What is Synthetix (SNX)? Liquidity for on-chain derivatives

Synthetix is a decentralized protocol that enables the creation and trading of synthetic assets on the blockchain. This innovative platform has become a cornerstone in the world of decentralized finance (DeFi), offering new tools and possibilities for Web3 and trading.

What is Synthetix?

Synthetix is a decentralized protocol that facilitates the creation and trading of synthetic assets, known as synths. These synths can represent a wide range of assets, including cryptocurrencies, fiat currencies, and commodities. Synths are issued as ERC-20 tokens on the Ethereum blockchain, allowing users to gain exposure to various assets without holding the underlying asset itself.

History of Synthetix

Synthetix was launched in 2018, initially under the name Havven, after raising funds through a token sale. Founded by Kain Warwick, the project quickly rebranded to Synthetix and shifted its focus from creating a decentralized exchange to providing liquidity for synthetic assets. This strategic pivot allowed Synthetix to build upon its existing smart contracts and address a more pressing need in the DeFi ecosystem.

How Synthetix works

Synthetix operates on the Ethereum and Optimism networks, providing liquidity for synthetic assets and perpetual futures via synths. The system relies on two key components:

1. Collateral: Users must stake SNX tokens as collateral to mint synths. The required collateral ratio is 650% of the synth's value.

2. Price information: Synthetix utilizes decentralized oracle networks to obtain real-time price data for the assets represented by synths.

Synthetix currently offers four categories of synths: crypto, forex, stocks, and commodities.

Synthetix ecosystem

While Synthetix doesn't have its own exchange, the synths it creates can be traded on various decentralized exchanges. The Synthetix ecosystem has expanded to include platforms like Kwenta for trading, dHedge for asset management, and Overtime Markets for sports betting, all utilizing Synthetix's synthetic assets.

SNX tokenomics and distribution

The SNX token was launched in 2018 after several funding rounds. Initially inflationary, SNX reached its maximum supply in December 2023. Subsequently, it transitioned to a deflationary model through the implementation of SIP-2043. This change introduced new incentives for SNX stakers, including free sUSD loans and a share of gas fees and trading fees.

How to buy SNX

SNX can be purchased on various cryptocurrency exchanges. The process typically involves creating an account, verifying your identity, depositing funds, and placing an order for SNX tokens.

Advantages and limitations of Synthetix

Advantages:

• Enables creation of synthetic assets without owning the underlying assets
• Fully decentralized, including price information from oracle networks
• Deflationary token model potentially benefiting long-term stakers

Limitations:

• Limited range of available synthetic assets
• High collateral requirement (650%) for creating new synths
• Complexity of use compared to some other DeFi platforms

Conclusion

Synthetix has established itself as a pioneer in the DeFi space by enabling the creation and trading of synthetic assets. Its technology opens up new possibilities for crypto traders to gain exposure to non-crypto assets. While facing some limitations in terms of asset variety and complexity, Synthetix continues to evolve, with developments like the transition to a deflationary token model and the release of Synthetix V3. As the broader DeFi ecosystem grows, Synthetix is well-positioned to play a significant role in the future of decentralized finance.

FAQ

What is SNX in crypto?

SNX is the native token of Synthetix, a decentralized platform for creating synthetic assets. It's used for governance, staking, and collateralizing synthetic assets in the Synthetix ecosystem.

Does synthetix have a future?

Yes, Synthetix has a promising future. Its integration with Ethereum, potential for gasless trading, and significant gains in its native token SNX indicate strong investor interest. Long-term success depends on continued SNX staking by new holders.