Synthetix

Synthetix is a derivatives liquidity protocol on Ethereum that enables the issuance and trading of synthetic assets. Each synthetic asset (or Synth) is an ERC20 token that tracks the price of an external asset.
In February 2021, the Synthetix team announced that it raised $12 million from venture capital firms Coinbase Ventures, Paradigm, and IOSG. ^[1]

Background

Synthetix is a decentralized protocol for the issuance of synthetic assets, based on Ethereum. Synthetix launched in late 2017, originally under the name of Havven. The company was founded by Kain Warwick, who is based in Sydney, Australia. These synthetic assets are collateralized by the Synthetix Network Token (SNX), which allows the issuance of synthetic assets (Synths) when locked into the contract.^[2]

Synthetix has already delivered one of the most complex and useful protocols built on Ethereum to date. But the potential for censorship-resistant synthetic assets is still largely untapped. Further improvements to the mechanism as well as functional upgrades and new Synths will vastly increase the utility of the platform. Movement to a decentralised governance process will also reduce systemic risk and increase the long term viability of the project.

Synths are tokens that provide access within the Ethereum blockchain to assets such as gold, Bitcoin, U.S. dollars, TESLA, and AAPL. Synthetix protocol will enable a variety of trading features including binary options, futures, and more. ^[3]^[4]
On November 12, 2020, Synthetix began to offer users the ability to trade Brent Crude Futures Contracts on its platform.^[5] This was achieved by pulling syndicated data from the Intercontinental Exchange (through Chainlink for an undisclosed amount) and feeding the data through the new Synthetic Oil token (ticker symbol sOIL).^[6]There is also a short crude oil future listing on the platform with the ticker symbol $iOIL, as $sOIL is for long crude oil futures.^[7 ^[8]
On November 30, 2020, Melon (MLN) announced that they would be supporting Synths on its protocol after the Melon Council approved this decision.^[9]Assets such as synthetic fiat currencies, synthetic commodities, synthetic main cryptocurrencies, and various other assets that are on the Synthetix platform are to be supported on the protocol.^[10] While not readily available, both firms and communities of the firms will be working together to promote the use of Synths on Melon's platform.^[11]

Technology

Synthetix is composed of a smart contract infrastructure and a set of incentives that keep Synth prices. The value of the Synthetix Network Token (SNX) underpins that. SNX acts as collateral; mint Synths requires the staking of a proportional value of SNX. Stakers are compensated with a pro-rata share of the fees created by operations inside the program to sustain the program. Therefore, the importance of SNX has a direct correlation to the use of the network it is collateralizing.
This mechanism allows Synthetix to support instantaneous, near-frictionless conversion between different Synths flavors without the liquidity and slippage problems that other decentralized exchanges experience. The resulting token network supports a wide range of use cases including trading, loans, transfers, remittances, eCommerce, and more.

Synth Pegging Mechanism

The Synth peg is critical to a well-functioning system, as traders require both liquidity and stability between Synths and other crypto assets to profit from the trading. Some Synths trade in the open market, so they can fall below par with the assets they are monitoring. Incentives are required to ensure minimal deviations from the peg and motivate actors to correct them.
There are three methods to maintain the Synth peg, which include Arbitrage, sETH liquidity pool on Uniswap, and SNX auction.

SNX Token

Synthetix was initially working on Havven stablecoin before pivoting to synthetic assets and their current model. Havven’s supply was 100 million, which converted 1:1 to SNX tokens. However, in 2018 it was decided the tokenomics would be changed. From March 2019 to August 2023, the total SNX supply is increasing from 100,000,000 to 260,263,816, with a weekly decay rate of 1.25%. After September 2023, there will be an annual 2.5% terminal inflation.
SNX holders can stake their tokens and earn staking rewards as well as fees from exchange transactions.

Synthetix.Exchange

Synthetic assets provide an asset with visibility without maintaining the underlying resource. This has a number of benefits, including reducing friction when moving between various assets, increasing accessibility of certain assets, and resistance to censorship.

Advantages of Synthetix.Exchange

Trading on Synthetix. Exchange offers many benefits compared to centralized exchanges and DEX-based order books. The lack of an order book means that all trades against the contract, known as peer-to-contract trading, are carried on. Assets are assigned an exchange rate by means of price feeds provided by an oracle and can be converted using the dApp Synthetix. Exchange. This offers unlimited liquidity in the scheme up to the total sum of collateral, zero slippage, and on-chain trading without authorization.

How Synths work

Synths are synthetic assets that track the underlying asset price. They allow holders to gain exposure to different asset classes on Ethereum without having to hold the underlying assets themselves or trust a custodian. Synths are supported by the Synthetix Network Token (SNX), which is staked at a ratio of 750% as collateral.

Funding

In February 2021, the Synthetix team announced that it raised $12 million from venture capital firms Coinbase Ventures, Paradigm, and IOSG. The funds purchased SNX tokens directly from the DAO treasury, and “will contribute where possible by providing liquidity in the form of SNX collateral, and also participate in its rapidly evolving community governance system,” the announcement read.
Paradigm investment partner Arjun Balaji said:

“We’re excited about supporting the SynthetixDAO as it builds the leading synthetic asset platform. Synthetix has one of the best communities in crypto and we’re glad to be a part of it.”

According to the team, "Paradigm has been helping Synthetix protocol recruit talent through their in-house HR and network. Coinbase Ventures has helped with connectivity across many functions, both internally and externally. IOSG, meanwhile, is helping to spearhead Synthetix’s push into China by assisting with the hiring of a China regional lead, as well as with in-person roadshows and creating educational content in Chinese."

Synthetix Platforms

Many platforms have been built on top of the Synthetix protocol. Synthetix powers decentralized perpetual futures, options markets, deal coordination markets, and more.

Synthetix Ecosystem

Many platforms already leverage the deep liquidity and composability of Synthetix to deliver better trades with lower slippage, hedging, and other unique use cases. These include: