Synthetix built a derivatives liquidity protocol in DeFi (decentralized finance) allowing anyone, anywhere to gain on-chain exposure to a vast range of assets.
Synthetix is mainly known for their ‘synthetic assets’, to understand the project you’ll first need to understand what these are, and how they work.
Summarized, synthetic assets are minted (generated) cryptocurrency assets that can mimic both real-world assets (such as gold, silver, stocks, USD) & crypto assets (like Bitcoin, Ethereum, and other altcoins).
These generated synths are able to reflect the value of the mimicked asset through the use of data feeds, called oracles, or in the case of Spartan Protocol through the use of its own liquidity pools, collateralised by staking SPARTA tokens. For Synthetix this is done by locking SNX in a special contract to generate the synths, valued through the use of oracles. Thanks to their collaboration with ChainLink they can track the value of almost any asset at realtime.
Synthetic assets are used to enable users to gain exposure to gains or losses in those markets, without needing to actually hold this asset.
On top of that, there is no middleman charging unnecessary fees, and KYC (know-your-customer) isn’t required. This means anyone can ‘trade’ basically any asset (with leverage) all within one platform.
Now that you know what synthetic assets are, it’s easier to understand what Synthetix’s core product and value is. The Synthetix platform currently counts $2,330,758,299 ($2.3B USD) in Total Value Locked on their platform, making it the largest synthetic assets platform currently in existence, using the Ethereum Network (ERC-20).
The platform offers four main functions:
Synthetix uses two main cryptocurrencies through its platform:
Anyone who wishes to mint synths needs to first purchase SNX. SNX is then deposited by the user on the platform as collateral. The user can then decide to mint any (supported) asset, the value of provided SNX needs to remain 750% higher than the synths created at any time, as the synths act as debt.
That means $1,000 worth of SNX deposited, can mint for example $133 worth of sBTC (a synthetic BTC version) or sETH (a synthetic ETH version).
As SNX is traded on the open market, the value of SNX swings up and down. This reflects in the number of synthetic assets being generated, as a higher price of SNX allows for more synthetic assets to be generated than a lower price.
SNX currently has a $3.2B USD market cap and is rank #33 on CoinGecko. This is a very high valuation caused by the scarcity of SNX, as much is (always) locked up in the platform as collateral for the synths. A very clever ecosystem which reflects the value of growth and adoption.
SNX’s supply will ultimately increase to 250M tokens over the course of the next couple of years, used to incentivise SNX stakers on the platform, resulting in a further decrease of the circulating supply as more and more tokens get locked up by users on the platform.
It’s clear the Synthetix team built a successful platform, with a working tokenomics model. There’s various use cases for SNX that attract tons of users and token holders.
The platform also offers a wide range of assets, which further drives user growth, and I can well see this range of assets grow significantly in the future.
DeFi is here to stay and we’ll continue to see use cases we may not have even think about yet. I started researching and using synthetic assets since November 2020, and have been blown away by this use case.
I can very well see various projects that manage to continue to innovate synths, that also offer a good user experience take off and provide huge returns to its token holders and users.
The fact that anyone can go long or short on pretty much any virtual and real-world asset is very interesting, especially since there is no need to hold the actual asset, or to use a middleman that charges unnecessary fees.
A current challenge I do see for Synthetix is the fact they are using the Ethereum Network. The Ethereum Network has lost part of its market share to Polkadot, the Binance Smart Chain, and various other chains that offer significantly lower transaction fees.
This is one of the biggest reasons why I put my money on Spartan Protocol for significant upside potential compared to Synthetix due to its low market cap and low fees, by using the Binance Smart Chain. I’m also very interested in Beyond Finance, a synthetic assets platform that has yet to launch as well.
Nevertheless, if you believe in synthetic assets and the Ethereum Network. Then SNX might well be a suitable long-term pick for you.
Trading and investing in cryptocurrencies (also called digital or virtual currencies, altcoins) involves a substantial risk of loss and is not suitable for every investor. You are solely responsible for the risk and financial resources you use to trade crypto. The content on this website is primarily for informational purposes and does not constitute financial advice.