Understand the Synthetic Asset Protocol Synthetix in One Article
Synthetix Network is an asset synthesis protocol on Ethereum. The project is known for its revolutionary tokenomics.This article was published on June 25, 2020, on the WeChat public account Crypto Valley Live, by MuyAsk | Crypto Truth Lexicon.
1. What is Synthetix Network?
Synthetix website homepage
Synthetix Network is a protocol for issuing and trading synthetic assets (Synths), which are known as derivatives in traditional markets.
In Synthetix, "Synths" are ERC-20 token forms of crypto assets, stocks, currencies, precious metals, and other types of assets. These synthetic assets merely replicate the price of the underlying asset without including any of its other properties. They are collateralized by Synthetix Network tokens (SNX) and are primarily used for trading on Synthetix.Exchange.
Essentially, the Synthetix Network protocol introduces a new form of decentralized exchange to the DeFi world of Ethereum, which has three key distinctions compared to most other decentralized exchanges:
Synthetix does not use an order book, and traders do not trade with any specific counterparty. Instead, traders interact with a decentralized collateral pool provided by the community.
Traders do not buy or sell real digital or physical assets. They buy and sell synthetic assets that are priced against the market by off-chain oracles provided by Chainlink.
Traders have native access to derivatives and investable pools, which is merely a secondary function in traditional exchanges and decentralized exchanges.
Overall, the Synthetix Network protocol is considered quite revolutionary. It has opened up people's understanding of the possibilities of Ethereum DeFi, with SNX providing early investors with nearly 4000% return on investment (ROI) just last year (2019).
2. Who created Synthetix Network and when?
Founder Kain Warwick
Kain Warwick founded Havven in 2017, which was later renamed Synthetix Network in December 2018.
When Synthetix was still called Havven, the platform was launched as a stablecoin project, with its native currency named Havven Token (HAV). During this period, the Havven protocol achieved the creation of a stablecoin asset called nUSD.
When launching their stablecoin, Havven understood that stablecoins would be a hot topic in the crypto space, but they quickly realized and understood the immense potential of DeFi. At this point, the project was renamed from Havven to Synthetix in December 2018.
Returning to Kain Warwick, the founder of Synthetix Network, he still maintains a leadership role in the project today while also being involved in other work.
In addition to Synthetix, Warwick is the co-founder and CEO of blueshyft, a member of the advisory board of the Australian Digital Commerce Association, and an investor and advisory board member of Burger Collective.
Nevertheless, Warwick plays an active role in all his ventures; he is not the type to leave and abandon what he has founded or participated in.
The launch and issuance of Synthetix Network tokens (SNX).
Synthetix Network launched the SNX token through an ICO in March 2018, issuing 100,000,000 SNX.
Of this total supply of 100K SNX, the distribution is as follows:
60% to investors from the main sale and EOI sale
3% reserved for rewards and marketing incentives.
5% reserved for partnership incentives
12% to the foundation, vesting quarterly over 12 months.
20% to the team and advisors, vesting quarterly over 24 months.
One year after the ICO, in March 2019, Synthetix Network introduced a new inflation strategy, implementing an inflation model over five years to reward active participants. The specific plan is as follows:
As of June 2020, the total supply of Synthetix Network tokens is 189,061,308 SNX, with a circulating supply of 187,837,136 SNX.
3. What are the uses of SNX?
Synthetix Network tokens (SNX) are the native currency of Synthetix and form the foundation of the Synthetix Network.
The primary use of SNX is to lock (stake) it in contracts to serve as collateral for the issuance of synthetic assets (Synths). SNX holders are incentivized to stake their tokens as they can earn a portion of the trading fees generated from the Synthetix.Exchange trading platform.
In other words, SNX tokens earn fees from the trading of the synthetic assets they support, which is also the source of SNX token value.
Trading on Synthetix.Exchange does not require traders to hold SNX.
Staking SNX as collateral
All Synths are backed by SNX tokens, with the current staking ratio at 650%, which can be adjusted up or down through community governance mechanisms in the future.
When SNX holders use their tokens as collateral, new SNX is minted through Mintr (a decentralized application for interacting with Synthetix contracts). These newly minted SNX are then distributed as rewards to stakers, which is in addition to the fees earned by stakers.
The SNX rewards for stakers are introduced solely to incentivize SNX holders to participate in the network, and the SNX rewards come from the protocol's inflationary monetary policy.
4. What exactly are synthetic assets?
As the name suggests, they are "synthetic assets" that track the prices of "real" assets. In traditional markets, synthetic assets or Synths are referred to as derivatives.
Synthetic assets can represent any type of asset, from crypto assets, stocks, currencies, precious metals, and other forms of assets. The purpose or concept behind synthetic assets is to provide investors and traders with exposure to various asset classes without requiring them to hold the underlying assets or trust custodians.
As of June 2020, Synthetix Network supports synthetic assets for cryptocurrencies, crypto indices, forex, stocks, and commodities, with stocks soon to be supported.
Additionally, Synthetix Network currently has two types of synthetic assets: Regular Synths and Inverse Synths.
Regular Synths
Regular synthetic assets simply track the price of the underlying asset and have an "s" prefix before the asset label. For example, sETH, sBTC, sUSD, etc.
These synthetic assets, along with inverse synthetic assets, set their exchange rates through high-quality price feeds provided by trusted and secure Chainlink oracles.
Inverse Synths
As the name implies, inverse synthetic assets track the price of the asset in reverse, meaning that when the price of the "real" asset decreases, the price of the inverse synthetic asset increases. For example, when the price of BTC decreases, the price of iBTC will increase. In other words, if you want to short Bitcoin using synthetic assets, you would buy iBTC.
From the examples above, it can be seen that inverse synthetic assets are denoted with an "i" prefix before the asset label, such as iETH, iBTC, iUSD, etc. Currently, Synthetix Network only supports inverse synthetic assets pegged to cryptocurrencies.
5. What products does Synthetix Network offer?
The two main products of Synthetix Network are:
Synthetix.Exchange (a decentralized exchange for trading synthetic assets "Synths")
Mintr (a DApp that allows SNX holders to mint and burn Synths)
Synthetix.Exchange
The ability to trade synthetic assets is the core value proposition of Synthetix, and Synthetix.Exchange is where all trading occurs.
Synthetix.Exchange provides traders with a unique trading experience on Ethereum, with some on-chain features that you won’t find elsewhere:
Unlimited liquidity ------ no order book, so you don’t have to worry about liquidity or slippage.
Peer-to-contract trading ------ seamless trading between various synthetic assets.
Distributed collateral pool ------ trading assets are supported by a distributed crypto collateral pool that can withstand censorship.
Mintr
Mintr is a DApp provided for SNX holders that allows them to perform various operations within the Synthetix Network, including:
Minting and burning synthetic assets (Synths)
Managing their collateralization ratio
Collecting fees generated from circulating synthetic assets
Sending sUSD to the sell queue
Viewing their balances and Mintr history
Unlocking staked SNX
Many other features
Using Mintr is as easy as 1-2-3, as the DApp has a clean and intuitive interface.
To start using Mintr, simply connect a wallet containing SNX tokens (such as MetaMask, Trezor, Ledger, Coinbase, or other wallets via WalletConnect).
Next, click "Mint" and decide how much and what type of synthetic asset you want.
Now, you can trade with the new synthetic assets or stake the remaining SNX to earn weekly rewards.
6. Where to store SNX tokens?
Synthetix Network tokens (SNX) are a popular and mature ERC-20 token built on the public Ethereum blockchain. This means there are many good options to securely store your Synthetix Network (SNX) cryptocurrency.
MyEtherWallet (MEW) (web-based)
Ledger NANO S (hardware)
Trust Wallet (mobile)
Exodus Wallet (desktop, mobile)
Atomic Wallet (desktop, mobile)
In addition to the wallets listed above, Synthetix Network tokens can also be stored in various other wallets that support ERC-20 tokens. However, before choosing a wallet to store SNX, please pay attention to the following features:
Token swapping within the wallet -- exchange SNX for other cryptocurrencies without transferring out of the wallet.
User control over private keys -- not your keys, not your tokens.
Active developer community - up-to-date maintenance.
Backup and security features -- passwords, seed phrases.
