Synthetix derivatives liquidity protocol and SNX token explained

Synthetix is a protocol for issuing and trading synthetic assets on the Ethereum blockchain. Each synthetic asset (or Synth) is an ERC-20 token which tracks the price of an external asset; for example each sUSD token tracks the price of the US dollar. Different kinds of Synths exist within Synthetix, including government issued legal tender, digital assets, commodities, and inverse indexes. Essentially, the system can support any asset with pricing clarity, and provides on-chain exposure to a limitless array of real-world assets.

According to the project’s documentation: Synthetix consists of a smart contract infrastructure and a set of incentives that stabilise Synth prices. It is underpinned by the value of the Synthetix Network Token (SNX). SNX acts as collateral, thus, staking a proportional value of SNX is a condition that needs to be met in order to mint Synths. Stakers are rewarded for supporting the system with a pro-rata share of the fees generated by activity in the system. The value of SNX is therefore closely linked to the usage of the network it collateralises. 

This mechanism allows Synthetix to support instantaneous, near-frictionless conversion between different varieties of Synths without the liquidity and slippage issues experienced by other decentralised exchanges. The resulting network of tokens supports an extensive set of use cases including eCommerce trading, loans, payments, and remittances. 

Who Created Synthetix?

Synthetix, while it was still operating as a stable coin was known as Havven, but soon began to see incredible advancements as a token under the management of current CEO Kain Warwick. The network token has a decent sized market cap (approx half a billion at the time of writing) and is regarded as one of the more promising projects in the space. Stablecoins are electronic assets used to replace popular currencies like dollars and pounds in the cryptocurrency industry. One major difference that sets them apart from other digital currencies is that they are not exposed to the high price volatility and fluctuations that other cryptos are exposed to.

What’s so special about it?

Synthetix operates solely by process trades and exchanges on the network which gives room for an increase in token values, and security as well. The multi-token platform operates with two separate tokens which are: Synthetic assets and the primary Synthetix Network Token (SNX). The methodology used is quite typical to MakerDAO’s where ETH is bought up and made inaccessible for a lockup period, thereby inflating the values of DAI due to the reduced liquidity supply on the markets as a result of staking. Synthetix’s sUSD and SNX both work in a barter system. What sets Synthetix apart from Maker DAO is the flexibility of SNX in any asset exchange or debt system. Information in real-time such as the price of Google stocks or prices of the Euro is pivotal to the running of a Synthetix system.

What else is different?

  • Much of the financial success accumulated by Synthetix is attributed to its token-based system.
  • The cryptocurrency firm provides a means for its investors to stake tokens for currency exchanges as well as other forms of securities or obtain rewards on purchased tokens as their values rise.
  • Synthetix employs a debt-driven system by sealing up 750% of tokens as collateral.
  • The synths which are being used for debts are used in various exchanges and a refund is obtained by the network token company through the trading of the synths equal in value to the synths that were provided.
  • All of these are done in a liquidity pool for accessibility to all investors.

How do you get hold of SNX tokens?

Decentralized platforms like Bisq and Bancor allow exchanges of cryptocurrency for SNX. New synths can also be generated by trading SNX on the Mintr dApp.

Before buying SNX tokens, here are some things you must note:

  • The performance of the network token is heavily reliant on the success of Ethereum. This implies that if Ethereum succeeds, the token’s value may rise and vice versa.
  • SNX tokens can only be traded for major cryptocurrencies such as bitcoin, high-value currencies, and valuable items like gold and diamonds.

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