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What is Synthetix?
Synthetix (SNX) is a cryptocurrency token built on the Ethereum blockchain.
Its purpose is to allow the creation of "synthetic assets," whose prices can track currencies, cryptocurrencies and anything else. It does this with the same kind of system that some stablecoins use to maintain their value.
This is what Synthetix is all about: letting anyone mint their own synthetic assets to track the price of anything, backed by SNX tokens.
Where to buy Synthetix (SNX)
Synthetix at a glance
|Maximum supply||~250 million by 2024|
|Consensus algorithm||Ethereum proof of work|
|Notable team members||Kain Warwick|
Synthetix SNX wallets
As an Ethereum-based ERC20 token, SNX and Synths can be used with any Ethereum-compatible wallet.
Compare the best Ethereum wallets to find the one that's right for you.
How does Synthetix work?
Synthetix is built on Ethereum and involves two different types of token.
- The main token is called Synthetix (ticker symbol SNX).
- The second type of token is Synth. These Synths are the synthetic assets created through this system.
To use Synthetix:
- People buy and lock up ("stake") SNX tokens on the Synthetix platform.
- Those people can create ("mint") Synths, which track the price of other currencies or assets. The primary Synth is sUSD.
The price of Synths is determined through oracles, many of which are currently provided through partnerships with Chainlink, and they can be traded and exchanged on the Synthetix Exchange.
With this, it's easy to quickly convert Synths into a form where they track different prices in different ways.
For example, one currently available Synth is called sBTC, which simply tracks Bitcoin prices. Another is called iBTC, whose price moves inversely to Bitcoin. It's a token that gets more valuable when Bitcoin prices fall.
The ability to hold and mint your own Synths opens up countless new possibilities for trading, hedging, making remittances or other payments, managing portfolios and more.
Synthetix's unique features
There are two features Synthetix offers that you don't find in most other systems.
- Create and convert Synths without a counterparty
- Trade any Synth for any other on the Synthetix Exchange without worrying about slippage
What makes Synthetix different
The main problem in this system is that the value of minted Synths moves differently to the underlying SNX. What would happen if the market value of SNX drops while the value of Synths rises? How would the system remain collateralised?
Most of Synthetix's finer points, as well as its seemingly infinite liquidity, are all about solving this problem and ensuring that it continues working almost no matter what SNX and Synth prices do.
600% collateralisation required
Synthetix requires 600% collateralisation for Synth issuance. So if you want to mint a hundred synthetic US dollars (sUSD), you'd need the equivalent of US$600 of SNX tokens as collateral.
This creates a generous buffer for Synths in circulation.
When someone mints Synths, their minimum 600% SNX collateral is locked up, while the value of the issued Synths takes the form of outstanding debt. To unlock their Synths, a person needs to pay back their debt by burning Synths equivalent to the current value of the Synths they issued.
The 600% collateral requirement helps ensure that users have enough collateral to more easily buy and sell back their own debt as desired.
Exchange fees and staking rewards
By locking up SNX, issuing Synths and taking on the debt of those Synths, one also becomes a staker and starts earning staking rewards. These take the form of a portion of the Synthetix Exchange fees.
These fees are currently set at 0.3% per trade.
The fees are put into a pool, where they can be claimed by stakers proportionate to their outstanding debt. So the more Synths someone issues, the more staking fees they earn.
However, they can only earn staking rewards if they maintain a greater than 600% collateralisation ratio. This incentivises people to actively maintain their personal 600% ratios.
The Synthetix decentralised exchange lets people buy and sell Synths via SNX and smart contract, without needing to rely on third parties specifically creating and wanting to trade those tokens.
There is also system inflation, with the total amount of SNX in circulation set to increase from the initial 100 million to around 250 million by 2024.
This inflation will also be distributed to Synth issuers.
This was not a part of the original system. It was introduced later once it became clear that exchange fees alone were not enough to incentivise Synth issuance.
While stakers will have their personal debt from the Synths they've issued, there's also a total debt pool underpinning all Synths currently in circulation.
A Synth issuer's individual debt is simply registered as a constantly-changing percentage of the total, which shifts based on exchange rates and the Synths they initially issued.
As such, Synth issuers do not have to pay back their debt with the same type of Synth as they initially sold. Someone who minted one Synth can pay it back with any other kind, as long as it reflects the current market value of the Synths they want to burn.
This is what gives the system its seemingly "infinite" liquidity, and allows endless shifts between the Synths in the system without skewing the total balance of assets in the system.
What to consider before buying SNX
For all of its benefits and ingenuity, the main risk of Synthetix is that it's still experimental and there are no guarantees that it will continue to unfold as intended.
One of the main risks for users is that they may need to burn more Synths than they issued to unlock their SNX.
Synthetix may also encounter competition in the asset tokenisation space. Similarly, as an Ethereum-based platform, SNX is currently dependent on Ethereum to succeed.
It's also dependent on reliable price feeds for its synthetic assets. A Synth cannot be created unless there's a reliable way of tracking the underlying asset's prices in a way that can't be manipulated.
This limitation means Synths today are largely restricted to some of the more highly-liquid cryptocurrencies, fiat currencies, gold and silver.
Regulatory changes may also impact Synthetix. For example, Synths may be classified as derivatives or securities in some jurisdictions.
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future performance. Consider your own circumstances, and obtain your own advice, before relying on this information.
You should also verify the nature of any product or service (including its legal status and relevant regulatory
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have holdings in the cryptocurrencies discussed.