In the cryptocurrency world, you can trade Tesla stock (TSLA) without having to own the original shares. But how?

 

A synthetic asset that mimics TSLA stock allows you to have exposure to the stock without the need to own the physical shares. You can do this trading on the Synthetix platform.

 

Now, to understand more about what Synthetix (SNX) is, from the team behind it, its working mechanism, its advantages, how to utilize it, to its challenges and opportunities in the future, check out the following review.

 

 

What is Synthetix (SNX)?

Synthetix is a DeFi protocol that enables the issuance of synthetic assets. Users of the platform can create synthetic crypto assets that replicate the value of native assets, such as currencies, commodities, and stocks. These synthetic assets are called Synths.

 

Synthetix is built on the Ethereum network. In January 2021, to reduce the high gas fees in the SNX staking process and trading of Synths, Synthetix extended its system to the Optimism mainnet.

 

The aim of the platform is to give crypto investors exposure to assets that do not exist on top of the blockchain. Some of the assets available on Synthetix include cryptocurrencies, commodities (gold, silver, oil), fiat currencies, indices (NIKKEI, CEX, FTSE), and stocks (TSLA).

 

These synthetic assets will become sTokens, such as sBTC, sXAU, sUSD, sTSLA, and others. With Synths, users can own assets of equivalent value without having to own their physical form.

 

Users can use Synths, which are ERC-20 tokens, for trading, investing, paying transactions, and other purposes within the Synthetix ecosystem, such as on 1Inch, Curve, Uniswap, Aave, Lido, and others.

 

For example, by owning synthetic assets such as sXAU (gold synthetic asset), users do not own physical gold, but rather tokenized contracts that provide exposure to the gold price.

 

Who is the Team Behind Synthetix?

Synthetix was founded by Kain Warwick, an entrepreneur and crypto enthusiast. Prior to founding Synthetix, Warwick founded Blueshyft, an online payment gateway based in Australia.

 

He is also an Advisory Board member at Blockchain Australia and an Advisory Board member and investor in The Burger Collective. In 2018, Kain Warwick launched Havven, a stablecoin project that raised $30 million through an ICO in March 2018.

 

In December 2018, Havven was renamed Synthetix. The Synthetix team consists of experts in various fields. Justin Moses, who has been involved since the beginning, holds the position of CTO.

 

Previously, he served as Director of Engineering at MongoDB, a data company for developers. Jordan Momtazi serves as VP of Partnerships, while Clinton Ennis is Senior Architect.

 

Prior to joining Synthetix, Jordan Momtazi had business development experience at PayPal, while Clinton Ennis was an Architect Lead at JPMorgan Chase, specializing in trading technology.

 

Synthetix Working Mechanism

To track synthetic asset prices, Synthetix uses oracles from Chainlink. These oracles are smart contracts that track the price of assets on real-world or other blockchains and send the data to the Synthetix network.

 

Synthetix’s mechanism is similar to stablecoins for maintaining a fixed value, but allows anyone to create synthetic assets backed by SNX tokens instead of a single stablecoin. The way Synthetix works involves two types of tokens, namely:

 

• SNX is the main token used to create synthetic assets.
• Synths are synthetic asset tokens such as sBTC and sUSD that are created using the Synthetix platform.

 

Although Synthetix has a complicated system, the user interface is made simple and easy to use. However, Synthetix actually runs a complicated system. In general, the way Synthetix works involves staking SNX tokens to generate Synths.

 

Subsequently, Synths can be utilized to maximize potential profits in the Synthetix ecosystem. There are two ways to generate Synths on this platform, namely:

 

1. Users can purchase ETH on CEX or DEX, then exchange it for sUSD on Synthetix DEXs such as Kwenta. sUSD can then be exchanged for other Synths, such as sBTC, sETH, and others.
2. Users can directly buy SNX on CEX or DEX, then stake SNX on Synthetix or on Mintr (dApp on Synthetix). By staking SNX, users can get Synths as desired. These Synths can be traded on Kwenta and on dApps in the Synthetix ecosystem.

 

On the Synthetix platform, all Synths generated through staking SNX tokens are backed with a 600% collateral ratio (this ratio can be changed as per community agreement). So, to borrow 100 sUSD, you need to stake $600 worth of SNX.

 

Advantages of Synthetix

The following are some of the advantages of Synthetix that are important to know, including:

 

1. Access to a wide range of real-world assets without physical ownership

 

Synthetix allows users to gain exposure to different types of real-world assets, such as gold, silver, fiat currencies, and stock indices, without having to physically purchase these assets.

 

2. Collaboration with ChainLink for pricing accuracy

 

Synthetix works closely with Chainlink to ensure accurate and reliable pricing for users, which is essential for proper pricing of Synths.

 

3. Cost efficiency by operating on Layer 2 Ethereum (Optimism).

 

Synthetix operates on Ethereum’s Layer 2, Optimism, which reduces transaction gas fees by up to 50 times compared to the Ethereum main network.

 

4. Participation in various DeFi applications

 

Synths can be used in various DeFi applications, such as liquidity provision, lending, and others, allowing users to maximize their profit potential.

 

5. Liquidity without the risk of slippage on the Synthetix DEX

 

Through Synthetix DEXs like Kwenta, users can trade without the risk of slippage, which is often an issue on some other platforms.

 

How to Utilize Synthetix

When you staking SNX and mint sUSD, you incur a debt that reflects the amount of sUSD that must be burned to unstake your SNX. As such, the stakers act as a collective liquidity provider or pooled counterparty.

 

This arrangement eliminates the need for a third party as the protocol automatically converts Synths at oracle prices through smart contracts. Through this mechanism, the price you pay or receive is the price set by the oracle, without any buy-sell price discrepancies and unwanted price swings.

 

As an SNX token staker, you are entitled to two types of rewards, namely staking rewards in the form of SNX and Synths trading fees in the form of sUSD.

 

 

Future Challenges and Opportunities

The following are some of the challenges faced by Synthetix that are worth knowing about, including:

 

• Scalability and Performance: Although Synthetix already operates on Layer 2 Ethereum (Optimism), scalability and performance remain a challenge as the number of users and transaction volumes increase.
• Complexity of Use: The staking and minting process can feel complicated for new users so mass adoption may be hampered by a steep learning curve.
• Regulation: Government regulations and policies related to cryptocurrencies and DeFi are constantly evolving. Synthetix needs to ensure that they comply with existing regulations and are prepared for future regulatory changes.
• Security: DeFi in general is vulnerable to cyberattacks and exploits. Keeping smart contracts and the system as a whole secure is a top priority to prevent harm to users.
• Liquidity: Maintaining enough liquidity for all synthetic assets to keep trading smooth and prices stable is a big challenge.

 

Meanwhile, a number of future opportunities for the growth and development of the Synthetix ecosystem are as follows:

 

• Synthetic Asset Expansion: Adding to the types of synthetic assets supported by Synthetix, including more commodities, fiat currencies, and stock indices, may attract more users.
• Integration with Other DeFi: Improving integration with other DeFi platforms, such as lending platforms, yield farms, and decentralized exchanges can expand the utility and appeal of Synthetix.
• Improved User Experience: Simplifying the user interface and staking and minting processes can increase adoption among new and less technical users.
• Adoption of New Technologies: Adopting new technologies, such as zk-Rollups or sharding, to improve scalability and transaction efficiency.
• Global Partnerships: Build strategic partnerships with financial institutions, technology companies, and other organizations to increase visibility and trust in the Synthetix ecosystem.
• Education and Community: Increasing educational efforts for users and developers, and building a strong community can accelerate adoption and innovation on the Synthetix platform.

 

Conclusion

 

To conclude, Synthetix is an innovative DeFi protocol that allows users to gain exposure to various real-world assets, such as gold, silver, fiat currencies, and stock indices without having to physically own them.

 

The protocol uses synthetic assets, or Synths, which are backed by SNX tokens and tracked through ChainLink oracles to ensure accurate pricing.

 

Among the advantages of Synthetix, include, (1) asset diversification, (2) low gas costs, (3) participation in DeFi, (4) liquidity without slippage, and (5) double rewards.

 

As for Synthetix, it offers innovative solutions in a decentralized and permissionless DeFi ecosystem that allows anyone to create and trade synthetic assets easily.

 

With increased integration, improved user experience, and adoption of new technologies, Synthetix has the potential to continue to grow and dominate the global DeFi market.

 

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FAQ

 

1. What is Synthetix and what is its main role in the DeFi ecosystem?

Answer: Synthetix is a DeFi protocol that enables the creation and trading of synthetic assets that mimic real-world assets. Its role is to provide exposure to various assets without having to physically hold them.

2. How does Synthetix work in creating and trading synthetic assets?

Answer: Users stake SNX tokens to generate Synths. Synths can then be traded on the Synthetix DEX platform, such as Kwenta or other dApps within the Synthetix ecosystem.

3. What are the main advantages of using Synthetix compared to traditional methods of asset trading?

Answer: The advantages of Synthetix include access to a wide range of real-world assets without physical ownership, cost efficiency by operating on Layer 2 Ethereum (Optimism), and liquidity without the risk of slippage on the Synthetix DEX.

4. Who are the founders and key team members behind the development of Synthetix?

Answer: Synthetix was founded by Kain Warwick. The main team consists of individuals who have experience in technology development and finance, including members such as Justin Moses and Jordan Momtazi.

5. How do I get started using Synthetix to create and trade synthetic assets?

Answer: The first step is staking the SNX token. After that, users can create Synths and start trading on the Synthetix DEX platform, such as Kwenta or other dApps within the Synthetix ecosystem.