The potential of WiFi is far from being fully exploited and many more possibilities will probably arise. It is now even possible to lend your cryptocurrencies to earn interest on them, using decentralized stablecoins, and also to pay with them in everyday life. But what about investing in more traditional stocks through Decentralized Finance (DeFi)? Today we will tell you what Synthetix is, which allows you to invest in Apple stocks with Ethers or Bitcoin!
- 1 What is Synthetix?
- 2 The SNX Token
- 3 The services offered by the protocol
- 4 The Mintr . decentralized application
- 5 How do synths work?
- 6 How many synths are available?
- 7 Cryptocurrencies
- 8 Fiat currencies
- 9 Stock indices
- 10 The Risks of Using Synths
- 11 The Prospects of Synthetix
- 12 Synthetix (SNX) Price
- 13 How do I buy Synthetix (SNX)?
What is Synthetix?
Synthetix is a decentralized protocol for deploying assets on the Ethereum network. But the project also includes the development of several interfaces for this protocol that have several interesting features, such as the Synthetix.Exchange. The deployment of these assets is done through Ethereum tokens called Synths, which value the value of cryptocurrencies such as Bitcoin . or Ether being able to replicate. But they can also do that from more traditional stocks such as Apple Shares (AAPL), for example. The protocol uses its own Ethereum token, SNX, to ensure the smooth functioning of its services. SNX is thus used as a guarantee for the stability and liquidity of the various Synths offered to the users. See here a video of what Synthetix is all about.
The SNX Token
The SNX is not just a currency that allows customers to take advantage of various discounts and benefits when using the project’s services. It is at the heart of Synthetix’s operation and makes it possible to guarantee liquidity and limit the consequences of errors during transactions. After all, every Synth proposed is backed by an SNX guarantee with a ratio of approximately 750% at the time of writing. However, this could be changed by a vote of the network.
SNX tokens are primarily for staking. After all, by discontinuing SNX, you can recover some of the costs of the Synthetix platform. If you have staked SNX, you can also receive new SNX daily through the inflation policy set by the protocol. Until August 2023, 1.25% per week of SNX is created, after which it drops to 2.5% per year. But if you own SNX, you can also mine Synths , as we’ll see later.
The services offered by the protocol
The Synths offered by Synthetix offer many advantages, but those are not the only features of the project. There is also an exchange that allows its purchase and creation.
Synths are technically Ethereum tokens that possess properties such as exchanges between different users, smart contracts and transparency of the Ethereum network. But the value of these tokens fluctuates in proportion to the underlying asset they replicate. To take a simple example, sBTC will have a similar value to traditional BTC. And this will also be the case for other currencies, cryptocurrencies and other assets offered on the protocol. This allows you to take advantage of asset fluctuations without having to own them directly.
This is not the result of tokenizing the underlying asset, but of a synthesis of it. While a tokenization represents direct value and full or partial ownership of it, the synthesis derives its value from trust in the protocol, platform or application with which the assets are deployed. This trust is mainly driven by the creation of a debt, which is backed by an asset which, in the case of Synthetix, is the SNX token.
Synthetix also has a decentralized exchange, called Synthetix.Exchange, that allows Synths to be bought and resold. The main advantage of this platform is the ability to exchange different Synths instantly without any liquidity issues. The aim is to provide a simple interface to allow the exchange between all the synthetic assets that the Synthetix protocol provides.
The exchange requires the use of a wallet such as Metamask, Trezor or Ledger to connect and access its features. Once connected (if you have at least one Synth) you can now get the conversion ratios between different sTokens and exchanges which are done directly on the Ethereum network. The transaction fee is 0.3%, which will be distributed directly to all users who have staked SNX tokens as collateral. The exchanges have no order book and therefore no spread, which means that one does not suffer from a lack of liquidity on the exchange.
This feature, which is one of the biggest difficulties of low-user trading platforms, is due to the way Synths work. For example, if you want to exchange sUSD for sETH, you don’t have to send another user or a liquidity pool your tokens in order to receive more. Basically you destroy your sUSD (for a 0.3% fee) and create sETH. This is possible because the value of the collateral remains the same after the exchange and only the compound asset changes.
The Mintr . decentralized application
Mintr is the decentralized application that enables SNX token owners to create sTokens. Thus, the entire application is intended for the use of the protocol. The functions do of course require the possession of SNX. You can also collect your debts on the platform. That means you can destroy your Synths to claim your current SNX warranty. Finally, you can also take advantage of other opportunities, such as receiving your share of the fees and participating in the board of the Synthetix protocol.
To use the platform, you must first connect to it via your wallet. There are four ways to access the platform: Metamask, Trezor, Ledger Live, and Coinbase Wallet. Once connected, you can access the system to create sTokens like the sUSD. You will receive them directly on the wallet associated with your SNX tokens and can then get started.
How do synths work?
Synths are coins that reproduce various assets in a decentralized manner. Today there are Synths pegged to fiat currencies such as sUSD or sEuro. But also Synths are linked to cryptocurrencies such as sBTC. Or are Synths linked to assets such as sXAU or sXAG which represent gold and silver respectively in the financial markets. But how does the Synthetix protocol manage to implement these derivatives in a decentralized way?
As we have seen in the explanation of the SNX token, it is the latter that makes it possible to guarantee the liquidity of the Synths. And it is also these SNX that are used in the process of nominally anchoring Synths to replicated assets. Synthetix uses a protocol from the decentralized financial exchange (DEX) Uniswap for this . For example, users who contribute liquidity to Uniswap through the ETH/sETH pair are also rewarded by the protocol.
If you have SNX, you can create Synths. To create a Synth you need to communicate with the Synthetix smart contract . Here are the steps to create a Synth:
- First, the smart contract will check whether the transaction is feasible, and in particular whether the collateral ratio of SNX is well above 750%. If not, the transaction cannot take place.
- The number of Synths created is then added to Synthetix’s debt register, which determines how many Synths are currently outstanding.
- The Synthetix smart contract will communicate with the Synth’s specific smart contract, which will create new tokens and distribute them automatically to the user. After this the new Synths were made!
You can then pay off your debts to get your SNX back. All you have to do is destroy your Synths via the Synthetix smart contract, so they are taken out of circulation and your debt is removed from the registry. As a result, the number of Synths in circulation will update and your SNX will become transferable to your wallet.
How many synths are available?
Today there are a variety of Synths available that cover some cryptocurrencies, fiat money as well as more traditional indices. However, this list changes every moment, as more and more assets are added that can be covered by Synths. That is of course only positive!
At the moment Synthetix offers several cryptocurrencies. These include Bitcoin, Ether, Binance Coin, Maker , Tez, and Tronix. They are represented by their sToken version and their iToken version. This list is also growing every moment for cryptocurrencies.
You can also take a position on stablecoins indexed to eight fiat currencies. These include the traditional sUSD and sEuro, as well as some less common currencies, such as sJPY, sAUD, sKRW, sGBP, sCHF and sCAD. In the future, there is a good chance that more fiat currencies will be added to the Synthetix platform.
Currently, only two stock indices are available on the protocol and those are the gold and silver indices, otherwise known as sXAU and sXAG. We should point out that shares will also be available soon, starting with the shares of the Apple company.
The Risks of Using Synths
Although the Synthetix project looks promising and the possibilities it offers are interesting, the use of the protocol is not without risk. There are, of course, the traditional risks found in all of DeFi ‘s projects . This includes the risks that are equal to the use of Ethereum and smart contracts. But the project also entails risks that are specific to this project. It is important that you are aware of this.
First, the platform systematically uses SNX tokens as collateral to enable the creation of new Synths tokens. The latter is relatively weak. While the 750% ratios are vastly superior to other similar protocols, it remains based solely on SNX tokens. And these tokens are only used in the context of this project. The value is therefore also based only on this project.
If the creation of sUSD requires the stake of SNX tokens up to 750% and a debt to recover this guarantee, there is no liquidation mechanism to compensate for price drops of the token under guarantee. For example, the maker who facilitates the synthesis of USD by giving ethers (Sai) or other Ethereum tokens (Dai) as collateral has a liquidation system to guarantee the collateral percentage above their standards, which is 150%. If the collateral falls below that, it is partially put up for sale at a discount of about 5% to lure buyers. Synths therefore have no liquidation and there is no guarantee that the 750% collateral will actually be effective as it is subject to changes in the SNX price. However, there is incentive to keep collateral above 750%,
The Prospects of Synthetix
If the number of functions is already interesting for the users of the DeFi, the project does not want to stop there. The team is developing new Synths that would make it possible to be exposed via the protocol to indexes such as the S& ;P 500, with Apple or Tesla shares for example. But also to go further by adding synthetic positions of different assets. With this strategy, Synthetix wants to offer its users a maximum of investment opportunities to become a dominant player in the market.
In the previous section, we explained the risk and issues associated with using the SNX token for the Synths warranties. To improve the protocol, the Synthetix team is currently implementing an ethereal collateral to take advantage of ether’s greater stability, without impacting the development of SNX. The team wants to make Synthetix a lot safer for its users with this.
Finally, Synthetix also wants to develop collaborations with different protocols of DeFi projects. Here, the platform hopes to make a greater impact in the market, which will also increase the value of the token. The more DeFi projects depend on Synthetix and vice versa, the greater the chance that Synthetix will also play a major role in the future of blockchain.
Synthetix (SNX) Price
How do I buy Synthetix (SNX)?
The fastest way to buy SNX is to buy it directly through a crypto exchange like Binance. In addition, you can be part of the SNX ecosystem (product developers, buyers, operators, introduce new users) and then be rewarded with SNX. That way you earn SNX without having to pay for it. In addition, you can participate in Airdrops, AMA and staking events for the chance to receive rewards and get paid with SNX tokens.
Thanh Lanh Tran(1989) is Chief Editor from BitcoinUSD.com