All You Need To Know About The Synthetix Network Token Cryptocurrency
Synthetix is one of the first generation DeFi platforms that predates the invention of yield farming. This is an original and feature-rich project with a SNX native token that can also be used in a variety of ways. How does Synthetix work, what is it for and what is the value of the SNX coin?
What is Synthetix Token?
Synthetix Token (SNX) is a native token of the Synthetix platform, which allows creating digital tokens pegged to the rate of real assets. The platform is deployed on the Ethereum blockchain. By blocking a certain amount of SNX, the user can issue tokens (the so-called Synths) pegged to:
- fiat currencies;
- goods (gold, silver).
Synthetix also has a fascinating feature for traders – inverted tokens. They are also pegged to the rate of a certain asset, but they reflect it inversely. For example, when the price of ETH falls, the rate of the iETH inverted token grows.
What does SNX have to do with it and why is it so valuable? The platform itself works as follows:
- The user buys SNX in the amount of 750% of the asset value and freezes it in the SNX staking pool;
- Synthetix blocks these funds and issues a Synth such as sUSD.
- This sUSD can be exchanged for any other Synth on the Kwenta decentralized derivatives exchange;
- Synths are used to trade on Kwenta or farm on platforms like Curve;
- The asset that is no longer needed can be converted back to SNX and the user can withdraw the full amount of the frozen funds.
Prices are concurrently tracked by Synthetix or ChainLink oracles (depending on the asset). In other words, you can actually use Synths that reflect real assets and currencies to trade these very assets and currencies without having them. This is primarily useful for traders who derive revenue from exchange rate differences and are not interested in holding a physical asset.
What is special about this project?
At a first glance, Synthetix looks like an ordinary crypto derivatives trading platform, but indeed it differs significantly from the same Paxos. If a token pegged to gold on Paxos means that the platform itself holds one gold share, then the Synth of gold on Synthetix is just fiction. The token is not backed by a real gold share, but is backed by SNX in an amount that corresponds to the current gold rate.
This unfolds another platform feature – the SNX staking pool is a common liquidity pool for trading any Synths. That is, for example, exchanging sUSD for sXAU does not require sXAU to be put up for sale, as the algorithm itself will charge off the required amount of sUSD from the account, transfer them to the SNX pool, and then take the required amount of SNX from the pool to create the sXAU Synth and deposit into the account.
Actually, Kwenta does not even have an order book and orders at all, with all trading taking place through a smart contract. The user actually trades with all other users at the same time using the common SNX liquidity pool.
The drawback of this asset format is that it is pegged to the SNX’s market value. For example:
- User froze 750 SNX for $20;
- This security allowed them to issue 20 sUSD stablecoins;
- Then the SNX rate dropped to $10 and the security deposit is just enough for only 10 sUSD. This means that the user can withdraw only 10 sUSD Synths from the platform, but not 20, which will be converted to SNX.
However, the same principle works in the opposite direction: an increase in the SNX rate, instead of its fall, would allow more funds to be withdrawn from the platform than the amount deposited.
Background & team
Initially, the platform appeared in 2017 under the name “Havven” as a protocol for creating Ethereum blockchain-based synthetic assets. The platform was masterminded and founded by Kain Warwick, a blockchain enthusiast, and Justin Moses, a Blueshyft technical advisor and an employee of JPMorgan Chase.
In early 2018, the project received funding from investors and was rebranded from Havven to Synthetix and fully deployed. As early as in January, the team airdropped SNX tokens and then the platform acquired an ecosystem: direct integration with Ethereum, Synth exchange, dHedge asset management platform, as well as a number of other services and products found on the official website.
Like all DeFi projects, Synthetix does not provide for classic PoW-based token mining. New coins are issued through staking in consideration of frozen funds. That is, to become an SNX miner you need to do the following:
- Purchase SNX;
- Freeze them in the liquidity pool e.g. by converting them into sUSD;
- Pick up award for staking.
The reward is formed from new tokens issued according to the developed emission plan, as well as from a fee of 0.3% charged during the transaction. Funds from the commission pool and new SNX are distributed among the stakers based on the share of frozen funds.
Interestingly, this feature makes SNX one of the best tokens for yield farming, since the user can freeze SNX by converting them into sUSD, and then freeze sUSD in liquidity pools on Curve or a similar platform. Eventually, this is a double profit for the holder: one from Synthetix for staking and another from Curve for providing liquidity.
Where to buy cryptocurrency, available exchanges
Although SNX is not yet available on our platform, it is one of the priority tokens for listing. Therefore, in the near future you will be able to trade the Synthetix native coin along with the basic fiat currencies and cryptocurrencies on Binaryx.
This will enable quick gain of SNX for creating Synths, staking or yield farming, as well as their conversion into hard fiat or stablecoin upon completion of all operations in order to lock in profits. With Binaryx, DeFi becomes more affordable and convenient.
As already noted, the Synthetix platform is deployed on the Ethereum blockchain, thus making the SNX coin (like all Synths) an ERC-20 token that is technically compatible with all Ethereum wallets. This allows SNX to be stored:
- In multi-currency hardware wallets;
- In multi-currency light clients (for example MetaMask);
- On the Synthetix platform.
As soon as SNX is added to Binaryx, clients of the exchange will be able to make use of a secure integrated wallet enabling fast transfer of tokens to an external platform or their conversion in a highly liquid market.
Pros and cons of the project
Synthetix’s technical features, its functionality and economical model using the SNX native token are the reasons for the project’s main strengths and weaknesses. The undoubted advantages are as follows:
- Possibility to trade assets without having them;
- The project supports basic fiat currencies and cryptocurrencies, as well as goods, which allows uniting still widely different markets;
- Token staking;
- Instant asset liquidity secured by smart contracts.
However, its attractiveness is reduced by:
- The dependence of synthetic assets on the SNX rate;
- Quite a large security deposit (750% of the amount).
- The need to use separate platforms for asset generation, exchange and staking.
In addition, cross-trading in different markets with rarely interacting assets requires professionalism and caution on the part of the trader, especially given the Synths’ dependence on SNX.
Oleg Marchenko’s (trader) opinion:
This asset appeared at the end of another cryptoassets boom cycle. Approximately on March 15, 2018. Its cost was only 40 cents. The current price is 20 USD. This asset is the Coinmarketcap’s top hundred and has decent daily trading volumes, which indicates a fairly large liquidity of this asset. As we said earlier, this asset is attributed to the DeFi project sector, and as we know now everything that is associated with “this word” is doomed to success. At least in the realities of this market and for the time being. Investors absolutely do not care whether this project has any sort of value or whether it is just another HYIP project. What they really care about is that it has been yielding X’s profits since the summer of 2020. Let’s take a look at the chart of this asset.
We see several globally large Elliott waves. The first one lasted until January 2020, which was the period of project formation. The second one lasted until September of the same year, at that time the price rose to 6 USD. After that we witnessed a rather prolonged yet predictable local correction. The next growth peak fell on the period November-January 2021. What is going on now is a correctional movement in which an asset can be bought. What conclusion can be drawn from this price movement? If we continue the general “bull run” in the market, we will see a price of 40 USD as early as in April this year. I am now speaking from the point of view of a trader, not from that of a crypto enthusiast. In fact, no matter what you trade, the main thing is that you understand the token entry and exit points. I can say for sure that both investors and traders should take a closer look at this asset.
The Synthetix platform is an original blockchain solution that allows uniting very distant markets and get access to a variety of assets without actually buying them. This is a potent SNX-based tool for traders, which allows making money on trading, staking and yield farming.
Nevertheless, the use of the platform requires prudence and professionalism, since a trader can work with pairs that do not exist on traditional exchanges (including inverted tokens), with the final profit actually depending on the S