Today’s title is copied from the original analysis of V3 posted by the founder of SNX on mirror. Today we look at SNX from a God’s perspective (https://mirror.xyz/kain.eth/tAXGVKMTYM8K2gUOQq9JDQ1wyV_5Msdlrn_AtmiCGEI)

Synthetix is ​​a decentralized synthetic asset issuance protocol built on Ethereum and Optimism. These synthetic assets are collateralized by Synthetix network tokens (SNX), and when locked in the contract, synthetic assets (Synths) can be issued. Each Synth is an ERC20 token used to track the price of an external asset; sUSD tracks the price of USD, and sETH tracks the price of ETH.

Synthetix currently supports multiple Synths, including fiat currencies, cryptocurrencies, commodities, and inverse indices. Synthetix can support any asset at a clear price and provide on-chain investment in an unlimited range of real-world assets.

SNX serves as collateral, and casting Synth requires a certain proportion of SNX to be mortgaged. Stakeholders are rewarded for supporting the system and receive a proportional share of the fees generated by activity in the system. Therefore, the value of SNX is directly related to the usage of the network. Their pooled collateral model allows users to convert between Synths directly using smart contracts. This mechanism solves the liquidity and slippage issues encountered by decentralized exchanges. The resulting token network supports a wide range of use cases, including transactions, loans, payments, remittances, e-commerce and more.

SNX holders are incentivized to stake their tokens as they are paid a proportion of the fees generated by activity on Synthetix from platform integrators such as Kwenta, Lyra, 1inch, Curve, Yearn and others. It is conceivable that when the flywheel of joining these protocols starts to spin, SNX will be able to enjoy the benefits.

 

But SNX stakers incur debt when minting Synth and must repay this debt by burning Synth to unlock their SNX tokens. Synthetic assets provide exposure to an asset but do not hold the underlying resource. This has a range of advantages, including reducing friction when switching between different assets, expanding the accessibility of certain assets, and being censorship resistant.

Trading on snx has many advantages compared to CEX and DEX. The lack of an order book means that all trades are executed against contracts, known as peer-to-contract (P2C) trading.

 

The value of all synthetic assets is determined by oracles that push prices on the chain, and prices are still provided by independent nodes on the link.

Previously, before atomic swaps, when a transaction occurred on the snx mainnet, there would be a 10-minute waiting period. During this waiting period, we as users are unable to interact with the Synth they just traded. This waiting period also gives the oracle more time to check whether transactions are affected by price update lags.

If a trade is affected, the trader either owes synthetic coins (recycling) or is owed synthetic coins (rebate) and must pay or be paid these synthetic coins. This process is called cost recovery.

Since block speeds are much faster and oracle latency is not a big issue for the OP, waiting 10 minutes to know the price at which your trade will settle is not ideal for traders. This is where the concept of atomic swap comes in.

 

Atomic swaps are live on Optimism starting in November 2021. This change provides users with a new exchange feature that allows users to exchange assets through a pricing synthesizer without recovery fees through a combination of link and Uni V3’s oracles.

 

Back to the issue of staking, stakers are protected from front-running and allow traders to obtain low slippage and low fees on snx via atomic swaps. This feature is available on Ethereum, and Synth transactions on op are atomic by default.

Most of Snx's trading volume on Crv, 1inch and other aggregators is generated by atomic swaps. Due to its unique pricing model, this tool allows for large volumes of trading and does not require upfront running risk.

Snx later launched perpetual futures, which provide an additional source of income through exchange rate and funding rate fees, and reduce the need to hedge additional debt due to inherent self-hedging and control risk through market size limits. A portion of this will be returned to SNX stakers.

When a staker wants to exit the system or unlock their staked SNX, they must repay their debt. So if a staker mints 10 sUSD by locking up SNX as collateral, they must burn 10 sUSD to unlock it. But if the debt pool fluctuates during the staking period, they may need to burn more or less debt than they minted.

 

Snx has grown to become the fourth-highest-earning protocol, behind Uni, Ethereum, and Aave. The protocol moved up to third place in terms of fees generated, distributing over $1 million to SNX stakers.

However, we can’t just sell our products and brag about ourselves. Let’s focus on the shortcomings. There are some risks in the current structure. One of the risks involves the debt SNX holders incur when staking SNX and minting Synth. It is the cost recovery mentioned above. This debt is likely to fluctuate due to changes in the exchange rate within the system.

Fluctuations in the exchange rate will impact users exiting the system, as they will need to burn more Synth than originally minted in order to unlock their staked SNX. Since most alternative assets are highly correlated to BTC and ETH, this could cause SNX's price to fluctuate.

Second, many aspects of the system are currently centralized. The team is said to have taken this decision to ensure efficient implementation of the project, such as using agency contracts throughout the structure and making it easier to carry out any future upgrades.

In the future, we could see many different types of Synths added to the ecosystem, including commodities and stocks, which will bring even greater utility to the Synthetix protocol. Given the current development of Synthetix, it will be interesting to see what they have installed for us in the future as they continue to expand and increase their utility, which will hopefully attract users back to the ecosystem.