Synthetix is a protocol for issuing synthetic assets that run on the Ethereum blockchain. This project developed the idea of stablecoins, adding the ability to create a digital copy of any assets, both fiat currency and, for example, precious metals. In this case, the value of a synthetic asset is tied to the price of a real asset. This problem is solved by Synthetix. Synthetix is already running. It has launched its marketplace, and early investors have had good returns on investment.
Features of Synthetix
One of the drawbacks of traditional cryptocurrencies is that volatility is too high. If during the year the cryptocurrency rate fluctuates within ± 50% of its price at the beginning of the year, then many will prefer fiat money or invest free funds, for example, in the stock market.
Part of the problem is solved by stablecoins. The rate of this coin is rigidly tied to a specific asset.
Synthetix is an Australian project founded in 2016. The creators of the project solved this problem and developed a system of 2 tokens:
Synthetix Network Token. It is a token that provides liquidity in the system;
Synths. This is a token whose value is tied to the price of a real asset (fiat money or precious metals).
In theory, this solution should help popularize cryptocurrency in general and make it easier to invest in various assets. So through Synth tokens, it is possible to invest in currencies, precious metals, and stocks.
As you study the White Paper of Synthetix, you will come across the terms Havven and Nomin:
- Havven is a decentralized payment system, in which settlements are carried out in stablecoins without the involvement of intermediaries in the form of other assets. It means that sUSD can be directly exchanged, for example, for sGBP;
- Nomin is a token that provides liquidity for s-tokens. The Nomin stock in the system is a variable value.
The scheme works as follows:
- SNX tokens are purchased; this is the basis of the Synthetix system. Without SNX tokens, the release of s-tokens is impossible. Synth tokens can be issued only with a non-zero balance of the main wallet;
- s-tokens are issued through a smart contract. In the Mintr application, an item is selected, for example, “Buy sUSD” and, depending on the specified amount, the smart contract blocks a certain number of SNX coins, using a leverage of 1 x 7.5. If there are 1000 SNX coins on the wallet, and the exchange rate is $ 0.75, then no more than 1000 x 0.75 / 7.5 = 100 USD can be issued;
- locked SNX data is written to XDR (Synthetix Drawing Rights). XDR acts as a regulator and does not allow excessive exchange rate fluctuations;
- after that, the Synthetix smart contract tells the Synth smart contract exactly how many s-tokens should be issued.
When exchanging s-tokens, a commission of 0.3% of the transaction volume is charged. A pool is formed from this money, and then it is distributed among those who frozen SNX tokens to provide liquidity within the system.
The distribution of awards is proportional. That is if 100,000 sUSD were issued in total, and thanks to your SNX, 1000 sUSD were issued, then you can claim 1% of the collected commission.
If the SNX owner wants to unfreeze his crypt, he must burn the same amount of sUSD that was created earlier.
A mechanism for ensuring a constant rate of s-tokens
The system cannot function without a stable Synths token rate. Consistency of the course is achieved by 3 methods:
Arbitrage. If the Synths rate falls below 1 to 1, then those who previously ensured the creation of s-tokens at a higher rate burn s-tokens and make a profit. At the same time, the cost of Synths is approaching the 1 to 1 mark with the underlying asset;
Uniswap liquidity pool consisting of sETH. Weekly, part of the SNX coins locked in it is redirected as a reward to those who provided liquidity in the sETH / ETH direction;
An arbitration smart contract that supports the sETH / ETH rate. If the value ratio changes by more than 1%, the contract will automatically burn part of the sETH, and the rate will level out.
SNX Token
SNX token characteristics:
- token type – ERC20, Ethereum blockchain is used;
- SNX is the main coin, used as an entrance ticket for working with Synth tokens;
- traded on KuCoin, Liquid, Gate.io, and Kyber Network;
- work with s-tokens is carried out through its site Synthetix Exchange.
Conclusion
Synthetix has big plans for the future, but the project is at an early stage of development. Technically, everything is ready, but there is no necessary amount of liquidity to add new instruments, and this slows down the development of the project. Even in 2019, there were situations in sUSD when the rate fell by 14-15% against the dollar. It is unacceptable for stablecoins.
On the other hand, the impressive crypto growth in 2019-2020 shows that Synthetix is in demand and the current highs are not the limit. SNX tokens can be viewed as an object for speculation and as an investment tool for 3-5 years.
