Do you still not understand Synthetix, the DeFi leader that has doubled a hundred times a year?

In this article, let’s talk about Synthetix, a special existence among DeFi projects on Ethereum. Synthetix is ​​a synthetic asset agreement platform. It can be said that if you understand Synthetix, then you can understand 99% of DeFi projects.

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Synthetix is ​​a synthetic asset (Synths) construction, trading, destruction management platform, but synthetic assets, what the hell? Maybe when you hear this concept for the first time, you will have such doubts.

In a word, synthetic assets simulate the prices of other assets, allowing people to trade directly on the blockchain.

In the traditional asset trading market, we can buy and sell stocks, real estate, precious metals or commodities. However, at the current stage of the development of the DeFi world, we do not have a direct way to trade stocks, precious metals, commodities and other assets, what should we do?

Synthetic assets (Synths) are mirror images of target assets. For example, use sUSD to represent the price of US dollars, use sGold to represent the price of gold, and use sSP500 to represent the S&P 500 stock index, etc. Even encrypted assets themselves can become anchors, using sBTC to represent BTC, and sETH to represent ETH.

Synthetic assets (Synths) are mirror images of target assets. For example, use sUSD to represent the price of US dollars, use sGold to represent the price of gold, and use sSP500 to represent the S&P 500 stock index, etc. Even encrypted assets themselves can become anchors, using sBTC to represent BTC, and sETH to represent ETH.

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Let everything be traded on the chain

The story begins in 2017. Many project parties are working on the concept of stable currency, which is constructed by mortgaging tokens to mint stable currency. The Havven project is no exception. Kain Warwick founded Havven in 2017, and they created the stablecoin nUSD.

But if the stable currency is regarded as a virtual currency anchored to USD, can the anchored object be expanded? For example, anchoring stocks, anchoring precious metals, or using cryptocurrencies such as BTC and ETH as anchoring objects? After all, since minting stablecoins requires mortgage tokens, the same idea can also be used to mint other assets. After all, one of the core functions of these assets is trading. Why limit it to the stablecoin itself?

Following this line of thought, the Havven project announced at the end of 2018 that it would transform and upgrade to Synthetix, upgrading from a stablecoin project to a protocol platform for synthetic assets. At the beginning of the launch, there were only six types of synthetic assets, and now there are dozens of synthetic assets, including stock indexes, gold, BTC\ETH\EOS\LINK, etc., all of which have their own corresponding synthetic asset classes.

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According to the official definition

One of the questions that readers may be most concerned about is: what can you do with SNX? Don't worry, let's take a quick look at the two main functions of Synthetix:

• The creation, management and destruction of synthetic assets are realized through Mintr, a dApp.

• The trading of synthetic assets is done through the trading market Synthetix.exchange.

In the Crypto.com analysis report, the entire process of minting, debt calculation, and synthetic asset trading is summarized as follows:

Synthetic asset creation

In fact, Synthetix does not allow users to directly create all synthetic asset types, but is divided into two steps:

• Through the Mintr platform (https://mintr.synthetix.io/), users can over-mortgage the Synthetix platform token --- SNX (Synthetix Network Token) as collateral to mint the sUSD stable currency. The current standard mortgage rate is 700%, which means that $7 worth of SNX can be mortgaged to create $1 of sUSD. This design is because, after all, SNX does not have such a strong value consensus, setting a high mortgage rate reduces the risk of insufficient collateral value.

• Use the minted sUSD stablecoin to trade synthetic assets on Synthetix's exchange platform (Synthetix.exchange). In fact, the process of sUSD purchasing synthetic assets is also the process of casting such synthetic assets. At this time, sUSD is destroyed and the corresponding synthetic assets are created.

debt calculation

The most puzzling thing about Synthetix is ​​that it adopts a dynamic debt calculation method, while the stable currency projects we usually see use static debt calculation. Simply explain.

How do you understand it?

How do you understand it?

For example, the user Xiaobai mortgaged SNX and created 100 sUSD. These 100 sUSD are the assets that Xiaobai borrowed from the system, that is, he currently owes 100 sUSD to the Synthetix system. In this system, Xiaobai is not a user. At this time, Xiaobai's debt ratio is assumed to be 1%.

However, the debt is not fixed, and the total value of the debt will rise as the value of the synthetic assets in the system increases. Assuming that the total value of all synthetic assets such as sBTC/sETH/sEOS has increased by 100%, according to the platform settings, the total value of debt will also increase by 100%. Xiaobai's original debt was 100 sUSD, but at this time the debt has doubled to 200 sUSD! In other words, if Xiaobai wants to get back the SNX that was originally mortgaged, he needs to return 200 sUSD.

Why does this happen? Because Synthetix does not have a liquidation, for all debt holders, this is a zero-sum game market.

In the previous example, after Xiaobai chooses to mint coins, he holds 100 sSUD assets; another user, Lao Jiu, will convert the minted sUSD into synthetic assets sBTC. win the market. If there are only two users, Laojiu and Xiaobai, in the market, then Xiaobai's loss constitutes Laojiu's profit.

This is perhaps one of the risks of Synthetix's synthetic asset holdings: if your debt holdings don't outperform the market, you're paying for your underperformance.

Destroy sUSD and unlock the collateral SNX

To retrieve the collateralized SNX, you need to destroy sUSD. This step is relatively intuitive, just follow the system prompts.

Here comes the question: why do people stake SNX?

Synthetix's official introduction is that staking SNX can help users get two kinds of rewards:

• SNX token issuance rewards. SNX rewards users who participate in staking with newly issued tokens, which can be claimed once a week.

• Trading rewards for synthetic assets. On the Synthetix trading platform, a 0.3% transaction fee will be charged, and this part of the transaction fee will be distributed to SNX stakers in proportion.

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In the Synthetix documentation, the trading symbols on the Synthetix platform are listed, see:https://docs.synthetix.io/tokens/list/

Transaction category

The trading categories of Synthetix are limited by the platform. As far as we know, there is no function to freely create synthetic asset categories. After all, not all assets are suitable for creating synthetic asset classes. For example, assets such as real estate that cannot be priced in a standardized manner will encounter many difficulties if they want to use synthetic assets to price them.

In addition, synthetic asset transactions will rely on oracle services to provide off-chain price data. If some asset classes do not have a suitable oracle, the price is easy to be manipulated, and it is not suitable for generating synthetic assets.

The author speculates that, in view of the nature of SNX as a platform currency, it is possible in the future to issue and implement proposals through SNX user governance to determine what types of synthetic assets can be listed on the exchange.

The current synthetic assets can be divided into two types of tokens according to their nature:

• Regular synthetic assets such as sBTC, sETH, sAUD, sUSD, sBNB, etc. This type of asset anchors the corresponding asset price.

• Backtracking synthetic assets such as iBTC, iETH, iLINK, iEOS and more. It can be understood that a good reason to hold such assets is to be bearish on the corresponding anchor assets.

For inverse assets, there will be a frozen price. For example, an example is mentioned in the Synthetix documentation with an entry price of $9659 (approximate market price at the time of creation), when its upper limit is $14488.5 (i.e. the value of the inverse Bitcoin iBTC reaches $4829.5) or the lower limit is $4829.5 ( That is, when the value of the inverse Bitcoin iBTC reaches 14488.5 USD), the Synth freezes. After freezing, it is no longer possible to purchase on Synthetix. At some point after the freeze, it can be replaced by iBTC with other upper and lower limit values, thereby resuming the transaction.

Currently, there are only synthetic assets of cryptocurrencies, and there are reverse synthetic assets, such as iBTC, iETH, etc.

If divided by category, it can be divided into the following types:

• Cryptocurrency synthetic assets. This is also the category with the largest number of transactions on the Synthetix exchange;
• Fiat currency synthetic assets, such as sUSD, sJPY, sEUR, etc.;
• Equity synthetic assets such as sNIKKEI and sFTSE;

• market place

market place

Synthetix provides a friendly trading interface, including candlestick charts, transaction history records, transaction data, etc., all available. Just like using a regular DEX, you can use it by logging in with your wallet. However, according to the Synthetix documentation, Synthetix exchanges have several characteristics that make them unique:

• First, synthetic asset transactions require no counterparty. When a trader exchanges sUSD for sBTC, sBTC is essentially created out of thin air. And no one sold. After the transaction is completed, sUSD will be destroyed, sBTC will be created for the trader, and the total amount of sBTC will also increase.

• Second, the Synthetix exchange provides theoretically unlimited liquidity, and there is no transaction slippage. However, in actual transactions, the transaction size will be limited by the total amount of sUSD, and the size of sUSD is determined by the market value of SNX.

For ordinary traders, they don't need to care about the details behind these transactions, they only need to submit the amount of synthetic assets they need to trade according to the market price.

Other features and markets

In the Synthetix exchange, two types of operations are newly provided:

• options trading

• options trading

summary

summary

Synthetix brings a new way of playing synthetic assets to the DeFi world, and provides a complete product of casting, trading, and position management. What is most likely to cause users to misunderstand is the debt calculation method of Synthetix. If you are not paying attention, it is easy to get caught. The key is to treat Synthetix’s collateral as a zero-sum game market. Understanding the two different ways of dynamic debt calculation and static debt calculation will help you avoid some pitfalls.

In many analysis reports, the potential risks of Synthetix are also mentioned. For example, a report by Crypto.com in the first half of this year compared the advantages and disadvantages of Synthetix.

The smooth trading experience, the exquisitely designed token economic mechanism, and the on-chain trading gameplay of synthetic assets are all remarkable. The price trend of SNX tokens also reflects the enthusiasm of the community for this project.

However, Synthetix, like many DeFi projects, still needs to deal with risks such as oracle failure, smart contract failure, and hacker attacks. At the same time, using its own platform token SNX as collateral, setting a high mortgage rate, complex project design, especially the design method of debt calculation, and the lack of a liquidation mechanism will also have an impact on Synthetix.

Whether you participate in Synthetix or other DeFi projects, you still need to understand the inevitability of risks, and do the necessary risk prevention before participating. If you need systematic learning, perhaps the DeFi training camp recently opened by the Blockchain Institute can save you a lot of detours.

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Disclaimer: This article is the author's independent opinion, and does not represent the position of the Blockchain Institute (public account), nor does it constitute any investment opinion or suggestion.

Disclaimer: This article is the author's independent opinion, and does not represent the position of the Blockchain Institute (public account), nor does it constitute any investment opinion or suggestion.