Synthetix Explained

Synthetix

Synthetix is an Ethereum-based decentralized finance (DeFi) protocol. The platform allows you to trade, stake and borrow an array of different cryptos, equities and commodities. This provides users with a platform for easy and reliable decentralized trading. The Ethereum (ETH) based protocol offers users access to highly liquid synthetic assets (synths). Synths, similarly to derivatives, track the value of their underlying assets, thus bringing non-blockchain-based assets to the crypto world and creates a more broad financial market.

How it works

Synthetix supports synthetic commodities like gold and silver, synthetic cryptocurrencies, synthetic fiat currencies. Synths can provide exposure to assets normally inaccessible to the average crypto investor. The platform does this by creating synthetic assets tied to the price of the real-world asset. Trading in this type of way allows users to invest in an asset without having to hold the underlying asset. Users can create new Synths by providing collateral in the form of SNX — the platform’s native token.

The process for obtaining assets in Synthetix is similar to how you would obtain over the counter (OTC) derivatives. Although a big difference from traditional derivatives is that Synthetix eliminates the need for a broker-dealer (third party). Users trade Synths through a smart contract, rather than with a corresponding party or individual. It is also worth noting that when you stake SNX you take on debt reflecting the amount of sUSD that must be burned to un-stake your SNX. This debt fluctuates in accordance with the supply of Synths and their exchange rates.

SNX tokens

Synthetix’s native token, the Synthetix Network Token (SNX), is used to provide collateral against Synths that are issued. This means that whenever synths are issued, SNX tokens are locked up in a smart contract. Investors can use SNX to earn staking and exchange rewards. Users are eligible to receive rewards if their collateralization ratio remains at 600%. By linking rewards to the collateralization ratio Synthetix ensures that Synths are always backed by collateral. The maximum supply of SNX is 212,424,133 coins, of which over 114,000,000 SNX are already in circulation.

Governance

When it comes to the governance of the platform The Synthetix Foundation was the main governing body from 2017 until last year. In 2020 Synthetix Foundation discontinued its work. Instead of the previous Foundation now the platform has three decentralized autonomous organizations (DAOs): ProtocolDAO, GrantsDAO, SynthetixDAO.

The Future of Synthetix

Since 2017 Synthetix has come a long way in revolutionizing the world of decentralised financing by bringing the derivative market to the blockchain. Synthetix provides you with a wide array of both crypto and non-crypto assets, enabling you to participate in the DeFi ecosystem despite not holding those assets. Synthetix has also announced that it will use Optimism, which is a Layer 2 scaling solution for Ethereum that can reduce transaction costs, making the platform more accessible

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We hope this blog post was helpful in understanding Synthetix (SNX). For more blogs be sure to head over to the SpectroCoin blog.

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