WTF is Synthetix
For some time now, there have been many replications of traditional financial products on the Ethereum blockchain. Generally, the area is described as decentralized finance (DeFi).
Over the past year, the sector of decentralized finance (or DeFi) has evolved quite fast such that you can now find new methods of earning and trading from digital assets at unprecedented rates. And what was initially just restricted to collateral-backed borrowing and lending platforms is currently a virtual smorgasbord of a wide range of protocols providing you with derivatives, synthetic assets, dynamic stablecoins, and flash loans.
The Synthetix protocol was mainly launched to offer access when it comes to synthetic assets in specific, tokenized form by utilizing a sophisticated system of derivatives and algorithms. And although the traders holding the “synths” on the protocol don’t actually possess the real asset, they can still get exposure to its cost movements. Apart from being one of the largest, Synthetix is one of the most sophisticated DeFi projects to comprehend.
Do you want to learn everything about the largest project when it comes to the field of decentralized derivatives? You have come to the right place. This article will serve as an introduction or comprehensive guide to the Synthetix protocol.
What Is Synthetix?
In simple words, this is an Ethereum-based protocol that deals with the issuance of synthetic assets. Synthetic assets are comparable to derivatives in legacy finance in that they are financial instruments that typically come in the form of ERC-20 smart contracts commonly referred to as “Synths”. These “Synths” usually track and offer the returns of a different asset without the need of holding that asset.
You may trade Synths - which might vary from inverses, indexes, cryptocurrencies, and real-world assets such as gold - on Kwenta, which is Sythetix’s decentralized exchange (DEX). The Synthetix Network Token (SNX) is the native token of Synthetix and is used to offer collateral when it comes to Synths that are issued.
But before understanding Synthetix, it would be better to know the utility of Synths and their overall significance in the entire decentralized finance (DeFi) ecosystem. So, what makes Sythetix exciting? Why is it so important?
What Makes Synthetix Exciting?
As previously stated, Synths (or the protocol’s synthetic assets) are collateralized via the Synthetix Network Token (SNX). This ultimately drives liquidity and value to the underlying assets. At the same time, this provides traditional financial assets with an enhanced level of accessibility and new trading strategies.
Don’t also forget that there are binary options. This is a means to buy a position on a no or yes outcome over a specified time frame. What’s more, the Synthetix ecosystem might also reward traders by offering them capital to various components of the Synthetix ecosystem.
Originally, Synthetix was governed by the Synthetix Foundation. This is was a not-for-profit organization formed in Australia. Nonetheless, over time, the governance shifted to some decentralized autonomous organizations (DAOs) in 2020.
These typically include:
- ProtocolDAO. Regulates funding for protocol changes and upgrades to Synthetix’s smart contracts.
- SynthetixDAO. Regulates funding for entities that are improving the network’s development.
- GrantsDAO. Regulates funding for the community proposals when it comes to public goods on Synthetix.
As a result, Synthetix offers exposure to a huge variety of both crypto and non-crypto assets in censorship-resistant, permissionless, and decentralized methods - allowing anyone to participate in the DeFi ecosystem despite if you don’t hold any of these assets.
The Synthetix Token & Governance Model
What began as a business to create synthetic stablecoin by utilizing a balance sheet has currently changed to a network that monetizes its balance sheet by allowing minting and trading synths. Over time, the team has proven to be capable to pivot any time there is an opportunity in the market. Furthermore, Synthetix is one of the very few projects that have been successful to decentralize themselves meaningfully during their growth.
The governance of this project used to occur off-chain (on its Discord) - the foundation was always in charge. Generally, any person could make proposals, and the proposals could then be discussed on an open call. The foundation was later decommissioned in July 2020, and three major DAOs were set up - sythetixDAO, grantsDAO, and protocolDAO.
The protocolDAO basically owns all Synthetix contracts and utilizes a 4/8 multisig to upgrade and modify the protocol. It also means that the protocolDAO deals with adopting Synthetix Improvement Proposals (SIPs) and Synthetix Configuration Change Proposals (SCCPs) approved by the community via a critical consensus procedure. What’s more, it also deals with the protocol’s operational security.
The grantsDAO mainly deals with the funding of public goods, e.g., SNX.link, SNX.tools, and much more. The synthetixDAO has dedicated itself to funding the grantsDAO with about 1m SNX annually for three years from the start to guarantee continued funding when it comes to public goods and initiatives.
So, what was synthetixDAO? This was a multisig contract formed at the time of token sale to guarantee the security of the funds and also managed the deployment of funds to line up with the protocol growth. It offered operational funding to Australia’s Synthetix Foundation and other organizations that participated in the development of Synthetix.
Who Is On the Synthetix Team?
Synthetix is a derivates liquidity protocol found on Ethereum with Kain Warwick as the founder. As of now, it is leading the team when it comes to its future development.
Warwick has acquired extensive experience in the past in creating cryptocurrency payment platforms in Australia, Blueshyft being the largest. The most important part is that he was actually the non-executive director there.
And before that, he also worked at the Burger Collective as the Advisory Board Member, and in Blockchain Australia as an Advisory Council Member.
As aforementioned, the project was initially founded as Havven, and it managed to raise $30M at the beginning of 2018 via its Initial Coin Offering (ICO), as well as selling their native token SNX from well-recognized crypto funds.
Additionally, there are two more prominent members of this Synthetix core team. These include Clinton Ennis and Justin Moses. Justin Moses acts as the CTO at Synthetix and has participated in the project from the start. And before joining Synthetix, Justin was working at MongoDB as the Director of Engineering. He has gained vast experience with large-scale systems, primarily dealing with design and deployment.
Clint Ennis acts as the Senior Architect at Synthetix and has 18+ years of experience in the field of software engineering. Ennis initially worked at JPMorgan Chase as an Architect Lead.
What Venture Capital Firms Fund Synthetix?
Quite recently, Synthetix announced that it had raised $12 M from IOSG, Coinbase Ventures, and Paradigm. These three venture capital firms basically invested by buying SNX tokens valued at $12M from SynthetixDAO’s treasury.
These funds will be applied as collateral to not only offer liquidity but to also participate in the governance of the Synthetix platform. The recent funding shows growth efforts by onboarding important liquidity partners in the entire Synthetix ecosystem.
Kain Warwick had previously reported that sythetixDAO exceeded $1 B in treasury holdings and currently makes more monthly fees than it spends (approximately 750k USD). That means that this project is cash-flow positive on protocol charges alone and there’s no shortage of funds.
It shouldn’t be something new to hear about SNX token sales as a funding form. Back in 2019, Framework Ventures bought 5 M Synth tokens (SNX) from the project’s treasury to participate in the network.
Now, let’s get to the other important part.
How To Participate in the Synthetix Network
The Synthetix token enables users to monitor the cost of an external asset. The sUSD, for instance, tracks the cost of the USD. There are lots of synthetic assets, or “Synths” that are tracking the cost of assets such as indexes, including things like commodities and fiat currencies. Theoretically, this system may offer an immutable record of trading information for real-world assets by using an impartial system.
Just like other cryptocurrencies, it has become much easier nowadays to invest in Synthetix. So, how do you participate in the network? There are three simple steps you’ll need to follow:
- Open an online account. Start by creating an account with a cryptocurrency broker that will allow the buying and selling of SNX.
- Buy or download a wallet. Cryptocurrency wallets can be divided into two: software wallets (hot storage) and hardware wallets (cold storage).
- Make your purchase. Do this by utilizing your exchange’s platform and ordering system in order to request a buy order for SNX.
Synthetix is a fundamental piece of infrastructure found in the DeFi ecosystem. It also allows a strong foundation for different protocols to use. Undoubtedly, many impending upgrades will generally enhance Synthetix’s user experience.
As you have seen so far, it is safe to say that puzzle pieces are aligning when it comes to Synthetix. More so, the project has much potential to justify and exceed expectations.
Volume Program members generated $663,927,063 USD in volume for the Synthetix protocol in May!— Synthetix ⚔️ (@synthetix_io) June 7, 2021
Members receive a 25% fee rebate on each swap they facilitate.
May rewards breakdown:@1inchNetwork