Synthetix is one of the largest and most successful platforms in the DeFi ecosystem.
The primary use case for Synthetix is the creation of tokens which track the price of different assets. Mostly that’s crypto assets, however, it can be real-world assets as well.
Some examples of Synthetix tokens include,
- DeFi index fund
Synthetix was launched in 2018 and has been growing consistently since then.
This article will describe how Synthetix works, why the platform is valuable, and what role the SNX token has in the minting of new assets.
The Synthetix Platform
The primary use case for Synthetix is to create synthetic tokens which track the price of other assets. Currently, there are five types of assets that Synth tokens can track.
- Fiat currencies
- Crypto indexes
- Inverse cryptocurrencies (a short position)
For example, one of the most popular assets on Synthetix is the DeFi index fund, which consists of a basket of different tokens from various DeFi protocols. The two most popular tokens on Synthetix are iBTC and iETH, which track the price of Bitcoin and Ethereum, respectively.
The best way to keep track of which tokens are trading on Synthetix is via the Synth marketplace.
At this point it’s not clear that Synthetix is filling a vital need in the crypto ecosystem. While a synthetic token that tracks Bitcoin’s price may be useful in certain circumstances, it’s not necessarily revolutionary.
However, as Synthetix starts to support new assets there could be significant demand for these tokens. For example, Synthetix will make it easy to invest in commodities like gold or silver or even more obscure commodities like copper or uranium. These are markets that aren’t necessarily easy to access for the average person, so being able to buy into them via Synthetix could be huge.
The same goes for traditional markets like the S&P 500 or the NASDAQ. Americans and Europeans, among others, take it for granted that they can invest in these markets. However, hundreds of millions of people around the world don’t have access to the American stock market. Synthetix will provide a way for these investors to take a position in markets they’ve never had access to before.
In late 2019 Synthetix began working with Chainlink in order to integrate a decentralized price feed. By using Chainlink as an oracle, Synthetix can create a token that tracks the price of almost anything. Due to that unique architecture, we could see all sorts of tokens get added to the platform in the future.
To dig deep into the technical specifications of how Synthetix works, you can check out the Synth lite paper, a user-friendly version of the white paper.
Synthetix Network Token: SNX Coin
The SNX token is the backbone of the Synthetix protocol. It is SNX which is used as collateral in Synthetix to create new synthetic tokens. This is similar to how ETH is used as collateral in MakerDAO to mint DAI. Similar to DAI, once a Synth token is created, anyone can trade it. It’s possible to trade Synthetix tokens on the Synth marketplace, you don’t have to mint your own.
That being said, there are a couple of reasons to stake SNX and mint your own tokens.
- SNX stakers can earn a percentage of all of the fees that are generated from traders using the Synthetix exchange
- SNX is an inflationary currency. From March of 2019 to August of 2023 there will be an additional 160 million SNX tokens created. All of these tokens will be distributed to SNX stakers, which means that someone who stakes for that entire duration could possibly see the amount of SNX that they’re holding double
To find out more about staking SNX and how Synthetix tokens are created you can check out the Synthetix website for a full walk through of the minting process.
Synthetix on the Rise
Synthetix is not an easy platform to understand. Once you dig into how new tokens are minted, and how it’s even possible to create a token which tracks the price of anything, things can get really technical, really fast.
Thankfully, for the trader who just wants to use a Synthetix token, it’s unnecessary to understand all of the technical details. Everyone can use the Synthetix marketplace to invest in Synth tokens. It’s decentralized and open to anyone who wants to buy in.
Synthetix’s growth is impressive so far. As more tokens are added to the platform and demand for SNX rises as a result, there is a good chance that the SNX price has a lot of upside potential.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.