In today’s review, I will walk you through one of the popular DeFi Platforms – Synthetix.

Synthetix protocol is built on the Ethereum Blockchain.

It is a platform where you mint and trade synthetic assets for profit.

By the time you have gone through this review, you will fully understand what Synthetix is and the whole functionality surrounding it.

Let’s dive right in!

Post Summary

What I will cover;

1. Overview of Synthetix Protocol
2. How Synthetix Works
3. Synth Minting Process
4. How to Get Started on Synthetix
5. Supported Synthetic Assets (Synths) on Synthetix
6. Synthetic Exchange
7. FAQs
8. Conclusion

Now, let’s get started.

Overview of Synthetic Protocol

Synthetix is a network of decentralized finance built on the Ethereum blockchain.

It launched in 2019 as a total overhaul of Havven – a protocol for the decentralized payment network of stablecoins.

Synthetix was founded in by Kain Warwick, the Co-Founder and CEO at blueshyft.

It is a protocol that allows its users to mint and trade synthetic assets.

Synthetic assets are tokens that mimic or track the value of an asset in the real world.

For example: 1 Synthetic BTC= 1 BTC in the real world.

These assets enable traders to gain exposure to a range of real-world asset including; fiats, crypto, commodities, stocks etc.

However, by owning them, traders do not hold the real-world asset, but only leverage on their price movement.

Synthetic assets issued on the Synthetix protocol are called synths.

Because Synthetix is built on the Ethereum blockchain, these synths are basically ERC20 that track the price of assets that they represent.

Moreso, these synths cannot assume the functions of the real-world assets but can be traded for profit in price movement.

Let’s look at how the synthetx protocol works.

How Synthetix Works

Synthetix uses two crypto asstes for its protocol, and they are;

• SNX
• Synths

SNX

Basically, SNX is an ERC20 token and the native token of the SNX protocol.

The SNX token was initially called the HVV token when the protocol was originally Havven.

At that time, the total supply of HVV token was 100,000,000, the team also raised  $30 million in ICO by selling 60 million HVV tokens in 2018.

However, with the rebranding of Havven to Synthetix, the HVV token was also renamed SNX.

These tokens are still the same, except that the contract address changed.

Moreso, SNX (as HVV) was deflationary until March 2019, when the team introduced an inflationary monetary policy.

The inflationary monetary policy was updated after community governance – this too was also introduced at the same time.

The policy ensures that the total supply of SNX will increase from 100,000,000 in March 2019 to 260,263,816 by August 2023.

As of today (March 3, 2021), the total supply of SNX on Coinmarketcap is currently 215,258,834.

To buy SNX, you can go to these 3 trusted crypto exchanges Binance, Coinbase pro and Huobi.

Also, you can store them on ERC20 token compatible wallets like; Ledger, Trezor, MyEtherWallet, Metamask, Exodus, etc.

SNX token is the strength of the entire Synthetix ecosystem, and they are used as collateral to mint the Synths.

Synths determine the value of SNX because when users mint synths, new SNX tokens are generated.

Talking about synths, let’s look at what synths are below.

Synths

These are synthetic assets e.g. (sUSD, sBTC) that anyone can mint on Synthetix.

Basically, what traders do on the synthetix platform is to mint and trade synths (synthetic asset) for profit.

However, to mint synths you will need to lock the the SNX token as a collateral.

Let’s us now see how to mint synth using SNX on Synthetix.

Synth Minting Process

This image gives a general overview of how the synth minting process is being carried out;

1. Lock SNX as collateral

Synthetix allows you to mint synthetic USD (sUSD) and ETH (sETH) directly on its platform.

If you want to mint a synthetic USD (USD), you will be required to stake 750% worth of USD in SNX.

Let’s say you want to mint $1000 synthetic USD (sUSD), you will deposit $7,500 worth of SNX into Synthetix.

Now, if I am to guess, you may already be thinking that this collateral is quite much.

Yes, it is! but it is to ensure that there is sufficient collateral to cover up for any shortage in price movement of either SNX or Synth.

However, if you are not willing to put that much money into the platform, then, you may consider borrowing a synthetic ETH (sETH) with your Ethereum.

Ethereum serves as alternative collateral for minting synths on the synthetic protocol.

If you are staking your ETH to borrow synth, then, you are going to deposit only 150% of your ETH as collateral.

2. Minting, Debt Pool, Burning and Collateral ratio (C- ratio )

Minting: Your synths are minted once you have staked your collateral (SNX or ERH).

Debt Pool: The Synths minted on Synthetix are backed up by (or pegged to) to SNX debt pool on Synthetix.

This simply means that when you mint synth SNX is locked up as a debt.

Debt pool- represents the overall user debt that underlies the entire synths in circulation.

However, if you have staked ETH, then, your debt will be dominated in ETH, and you will not participate in the SNX debt pool.

Burning and C-ratio: If you wish to unlock your collateral (SNX or ETH) or you wish to exit the system, you must then pay back your debt by burning your synths.

Again, the standard collateralised ratio is 750% for SNX and 150% for ETH.

If the price of SNX or ETH fluctuates, the value of your collateral will also fluctuate.

When the price fluctuates above these standard c-ratios, an equivalent portion of your collateral will be unlocked or used to mint more synths.

However, a proportion of the already minted synths are burnt if the price fluctuates below the c-ratios.

3. Earn Rewards

Thirdly, you earn rewards as incentives for staking SNX.

These rewards come in two ways;

• From the exchange fee generated by the synthetix exchange
• From the protocol’s inflationary monetary policy ( SNX generated from its debt poll, and distributed to stakers on weekly basis)

Note:

• Users who stake ETH as collateral are not eligible to claim rewards, as they do not participate in the SNX debt pool.
• SNX stakers will be unable to earn reward from the exchange fee if their C- ratio falls below 750%

See the next subheading!

Supported Synthetic Assets (Synths) on Synthetix

There are 4 categories of synths on Synthetix.

These synths are in two forms:

• Normal synth: represented with an initial S e.g. sBTC (allows traders to profit from the upward trend of an underlying asset)
• Inverse Synths: represented with an initial I e.g. iBTC (allow traders to profit from the downward trend of an underlying asset)

Here you have them;

1. Fiat

2. Commodities

3. Equity

4. Cryptocurrencies

The price of each Synth is tracked and determined by the Chainlink Oracle.

Having disclosed the synths supported on Synthetix, let’s talk about the Synthetix Exchange and how these synths are traded.

Synthetix Exchange

Synthetix Exchange is a decentralized exchange that supports the trading of all these synths listed above.

Basically, it is a peer-to-contract (P2C) trading platform.

What this exactly means is that – traders trade directly with the Synthetix smart contract through a minting and burning process.

This is how it works: let’s say a trader wants to trade sUSD/sBTC; the following is what happens;

• The trader issues a trading request and the sUSD is burned
• An oracle calculates the price of sBTC the trader will get
• sBTC is then minted and exchanged for the sUSD  that was burned

Synthetix Exchange has a very unique feature when compared to other centralized exchanges like Binance, Quidax, OKEx e.t.c.

The reason is that there are no slippage, order book, liquidity issues, and users can trade at any time without waiting to be matched on the Synthetix exchange.

More so, to trade on Synthetix exchange, you must have acquired some synths in your wallet.

If you don’t have one, you can mint one yourself using the processes that we already discussed above.

Alternatively, you can buy synths from other DExs like Uniswap, Dex.ag etc.

The Synthetix exchange charges traders a fee of 0.3%.

This fee is sent to the fee pool, where it can be claimed by SNX stakers.

Next is the FAQ section!

FAQs

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Conclusion

Synthetix is one of the top DeFi protocols on-ground!

It is also the first platform to launch crypto synthetic assets.

This is where I will put an end to this article.

Before I go, I would like to know your thought.

Have you started trading on Synthetix – What has been your experience so far?

Are there other synthetic assets and trading services that you wish Synthetix could offer?

Let me have your answers in the comment section below.

Remember to hit the share buttons. Cheers!

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