Decentralised finance is much more advanced than it was just a few short years ago. Although many entities can be responsible for this innovation Synthetix was the first. Synthetix has made many features a standard in the Defi industry. Synthetix is a major player in the future crypto industry by focusing on the creation of a new crypto asset class.
How does Synthetix work?
Synthetix allows you to create “synthetic assets” using a protocol called Synthetix. Synthetic assets can be thought of as derivatives in financial markets. These assets, also called “Synths”, allow you to get returns from another asset even if it is not yours.
A Synth can be made of almost any asset that has a track record of trading. Synthetic assets can be used to create crypto tokens such as Bitcoin and Ethereum or fiat currencies such the USD, and commodities like gold.
Price Oracles
A blockchain oracle allows blockchains to access data from outside the network. Smart contracts cannot access data outside their network (Off-chain) and are often unable to do so. Oracles help bridge this gap by providing smart contracts with an access point to external information.
Synths access the data from underlying assets using decentralised price orders. This allows you to trade Synths in the same way as you trade the track asset. This allows you to trade in assets that are not normally available to crypto investors like gold and silver.
Collateralisation
Smart contracts that represent other assets need to be backed or collateralised by something of value. Stablecoins such as USDT or USDC can be backed by an equal amount of US dollars. Stablecoins are valued because they can be traded for USDT 1 USD Dollar.
Learn more: What’s the Difference between USDT and USDC?
Synths are not supported by an underlying asset, unlike stablecoins. They are instead collateralised by the Synthetix Net Token (SNX). This token is the native token and must be staked in order to mint synthetic assets.
The Synthetix protocol works on over-collateralisation. Governance determines the fluctuating collateralisation ratio that is used to back any Synth. Currently, this ratio is 400%. This ratio must be managed by stakers who can mint more Synths if the level is too high, or burn them if they are too low.
Kwenta Synthetix
Kwenta is the Synthetix centralised exchange. Here you can trade your Synths and make other investors. Kwenta doesn’t have an order book, unlike other exchanges. Trades are conducted on a peer to contract basis, and not against a smart agreement. Every trade incurs a fee of 0.3-1%. This fee is used to reward stakers in the network.
Kwenta offers a variety of synthetic cryptos as well as inverse cryptos. Inverse cryptos track the inverse price of underlying assets. You can also trade synthetic fiat currencies such as USD and EUR. Kwenta also contains two indexes: sDEFI, which tracks a set DeFi assets, and sCEX which tracks tokens from centralised exchanges.
How to Use Synthetix Network Token
SNX tokens are the backbone of Synthetix protocol. To mint new Synths, SNX tokens must be staked. SNX can be used as collateral to secure any assets that the protocol issues. First, you need to have the tokens in a compatible wallet. You can use this wallet to synthetix to lock the tokens for collateral.
Two sets of rewards are available if you stake your tokens at the required ratio. You can first earn staking rewards by SNX. Exchange fees can be earned on all Synth trades, which are denominated as sUSD.
What is Synthetix Staking?
Participation in the Synthetix network requires you to stake your tokens. You can stake tokens to hold debt as a synthetic asset. Unlike other platforms that allow you to stake tokens, SNX requires you to manage your collateralisation ratio.
You can burn Synths if your collateralisation ratio falls below the target. Rewards will only be awarded if you meet the target. If your ratio is too high you may be able to make new Synths.
You can earn both staking reward and exchange fees, as mentioned previously. Every week, you can earn stake rewards.
Is SNX a good investment?
Synthetix is a pioneer in DeFi since its inception. It offers a unique investment opportunity through its Synths that allows crypto investors to trade assets such as gold and fiat currencies.
Investing in SNX can be a complex process. You need to know the staking rules. You must also be familiar with the derivatives market. It can be a great investment opportunity. However, it is important to understand its unique systems.
ZebPay now allows you to buy SNX coins.
What is Synthetix (SNX), and what are its benefits? ZebPay.
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