Token Review: Synthetix Network (SNX)

This Sunday we are going to introduce Synthetix Network!

Have you ever heard of this cryptocurrency?

OVERVIEW

Before we start talking about Synthetix, let's recap what is DeFi and the traditional system.

You must know that prior to Bitcoin a centralized system with a managing single figure (company) on top was the traditional scenario. With the advent of Bitcoin and the Blockchain, a new system has been created that today we define decentralized. This system does not have a single figure at its head but multiple figures (people) who control everything.

Thanks to the blockchain, a process ecosystem has begun to be developed that uses this technology to overcome the problems that centralized systems have. From here the concept of smart contract developed which, thanks to Ethereum-like platforms, the DeFi was built.

Image source: https://www.coinmama.com/blog/defi-explained/

This sector is a derivative of centralized finance (CeFi) but with a very important change which is represented by the blockchain. That is, an economic system, distributed and within everyone's reach where a traditional system would never have arrived. It is from here that the Synthetix project was born and from here that, a finance that will change our lifestyle, is being developed.

Synthetix is a decentralized synthetic asset issuance protocol built on Ethereum. These synthetic assets are collateralized by the Synthetix Network Token (SNX) which, when locked in the contract, enables the issuance of synthetic assets (Synths). This pooled collateral model enables users to perform conversions between Synths directly with the smart contract, avoiding the need for counterparties.

This mechanism solves the liquidity and slippage issues experienced by DEX’s. Synthetix currently supports synthetic fiat currencies, cryptocurrencies and commodities like gold and silver. SNX holders are incentivized to stake their tokens as they are paid a pro-rata portion of the fees generated through activity on Synthetix.Exchange, based on their contribution to the network. It is the right to participate in the network and capture fees generated from Synth exchanges, from which the value of the SNX token is derived. Trading on Synthetix.Exchange does not require the trader to hold SNX.

With Synthetix is possible also to do staking. If you are following me since a few time you know that I’ve already talked about staking in different articles and probably you’re already earning money from this kind of passive income.

If you are new or have you missed my video tutorial for Tron (TRX) staking you can read one of my best successful articles here: https://hive.blog/hive-167922/@mikezillo/passive-income-with-trx-staking

Synthetix Network uses a very complex system in operation. Through Staking it is possible to give, with the SNX token, the liquidity to the system that will be used to maintain the derivatives. When a derivative is generated, in this case the opposite of Bitcoin that is iBtc, a contract is created opposite to the rise of BTC. This is possible with the debt function, i.e. one party generates a debt and creates the contract that will hold it because it believes that Bitcoin will go down in the future.

Image source: https://synthetix.io

In the meantime, the contract has generated a debt that will be covered by a liquidity pool that will be offered by those who will stake the SNX. This process is the same as all contract types that are generated on Synthetix. That is why the system will incentivize a party to stake SNXs because it will offer them a reward. But this reward will have to be redeemed manually every week and in exchange for a very substantial fee. In fact, Synthetix staking is a process not for everyone but above all very expensive which will require a lot of capital in its operation. So the SNX token becomes very important and will constantly increase over time due to the continuous debts due to the creation of derivatives.

DEEPENING

After the overview of the project, let's move on to an in-depth analysis!

With Staking and the SNX token the liquidity for the system is created and it will be used to maintain the derivatives.

SNX holders can use Synthetix smart contracts to mint sUSD by locking their SNX as collateral. The steps involved for SNX holders are:

The Synthetix contract checks that the SNX staker can mint Synths against their SNX, which requires their Collateralization Ratio to be below 750%.

Their debt is added to the Debt Register. The debt is the amount of the new value minted, and is stored in sUSD

With the debt assigned to the staker, the Synthetix contract instructs the sUSD contract to issue the new amount. It adds it to its total supply and assigns the newly minted sUSD to the user’s wallet.

The steps involved for the smart contracts to process a Synth exchange are:

Burn the source Synth (sUSD), which involves reducing that wallet address’s sUSD balance and updating the total supply of sUSD.

Establish the conversion amount.

Charge an exchange fee, which is currently 0.3% of the converted amount, and send the fee as sUSD to the fee pool, where it can be claimed by SNX stakers.

The remaining 99.7% is issued by the destination Synth (sBTC) contract and the wallet address balance is updated.

The sBTC total supply is updated.

Image source: https://defiprime.com/synthetix

Whenever SNX holders mint or burn Synths, the system tracks the debt pool. It does so by updating the "accumulated debt incremental ratio." This can measure the proportion of SNX stakeholders in the debt pool when they were last minted or burned, and the change in debt caused by other stakeholders entering or leaving the system. The system uses this information to determine the debt of each staker at any time in the future, without actually recording the changes in the debt of each individual staker.

Probably, after a period of time, you would like to exit from staking or reduce the debt and unlock staked SNX so you must pay back your debit.

How can you pay back this debit?

To reduce your debit to zero you have to complete this process:

Synthetix contract determines its debt balance and deletes it from the debt register.

The required amount of sUSD is burned, and total supply of sUSD is updated along with the sUSD balance in the user’s wallet.

The SNX balance becomes transferrable.

Once having understood how to pay back the debit let’s see how Synths work.

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

Synthetic assets provide exposure to assets without the need to hold basic resources. This has a range of advantages, including reducing friction when switching between different assets expanding the accessibility of certain assets, and censorship resistance.

Trading on Synthetix.Exchange has many advantages over centralized trading and DEX-based order books. The lack of an order book means that all transactions are executed according to contracts, which are called P2C (Peer-to-Contracts) transactions. The price information provided by Oracle is used to assign exchange rates to assets and can be converted using Synthetix.Exchange dApp. This provides unlimited liquidity up to the total amount of system collateral, zero slippage and unauthorized on-chain transactions.

Image source: https://synthetix.exchange/#/markets

By providing synthetic assets to users worldwide, Synthetix is ​​at the forefront of the DeFi movement, allowing users to use specialized trading strategies. Synthetix has the potential to create a massive tokenized market on the Ethereum blockchain.

The market share that synthetic products on the blockchain will have could undoubtedly be significant.

Have you ever traded on Synthetix.Exchange?