The rapid growth of the crypto space has introduced different exciting protocols. One that stands out is Synthetix. As one of the leading Defi protocols, Synthetix has great potential, Its design enables users to bet on the value of both crypto and real-life asset. It is successfully enabling users around the world to create and trade synthetix assets.
What is Synthetix?
Synthetix is a decentralized asset insurance protocol that is built on one Ethereum network, which allows its users to mint, hold, and trade a wide range of derivatives including commodities, fiat currencies, and even stocks in the Defi space. Synthetix uses multi-token infrastructure based on a system of collateral, staking, inflation and fees. Synthetix enables this service through code alone, without the need for a financial intermediary.
Why is Synthetix so unique?
Synthetix uses Chainlink’s decentralized oracles, which are more accurate and impossible to manipulate. With accurate current prices, all the synthetic assets have a corresponding correct value. The protocol’s synthetix assets, Synths, are collateralized through the Synthetix Network Token(SNX) which helps in driving value and liquidity to the underlying assets while also offering an increased level of accessibility to traditional financial assets and new trading strategies.
The most outstanding feature it has is the ability for anyone to convert Synths without the need for a counterparty. Any Synth can be traded for any other Synth on the Synthetix Exchange, and the functionality it has provided for an almost infinite level of liquidity. The Synthetix ecosystem can even reward traders by providing them capital for different components of the Synthetix ecosystem.
The system uses two types of tokens, the Synthetix Network Token(SNX) and Synthetix assets or synths. Synthetix Network Token(SNX) is an Ethereum token that powers the Synthetix platform. It’s an ERC-20 token, meaning that it operates using smart contracts. The platform’s complexity is a testament to the power of the Ethereum network.
How does it work ?
Synths use smart contract-based price discovery protocols, to track the prices of the assets represented, allowing you to hold and exchange Synths as if you own the underlying assets. In this manner, it provides exposure to a wide range of both crypto and non-crypto assets in a decentralized, permissionless, and censorship-resistant method, enabling participation in the Defi ecosystem even if you do not hold any of these assets.
Synthetix and derivatives are important for building mature markets for example markets that have reached equilibrium by facilitating price discovery and helping to hedge against volatility.
Synthetix markets itself as an exchange with “infinite liquidity” since there isn’t an order book or slippage in the traditional sense. Pricing is rather determined by an algorithm mechanism, more similar to how an automated market maker(AMM) works than a central limit order book (CLOB).
In essence, when you make a trade on Synthetix, you don’t trade against an individual or market maker. Instead, you repay part of your debt from the debt pool and borrow the same amount of debt in another Synth. Since Synths are issued n Ethereum, you can deposit them on other Defi platforms such as Curve and Uniswapand use them to provide liquidity and earn interest.
Summary
Synthetix is one of the oldest Defi projects out there that has an excellent decentralized governance structure and has already delivered one of the most complex and useful protocols built on Ethereum to date. It offers synthetix assets to users across the entire world, providing access to specialized trading strategies as a result of this, when taking into consideration the size of traditional financial markets, it has the potential to truly create a massive tokenized market of digitized real-world assets on the Ethereum Blockchain.
