Odaily Frontline | As the third largest DeFi protocol, what are the advantages of Synthetix?
This article comes fromMedium, original author: Hashed
Odaily Translator |
Odaily Translator |
Ethereum smart contracts are powering the DeFi industry, and DeFi protocols are growing the fastest among all DApps. Hashed is confident in the potential of the DeFi industry. We have long been committed to contributing to and strengthening the DeFi ecosystem.
DeFi transaction volume compared to total Ethereum traffic, source: Dapp.com
DeFi ecosystem, source: Hashed DeFi meetup
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DeFi develops in stages. The assets covered by DeFi have expanded from cryptocurrencies (such as ETH) to network tokens (BAT), synthetic stablecoins (DAI), fiat currency-backed stablecoins (USDT, USDC) and tokenized real estate (RealToken). Ultimately, synthetic tokens will be the most important milestone for the entire DeFi industry.
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The evolution of asset management and trading methods, source: Hashed DeFi meetup
Those familiar with DAI can easily understand how the synthetic token system works. For example, in Synthetix, its main Synthetix Network Token (SNX) is locked to create synthetic assets such as synthetic USD (sUSD) - SNX acts as collateral and sUSD acts as debt. Synthetic tokens are similar to traditional synthetic assets in that they allow people to bet on the price of an asset without holding the actual asset. However, synthetic tokens utilize collateral and liquidations to synthesize target yield curves, while traditional synthetic assets require holding various financial products to achieve.
The evolution of how assets are managed and traded in the DeFi ecosystem may fail if the assets under management are not large enough. Currently, ETH and stablecoins are the main assets, but we cannot passively wait for the market capitalization of these assets to grow. We believe the DeFi ecosystem will grow further with the development of the virtual reality layer. For example, blockchain games will generate various assets as currencies or (virtual) real estate, and will provide more opportunities for DeFi services. However, that seems like a pretty distant future. Therefore, it is a more realistic approach for DeFi services to take existing real economic assets as their short- and medium-term goals.
However, the synthetic token system has its own tradeoffs. Inevitably, there are differences between tokenized synthetic options and regular options. Even when tokens are backed by the same assets, there are many other factors to consider: collateral type, collateral-to-debt ratio, maturity, and more. This will lead to low fungibility of synthetic tokens. Also, if the market starts to follow or run against futures positions, one might question whether synthetic options would reflect profits or losses at the same rate. Suppose a company pays dividends or earnings for a merged business, or gives stock warrants to existing stakeholders. In this case, the biggest concern of token holders is whether the token price reflects the above-mentioned behavior of the company. Otherwise, there will be price differences in coins. Another issue that might arise has to do with reliable price information. If the price information of collateral assets or backing assets is inaccurate, system participants are more likely to suffer unexpected losses or the system to encounter malicious attacks. This is why Synthetix utilizes Chainlink's oracles to provide reliable price feeds.
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Liquidity Maximization: How Synthetix Handles Synthetic Tokens
Synthetix differentiates itself from any other crypto derivatives platform by using smart contracts as counterparties. This unique approach provides users with many advantages, such as easier price matching with assets, and unlimited shared liquidity. Since liquidity is formed by pooling all collateral together, each platform participant shares the counterparty risk together. Also, this makes the system relatively more vulnerable to oracle attacks against price feeds. The Synthetix team acknowledges these shortcomings and is working on solutions. For example, one could see tools like BitMEX's "Funding Fee" as a means of mitigating the aforementioned risks. Synthetix recently launched a beta version of Binary Options as a new trading feature. In addition, it plans to introduce more features, such as futures trading. For potential oracle attacks, the team has entered into a partnership with Chainlink to provide users with more credible price feeds.
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Hashed has been arguing about the importance of protocol economies from very early on. The protocol economy is an economic system in which individuals or groups participate in economic activities and are paid according to their contributions. This model is similar to the Bitcoin mining network. In this economic model, community is a key component. And, to manage this community seamlessly requires an inclusive and sustainable token model that encourages good behavior and discourages malicious behavior.
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Protocol economic model, source: Hashed
We believe Synthetix is a team that is actively testing the concept of protocol economics with the SNX token reward model. Participants of the Synthetix platform are rewarded with SNX, and liquidity providers of the Synthetix liquidity pool (such as Uniswap or Balancer) will also be rewarded with SNX. If executed properly, this model can encourage network participants to eventually become stakeholders in pursuit of long-term network incentives. With the introduction of the protocol economy, Synthetix network participants are rapidly increasing. Along with this growth, the price of the SNX token also increased significantly. Other projects are also jumping on the protocol economy wave. For example, Kyber Network, which recently completed the Katalyst upgrade, seeks to reward token holders for participating in Kyber governance. Compound, one of the most promising crypto lending services, is also rewarding network participants with its governance token, COMP. We believe the protocol economic model adopted by the Synthetix team provides a good precedent for other crypto projects.
Synthetix is indeed a project that is experimenting with the most advanced ideas about synthetic tokens and protocol economics. Hashed fully supports the team's success. In the Hashed Seoul office, there are many resident blockchain projects, including MakerDAO Korea. Synthetix will be moving to the Hashed space as it plans to open a South Korean office. While DeFi has been somewhat low-key in Asia, the Western blockchain community is embracing and experimenting with the concept. As a blockchain investor with offices in Asia and the US, Hashed will expand its footprint in global DeFi projects. Not only will we continue to invest funds in projects with high potential, but we will also actively help these DeFi teams in areas such as brand awareness and user acquisition.
