Synthetix SNX — one of the top movers in the rapidly growing defi space.
In this episode, we’re going to describe how Synthetix works, dig into the value of
the Synthetix Network token SNX, and Synthetix staking.
Let’s get to it.
What is Synthetix?
Synthetix is a decentralized finance platform on the Ethereum blockchain with several functions.
First, it is a Decentralized Exchange, or DEX.
The benefit of a DEX is that users don’t actually have to open an account with any
central body.
As everything is executed with smart contracts, all users have to do is to connect to the
exchange with a compatible Ethereum wallet like MetaMask and trade away.
Secondly, Synthetix is also a synthetic asset issuer.
So this means users can create their own synthetic assets—called Synths.
Synths are blockchain assets that are pegged to real-world assets like fiat currencies,
cryptocurrencies and commodities.
Their price is tracked in real-time using Chainlink oracle data feeds, allowing investors
to buy, sell, and trade on these assets like the real thing, only without a central body.
All Synths minted on the platform are denoted by an ‘s’.
For example, sBTC, sUSD, sTSLA, sAAPL and sAU (s-Gold).
There are also indexes like sCEX, which give investors exposure to a range of Centralized
Exchange tokens like Binance Coin and Kucoin shares.
But while Synths like sAAPL give investors exposure to these real-world assets, it won’t
give Synth investors the dividends that actual stockholders get.
Now it gets more interesting, users can also choose to bet the other way, and short prices
with synthetic assets known as Inverse Synths.
So Inverse Synths like iBTC for example, rise in price when the actual price of BTC falls.
Other Inverse Synths available on the Synthetix Exchange are iETH and iBNB.
Next and lastly, Synthetix also offers an incentive staking mechanism, which rewards
users for staking SNX tokens to provide liquidity and stability to the ecosystem.
What about the Synthetic Network Token — SNX?
Well, SNX coin is the utility token of the Synthetix ecosystem.
Users purchase SNX tokens and lock it up as collateral to create Synths.
An initial 100 million SNX tokens were issued in March 2018, with the amount set to increase
to around 250 million by 2024.
Currently, there are about 130 million tokens in circulation.
Now let’s get acquainted with the ins and outs of staking and minting Synths.
To mint Synths, users must first back the amount with a 750% collateralization ratio.
This means that to mint 100 sUSDT for example, you will need to deposit the equivalent of
$750 in SNX tokens.
The high ratio is required to act as a buffer against big market price swings, and may be
raised or lowered in the future.
When you mint Synths, you also claim a portion of the platform’s debt pool, which represents
the total value of all Synths in the system.
This means that your debt may increase or decrease, depending on the exchange rates
and supply of Synths within the network.
To unlock your SNX and exit the system, you must pay back the debt by burning Synths equivalent
to the amount owed.
What about staking?
SNX holders are incentivized to stake their tokens by earning both staking rewards and
a proportion of exchange trading fees.
Every trade on the platform generates an exchange fee of about 0.3%, which is then sent to a
fee pool and redistributed to SNX stakers along with their earned staking rewards every
Wednesday.
Unlike other exchanges, the benefit of the Synthetix platform is that it potentially
offers investors infinite liquidity and supply, as new tokens can always be minted and burned.
Synthetix has the potential to synthesize every single asset in the world and lock up
the equivalent value in the world of DeFi.
So, what do you think of Synthetix?
Are you an SNX holder or staker?
If you’re familiar with creating or trading synths on the Synthetix network, let us know
your experience in the comments.
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from Exodus.