As decentralized finance (DeFi) emerged, it created new tools and opportunities in Web3 and trading. Synthetix, a decentralized liquidity protocol, is one example. Put simply, Synthetix supports the trading of derivatives. Users of the protocol can tokenize assets such as gold and oil and make them tradeable on the Ethereum blockchain without holding the assets in question.
Synthetix offers various resources that simplify the creation and availability of liquidity for decentralized derivatives, known as synths. The protocol has evolved notably since its arrival in 2018, and continues to present a compelling option to derivatives traders.
Read on to learn more about its origins, evolution, and the inner workings of the Synthetix protocol.
What is Synthetix?
Synthetix is a decentralized protocol that enables the creation and trading of synthetic assets. This includes cryptocurrencies like Bitcoin, fiat currencies like USD, and even commodities like gold and silver. These assets are called synths, and they’re issued as ERC-20 tokens on Ethereum.
Synths track the price of various assets that users can trade and make gains on, without holding the underlying asset. This allows you to trade a wide range of assets on Ethereum with greater ease and simplicity. Meanwhile, Synthetic doesn't operate its own application. Instead, it provides liquidity for synths that other DeFi applications can use to build on. Once a synth has been created, you can trade it on most decentralized exchanges.
History of Synthetix
Synthetix launched in 2018 after raising $30 million through an initial coin offering (ICO) under its previous name Havven. Soon after the ICO, the protocol was renamed Synthetix. It was founded by Kain Warwick, who previously worked at the Australian crypto payments platform Blueshyft. Warwick was also an advisory council member at Blockchain Australia.
The core team at Synthetix includes Justin Moses and Clinton Ennis. Moses serves as CTO and before that he was Director of Engineering at MongoDB, managing the deployment of large-scale databases. Ennis is Synthetix’s senior architect, having joined from JPMorgan Chase.
Initially, Synthetix wanted to create a decentralized exchange for trading synthetic assets. However, the organization realized that solving the problem of creating synthetic derivatives and liquidity was a bigger challenge. That shifted the entity’s focus towards providing DApps with liquidity, resulting in the rebranding. The evolution allowed Synthetix to build upon the smart contracts it had already developed.
However, after nearly five years in the market, the company saw more challenges emerge as it scaled. So, in March 2023, Synthetix v3 was announced. This is the latest iteration of Synthetix, built from scratch to better meet user demands. The v3 version focuses more on being a liquidity layer for DeFi derivatives and enabling cross-chain functionality.
The inner workings of Synthetix
Synthetix is available on Ethereum and Optimism, providing liquidity for synthetic assets and perpetual futures through synths. Synths can be traded by anyone. For example, if someone wants to make gold tradeable on Ethereum, they can tokenize it without holding any gold. Two main components are required to make synths function.
1. Collateral
You don't need the underlying asset to create synths. However, you do need something backing them. This is where the project’s native token, SNX, comes in. 650% of the value of the synth must be staked in SNX in order to mint it. For example, if you’re looking to mint a synth valued at 1 BTC, you must stake 6.5 BTC worth of SNX.
2. Price information
Synths follow the price of assets that are traded on exchanges globally. Therefore, Synths need to source accurate information in real-time. Synthetix sources this information from decentralized oracle networks like Chainlink. Chainlink provides real-time price tracking of various assets worldwide. Synthetix sources this information and applies it to the protocol’s synths.
At the time of writing, there are four categories of synths available. Each category represents a different form of asset.
Crypto: The crypto synths category is the most extensive, with 36 cryptocurrencies such as sBTC and sXMR available
Forex: Seven forex currencies are supported, including sUSD, sEUR, and sJPY.
Equities: Three equities synths are available at the time of writing: sFTE, sNIKKEI, and sTSLA.
Commodities: sXAU, sXAG, and xOIL are the commodities synths, which represent gold, silver, and oil respectively.
In short, Synthetix enables the creation of decentralized synthetic assets by managing their liquidity and sourcing the price information from oracle networks.
Synthetix ecosystem
Synthetix doesn't run its own exchange. Instead, Synths are ERC-20 tokens that are tradable on most decentralized exchanges. Users can trade existing synths on a DEX such as Kwenta and Polynomial with up to 50x leverage. What’s more, you can deposit synths into curve pools and make gains by providing liquidity.
sUSD, a Synth that follows the price of the U.S. dollar, is currently being used as a stablecoin for various applications. It's less popular than some of the largest stablecoins like USDT or USDC. dHedge is a decentralized asset management platform built on top of Synthetix. You can use sUSD on dHedge to trade and manage your synthetic asset positions.
Another interesting integration is in Overtime Markets, a decentralized sports prediction platform. Overtime Markets accepts sUSD as a stablecoin, alongside USDT and USDC. Synthetix has enabled the creation of a wide range of applications beyond just creating tradeable assets.
Tokenomics and distribution of SNX
The SNX token was launched in 2018 after several rounds of private sales and a public sale. $250K was raised in the seed round, $610K in pre-sales, $23.42 million in private sales, and $5.3 million in the public sale. Another $12 million was raised in 2020 after the token was launched.
SNX was distributed in the following way during its launch:
60% to investors who participated in SNX token sales.
20% to team and advisors.
12% to the now-decommissioned Synthetix Foundation.
5% for partnerships, which Synthetix used to raise $3.8 million in 2019.
3% for marketing and incentives.
SNX launched as an inflationary token, reaching its peak supply in December 2023. Following this, the SIP-2043 proposal was voted in and implemented to stop minting new SNX tokens and make it a deflationary asset instead. Synthetix still requires stakers to create synths and provides liquidity to them. To incentivize stakers to continue staking SNX, the following changes were made:
Stakers can take out free sUSD loans without any fee or interest. The loans can be used however they’re needed, such as trading, or yield farming. Their SNX will remain staked and generating gains.
A part of the gas fees spent by users is distributed to stakers.
Another portion of the fee is allocated towards purchasing and burning SNX tokens, which results in a decrease in supply.
How to buy SNX
As a popular cryptocurrency, SNX is listed on many major exchanges. Read on to understand how to buy SNX on the OKX app or web.
Buying SNX on OKX
Step 1: Create an account on OKX.
Step 2: After completing the verification and login process, you're ready to purchase SNX. You’ll need to hold some USDT in your account. You can either deposit USDT or use the Express Buy feature on OKX to buy the token using your preferred payment method.
Step 3: Head over to “Trade” on the main navigation bar and click “Spot.” Then, type “SNX” into the search bar on the top left. Next, select the “SNX/USDT” pair.
Step 4: Here, you can check the current buy and sell price of SNX. Place a limit or market order depending on your preference. The order will be fulfilled if the conditions are met, and the SNX tokens will arrive in your OKX account. By executing a market order, you can purchase SNX immediately at its current market value.
Buying SNX on the OKX mobile app
The OKX mobile app offers a hassle-free method for purchasing SNX in just a few taps.
Step 1: Download the OKX mobile app for iOS or Android, depending on your device.
Step 2: Sign in to your OKX account. If you don't already have an account, select “Sign up” and follow the steps.
Step 3: After completing your registration, you can now purchase SNX. However, you need USDT in your account to buy it. You can go to the “Assets” tab and deposit USDT if you already hold the coin. If not, you can purchase it using “Express buy” on the app.
Step 4: Select “Trade” from the navigation bar at the top. Then, tap the trading pairs at the top left and type “SNX.” Now, select “SNX/USDT” under “Spot trading.”
Step 5: To set a limit order, enter the preferred price and quantity. Once the order is met, the SNX tokens will arrive in your OKX Web3 Wallet. You also have the option to make a market order through the mobile app for immediate fulfillment.
Benefits and limitations of Synthetix
Pros:
Enables the creation of synthetic assets without the requirement of holding their underlying assets.
It's fully decentralized as even the price information is sourced from oracle networks like Chainlink.
SNX is deflationary, potentially giving better gains for long-term stakers.
Cons:
Some consider the synthetic assets available to be limited.
A high collateral — 650% — in SNX is required to create new synths.
Some users find Synthetix complex to use, as trading and maintaining the peg can be more challenging when compared to other DeFi platforms.
The final word
Synthetix has emerged as a pioneer in the DeFi space by enabling the creation and trading of synthetic assets. By introducing non-crypto assets, the technology has brought crypto traders new opportunities to generate gains. By combining collateral and oracles, Synthetic creates liquidity for synthetic assets that can be traded on any decentralized exchange.
By now a well-established technology, Synthetix continues to evolve. Its token, SNX, is no longer inflationary, while its protocol, Synthetix V3, was recently re-written from the ground up. Although some believe Synthetix offers a limited number of synthetic assets and is only available on two chains, many expect growth for the technology as the wider DeFi ecosystem evolves.
FAQ
While most other DeFi platforms focus on trading assets within the crypto ecosystem, Synthetix offers a wide range of non-crypto assets as derivatives on the blockchain. This includes gold, oil, and various forex currencies.
Synthetix uses an over-collateralization model, where users have to lock in 650% worth of SNX tokens for the synth they want to mint. For example, if you want to mint a synth representing $100 in gold, you must lock in $650 worth of SNX tokens.
Synthetix runs on the Ethereum blockchain and supports Layer-2 scaling solutions such as Optimism and Arbitrum.
SNX is the project’s native token, and it’s used as collateral to create new synths. Additionally, users can also use the token to participate in the project’s governance.
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