnership with ChainLink, Synthetix uses their decentralized oracle system to bring reliable information onto the blockchain.
What is interesting about the Synthetix platform is that, using an oracle to tack price movements, a user can mint stable coins attached to the fiat currencies of any mental, indices, or commodities offered on the blockchain. Users don’t have to deal with the real-world exchange to get exposure to the cryptocurrency of their choice. If they earn a profit, it is paid in the Synth attached to the fiat currency. For example, a profit earned in sBTC would be paid in sUSD.
Atomic Wallet currently supports 9 assets that are staking and is planning on exploring the option to implement SNX decentralized staking as well.
How Does Synthetix Work?
Synthetix works on a blockchain platform, and the SNX token is the foundation of it. It is used as collateral so that users can create any synthetic asset – Synth – on the platform. Once the Synth is minted, SNX is locked into the smart contract, and the user gets one-fifth of sUSD against the locked SNX. According to Synthetix, the optimal collateralization ratio is 750%. This helps keep Synths from being over minted and restore the sUSD to USD ratio peg. Minters who keep this ratio get rewards that we’ll talk about later.
To mint a Synth, a user has to have SNX. These can be purchased from an exchange like CoinGecko and Uniswap/Kyber. Using the dApp Mintr, users can transfer their SNX to their digital wallet. They will then be taken to a page where they have the option to mint sUSD. Users need to remember that there are fees involved in minting and should hold onto some cryptocurrency, like ETH, in their wallet to pay the fees.
Perspectives and Takeaways
Because of the token incentive model Synthetix offers, it has become a successful platform. Holders of SNX can stake it for the return of fees from the Synthetix exchange as well as rewards from the monetary policy. Once a new Synth has been made and the SNX staked and locked, there are fewer tokens in the market, making the SNX more valuable. From the beginning of 2019 to the end, SNX rose from $0.03 to over $1.30.
Users of the platform understand how to trade Synths to get the prices to do what they want. Synth holders can sit tight on their assets in the hope the price goes up, or they go short, betting that the price will decrease. The rewards have kept 85% of the total SNX supply locked up in the protocol.
By integrating their sUSD stable coin with the margin trading platform bZx at the beginning of 2020, they showed the cryptocurrency industry the “money lego” properties of DeFi. However, the biggest takeaway of Synthetix is the future ability to trade for real-world stocks like Apple and Tesla on the Ethereum platform. This is expected to be a game-changer for cryptocurrency investors all around.
Views On Synthetix
“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.” – Michael Anderson, Framework Ventures’ co-founder
“Synthetix is at the forefront of the DeFi movement by offering synthetic assets to users worldwide, thus providing access to specialized trading strategies. Given the massive size of traditional financial markets, which reaches into the hundreds of trillions of dollars, Synthetix has the potential to create a massive tokenized market on the Ethereum blockchain.” – Steve Walters, CoinBureau
“I have been working with Synthetix for nearly 2 years. They have been very accommodating in that time, allowing us to customize our MI requirements and have strived to match our expectations when relying on customer data.” – Bimal A., Project Coordinator
Learn more about the Synthetix cryptocurrency at https://www.synthetix.io/
Learn how developers work on Synthetix on the Synthetix Github.
Discuss Synthetix on Reddit with other users.
Follow Synthetix on Twitter.
How To Store And Manage Synthetix?
In order to unlock the SNX in your wallet, you need to look at the “Total sUSD debt owed” in your Synthetix dashboard and then burn that amount of sUSD. This debt owed fluctuates based on all the other SNX holders on the system. So, if the system debt rises, your debt will go up proportionately based on the debt you owe at the time you joined. However, if the sUSD you minted doesn’t cover your debt owed, you will have to purchase additional sUSD to recover your SNX.
If the price of SNX drops and is less than the initial value of the SNX when you first minted your sUSD, your ration will drop below the 750% you need to maintain. You can fix this by burning or buying sUSD or buying more SNX. You want SNX to increase, allowing you to mint more sUSD and contribute it to the network or hold it.
As an SNX minter, a user is eligible for two different kinds of rewards. They can get SNX staking rewards, and they are eligible to get a portion of the fees that are generated by the trading volume. They have to maintain a ratio of 682% in order to claim the rewards. If the ratio goes below that, they have to get it back to 750% before they can claim their rewards.
Rewards can be claimed and added to your wallet on a weekly basis by clicking on the “Rewards” tab. The amount of the rewards the user can claim is based on the total Synth balance in the system every Wednesday at 8 am UTC. There is a two-week window to claim them. Any rewards that are not claimed are rolled into the pool and distributed the next period.
Synthetix is currently supported by Atomic Wallet. The wallet will let you manage and exchange SNX, among other 60+ digital assets pairs anonymously and securely. You have total control over your funds, and your private keys never leave your device being generated by a mnemonic seed. Considered one of the best solutions for managing SNX, Atomic Wallet is easy to install. Try it out with your SNX in the Atomic interface.
Synthetix has gained popularity and has been in the cryptocurrency spotlight as it has climbed to the top of the DeFi pile. SNX is experiencing an excellent appreciation for minters interested in the platform’s trading asset aspect. It has a Discord channel, another way of learning more about this particular cryptocurrency platform and what it has to offer now and in the future.
Anyone investing in Synthetix can find all the information they need on the cryptocurrency on the Synthetix dashboard. The dashboard also shows the user other statistics required, such as the current fees claimable in the fee pool or how sUSD and the USD are pegged.
Additionally, SNX holders can track different metrics for the Synthetix platform using DeFi Pulse. This website will help users look at different products that are listed as decentralized finance. It splits them into different categories – such as lending, payments, derivatives, etc. – and they can watch these various projects grow.
Right now, Synthetix is listed in the 4th place based on the amount of USD that is locked. The platform is showing a rise since the end of June, and that is good for the SNX that is locked. It means SNX has grown in value, and it is being held as an asset. This also is indicative of the confidence investors currently have in Synthetix as a platform and cryptocurrency.
Users need to keep an eye on the amount of SNX that are available. If that number drops, other users are withdrawing tokes to mint. If the supply increases, then users are planning on selling. The decrease in supply is better for the price of SNX.
To learn more about Synthetix, Synths, and SNX, potential users should join the conversation about it on the Synthetix social media platforms. Other users will be able to explain how it is working, what kind of success they have had with it, and help you decide whether it is something you want to invest in.