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One of the biggest waves in the cryptocurrency world right now is synthetic assets. Given that there are always new exchanges coming up every day, it would seem plausible to have one dedicated to these assets.
Synthetix is one such exchange that lets users trade and mint decentralized synthetic assets. Through the platform, users also get on-chain exposure to any asset. This article will take an in-depth look at the relatively new platform and all that it has to offer.
What is Synthetix?
Before we take a look at the exchange, let’s define synthetic assets. These are assets that simulate other assets. They are, therefore, quite useful in tracking currencies, cryptocurrencies, and any other financial instruments. For this reason, synthetic assets are a valuable tool for traders both in the traditional financial markets and crypto markets.
The Synthetix exchange allows its members to trade synthetic assets on Ethereum. The platform offers synths for the traders, which are tokens that provide exposure to different Ethereum blockchain assets such as gold, Bitcoin, Tesla, and the USD. Through the platform, traders get to hold and trade various synthetic assets, including fiat currencies, commodities, stocks, and other cryptocurrencies.
Synthetix was founded in 2018 and was initially known as Havven. The exchange has its headquarters in Australia, and its founder, Kain Warwick, is well-known for building the most significant crypto payment solution in the region. Synthetix Exchange runs on the Ethereum Blockchain and has Synthetix (SNX) as its native token.
There has been an increase in the Ethereum DeFi projects. However, the Synthetix Exchange offers several variations. For starters, participants on the platform get to trade synthetic assets marked by off-chain oracles. Traders on Synthetix also have access to investable baskets and derivatives. Besides, instead of trading against a specific counterparty, they do so against a pooled community collateral.
How Does it Work?
We’ve already mentioned that the exchange uses a pooled collateral model. Thanks to this model, users don’t need counterparties and help eliminate the slippage and liquidity issues that most decentralized exchanges face.
The network to function relies on the native SNX token and the synthetic assets, also called synths. Traders can mint their own synthetic assets, which will be backed by the SNX tokens. They, therefore, must first hold SNX tokens and keep them as collateral. They then use a collateralization ratio to mint synthetic assets with their value pegged to the SNX tokens.
Synthetix is currently working with Chainlink and other entities that provide oracles to determine synthetic assets’ price. The assets are then traded and exchanged on the platform. They can then be used in a variety of ways to track different prices.
The overall idea behind the Synthetix Exchange is pretty similar to how stablecoins maintain their pegged value. However, the exchange allows any trader to mint a synthetic asset instead of a stablecoin.
Key Products of Synthetix
This is the platform that provides an intuitive interface that allows traders to mint their own synths. The exchange gives traders access to various synths, which come in different forms, such as fiat currencies, cryptocurrencies, and commodities.
The distributed collateral pool model allows for infinite liquidity in the exchange. The platform requires a 750% collateralization, which creates a sufficient buffer for the SNX tokens in circulation. Traders have to stake their SNX tokens and lock their 750% collateral to mint any synths. A transaction that results in a profit for the traders adds to the global debt pool, and a participant will have to burn synths whose value is equivalent to the SNX tokens issued if they would like to unlock the collateral. This system ensures that participants can easily buy and sell their own debts as they want.
This is one of the dApps that makes it easier for SNX token holders to perform several network actions. Like the exchange, Mintr has an intuitive and easy-to-use interface that allows traders to mint and burn synths by locking up SNX tokens. They can also use the interface to claim their fees on the network, manage their collateralization ratio, view their balances and history, among others.
Traders become stakers after they lock up their SNX tokens and issue synths. They, therefore, become eligible for staking rewards that are currently at 0.3% per trade. These rewards correspond to a participant’s outstanding debt, which means that traders who have issued more synths will be eligible for higher staking rewards. However, they must maintain their collateralization ratio at 750%
The dashboard is an excellent tool to help you with the analysis of your trading and staking. Through this interface, you get access to an overview of the entire network. The dashboard contains useful information such as the price, market cap, exchange volume, and total supply of the available synths. You also get an overview of the native token and its price movements about BTC and USD over periods of 24-hour, one week, one month, or an entire year.
- Can be used with any wallet that is compatible with Ethereum
- Allows anyone to create and convert synths without a counterparty
- Infinite liquidity on the exchange will enable you to trade synths on the platform comfortably.
- There are no withdrawal fees since trading is wallet to wallet.
- The project is still in development, which poses certain risks.
- Regulatory changes may affect the exchange in the future.
There’s no doubt that the Synthetix exchange comes with several benefits to the crypto world. Through the platform, DeFi users access synthetic assets, which could open up the crypto space’s trading strategies. Traditional financial markets are quite massive, and Synthetix could help build a vast market for synths of those assets on Ethereum.
However, if you consider buying SNX tokens, you must remember that it is still in development and is currently centralized. Many aspects of the project could, therefore, change in the future. It would be wise to stay ahead with any developmental changes by following Synthetix on Discord and Twitter.