In brief
- Synthetix is a token trading platform built on Ethereum.
- It allows to creation of real world assets, like stocks and shares to be bought and traded using crypto.
- Synthetix started out as a stablecoin, before pivoting to DeFi.
The trading of stocks, currencies, commodities, and other assets are still dominated by the likes of Wall Street, London, Hong Kong, and other traditional financial centers. Synthetix wants to bring that toolkit over into the decentralized, global, permission-less, and 24/7 world of crypto.
Read on to discover how a crucial pivot in tokenomics turned Synthetix into one of the hottest DeFi products available.
What is Synthetix?
Synthetix allows users to bet on crypto assets, stocks, currencies, precious metals, and other assets in the form of ERC20 tokens. Synthetic assets or “Synths” copy the price of an asset in the “real world” and brings it onto the Ethereum blockchain giving that Synth all the properties of an ERC20 token.
Holding a Synth is not the same as holding an asset. For example, a synthetic MKR token is the same price as a “real” MKR token, but without the voting rights an actual MKR token holder would have. This system allows users to bet on the price of an asset without holding the actual asset.
Who Invented Synthetix?
Synthetix started as a stablecoin project called Havven and was founded by Kain Warwick, the current CEO. Synthetix is now one of the biggest projects in DeFi with over $180 million worth of SNX tokens locked up in the protocol in December 2019.
Did you know?
The protocol has a very famous holder of SNX tokens – a16z crypto – the venture fund who bought 6% of the total MakerDAO token supply in September 2018. However, a16z never announced an investment in SNX or even mentioned it. There simply sits 374,111 SNX tokens in the a16z address without any explanation.
What’s so special about it?
Synthetix uses a multi-token infrastructure based on a system of collateral, staking, inflation, and fees. The system uses two types of tokens–the main Synthetix Network Token (SNX) and synthetic assets or Synths. The system is similar to MakerDAO’s where ETH is locked up to create DAI. In Synthetix, SNX is locked up to create sUSD (synthetic USD). The sUSD acts as debt while SNX acts as the collateral. The main difference between Synthetix and MakerDAO is SNX is staked as collateral to potentially create any synthetic asset–not just sUSD.
One of the core requirements of the Synthetix system is the ability to get accurate information from the “outside world” such as the price of the Japanese Yen – and eventually the price of stocks like Tesla. To get this price information, Synthetix was previously using centralized price feeds or oracles, which were vulnerable to manipulation and exploitation. Now they have partnered with ChainLink and their decentralized oracle system to reliably bring information to the blockchain without needing to trust a central party – very DeFi.
What else is different?
Much of Synthetix’ recent success can be attributed to its innovative token incentive model. SNX holders stake SNX in return for fees from the Synthetix exchange and rewards from the system’s inflationary monetary policy. To create a new Synth, more than 750% of the value of the Synth must be staked as SNX. The more SNX staked and locked as collateral, the less is available in the market and the more valuable the token becomes. The proof is in the price. The SNX token made a dramatic rise from $0.03 at the start of the year to over $1.30 at the end of 2019.
How are SNX tokens produced?
Back when Synthetix was Havven, it launched an ICO and raised $30 million with a total supply of 100 million Havven tokens. In February 2019, Synthetix changed its monetary policy and there are now over 164 million SNX tokens, which will increase to 250 million over the next 5 years. The growing supply of SNX tokens was meant to reward and incentivize SNX stakers.
How do you get hold of SNX tokens?
If you have an Ethereum wallet and some crypto already, you can trade SNX tokens on decentralized exchanges like Kyber and Uniswap. You can also stake SNX to create new Synths using their Mintr dapp.
What can you do with Synthetix?
The Synthetix platform was primarily created for users to trade Synths. Holders of Synths can go long on an asset – bet the price will increase. Or they can short an asset – bet the price will decrease.
By staking SNX, holders can create new Synths, collect rewards, and watch their holdings grow. It could be why over 85% of the total SNX supply is currently locked up in the protocol.
The Future
Synthetix spent much of 2019 rising to the top of the DeFi dapp charts before ending the year with a commitment to transition to a decentralized governance structure. They began 2020 by demonstrating the “money lego” properties of DeFi by integrating their sUSD stablecoin with the margin trading platform bZx. But the big feature most have been waiting for is the ability to trade stocks like Tesla and Apple on top of Ethereum – an absolute game-changer for DeFi believers everywhere.
