The vast majority of the world is excluded from participating in traditional financial markets. This also excludes them from any type of wealth-building opportunities, creating further inequality in the world.
Synthetix helps fix this. It is one of the most exciting and interesting platforms in the Defi space, allowing anyone to trade and even issue (create) synthetic tokens which can watch and synthetically match the price of any financial asset, whether that be stocks, gold, dollars, or even Bitcoin.
Via synthetic assets, anyone with a web browser and a bit of savings can now participate in virtually any financial market, anywhere in the world.
Read on to learn more about this exciting project as well as the SNX native tokens’ many use cases.
What is Synthetix?
Synthetix is one of the largest and most exciting platforms in the decentralized finance (DeFi) ecosystem where it serves two essential functions.
The first is to allow users to create artificial versions of assets like stocks or gold, which match the actual assets price. The second is as a decentralized exchange where anyone can trade these synthetic assets as well as the platform’s native SNX token.
To properly watch and match the real price of an asset, Synthetix relies on Chainlink’s oracle. An oracle is a type of data feed that transmits information from the real world onto a blockchain.
SNX is the backbone that holds together this vast digital ecosystem. In this guide, we will examine all of the use cases the SNX token provides.
Synthetix Use Case: Collateral to Create Assets
To create new synthetic assets, users must lock up SNX tokens as collateral. Collateral means providing something to match or back the value of the new asset that is being created. Once a new synthetic token is created, anyone can trade it, providing a new marketplace for a synthetic version of that asset.
A person who mints one of these tokens is called a synth issuer. Synth stands for synthetic token. The requirement to become a synth issuer is at least 750% of the value of the new asset as collateral in the form of SNX tokens. This means that if a user is creating $100 of synthetic dollars, they will need to first lock up $750 worth of SNX tokens. Without the SNX backing the value of these new tokens they would have no inherent value.
SNX Collateral Requirements
The reason the collateral requirement is so high is that the value of the synthetic asset is subject to changes in price (matching the real asset it is pegged to) and could therefore become worth considerably more than the SNX tokens backing it. The SNX tokens are also subject to downward price swings, which also provide the same outcome.
In these cases, purchasers of that token would be paying more than that token is worth. The 750% requirement ensures that there is sufficient room for both asset prices (SNX tokens and the synth token) to oscillate without the risk of collateral falling below the price of the asset.
Synthetix Use Case: Staking and Fees
While users are providing SNX as collateral they are also able to stake those same SNX tokens and receive rewards in return. These staked tokens provide the liquidity that runs the decentralized exchange.
Stakers are rewarded directly with the trading fees collected from the Synthetix decentralized exchange. Currently, stakers are eligible to receive 0.30% of each transaction in fees. That is 0.30% of each transaction’s total value, which may sound small but adds up quickly when you consider the exorbitant amount of value being exchanged in some of these trades.
This 0.30% is added to a staking pool. When the pool is distributed the percentage of the pool that goes to each staker corresponds to the percentage of the total staked SNX tokens that they own.
In addition to exchange fees, SNX also provides income to those who stake on the platform via an inflation schedule. As an inflationary currency, new tokens are created regularly and distributed amongst stakers. The current schedule is set to distribute an additional 160 million tokens in this manner by August 2023. Similar to the exchange fees, the amount of new tokens which you can receive corresponds to the number of tokens you already have staked.
Synthetix Use Case: Price Appreciation
A final use case for SNX token is to purchase it in the hopes of the price appreciating. Users can buy and sell SNX just for the exposure to the price without needing to mint synth tokens or stake SNX.
Those looking to make a quick profit can use SNX to trade in and out of positions, hopefully taking advantage of price swings to the upside in the process. Meanwhile, those who believe in the continued success and growth of the protocol can choose to buy and hold SNX tokens in hopes of selling at a later date for a higher price when the value of the network has expanded.
Since its launch in 2018, Synthetix has grown tremendously. Those who have held from the beginning have seen their investment grow significantly in that time. Meanwhile, trading on the platform continues to grow as well, currently averaging north of $20 million in trades per day. That may seem small compared to some of the larger centralized exchanges, but synthetic assets are still an extremely nascent industry, which only provides more opportunity for future growth.
If synthetic assets take off to the extent that is possible, Synthetix will be well positioned to lead the way and continue its growth trajectory much further.
SNX and Open Access to Finance
As we have seen SNX is an exciting and important token in the Defi space. It allows users to collateralize and create synthetic versions of any asset, this opens up immense opportunities and access to finance for all sorts of people who would otherwise be prohibited from entering.
Further, SNX can also be staked to earn rewards in the form of trading fees from the protocols decentralized exchange and even traded to speculate on the protocol’s continued growth.
Whatever your reason for wanting to use SNX, it is definitely a token to keep your eye on.