Synthetix (SNX) overview
The functionality of most DEX exchanges is limited as they do not provide the ability to trade various financial instruments such as derivatives. This has all changed with the advent of Synthetix, which we will tell you about in this article.
What is Synthetix?
Synthetix is a decentralized exchange and liquidity protocol that allows you to trade derivatives on blockchain or crypto derivatives.
In addition to derivatives trading, Synthetix allows the issuance of so-called synthetic assets, essentially tokenized analogues of classic assets such as:
- stock indices,
- stocks,
- gold.
Synthetix financials
So far, the Synthetix protocol lags significantly behind the leading DeFi segments, Uniswap and PancakeSwap, and marginally behind Balancer. Despite this, Synthetix is among the top five largest decentralized exchanges and ranks 23rd in blocked assets (TVL) among all DeFi protocols. As of December 2023, Synthetix's TVL totalled $771.5 million, which has doubled in the last two months alone. Synthetix is the leading protocol among decentralized derivatives exchanges.
According to data from Synthetix's official website, the total trading volume of the DEX exchange has exceeded $52 billion, and the daily trading volume for the last 30 days amounted to about $143 million. For example, trading pairs such as XAU/sUSD, EUR/sUSD are available on one of the Synthetix Kwenta ecosystem protocols.
How does Synthetix work?
The protocol allows trading derivatives without owning the underlying asset: traders simply speculate on the rise or fall of asset prices.
Synthetix allows the trading of futures and open-ended contracts, options, and automated trading strategies for those who do not plan to trade independently.
Users can also issue synthetic assets by staking SNX tokens, but Synthetix has a very high minimum collateralization ratio of 600%. On the one hand, this provides better protection against position liquidation than a lower collateral ratio. Still, on the other hand, it requires an excessively large amount of assets to pledge. For example, to get $10,000 in synthetic assets, you must pledge at least $60,000 in staking.
Synthetix ecosystem
The Synthetix ecosystem consists of 4 main products, each of which is a DEX exchange focused on specific financial instruments: Kwenta, Polynomial, dHedge and Lyra:
- Kwenta is an exchange-based decentralized protocol for trading futures contracts on cryptocurrencies, synthetic currencies and other exchange-traded commodities such as gold with leverage up to 50x.
- Polynomial is a DEX exchange for trading perpetual contracts with up to 50x leverage. Only cryptocurrencies are listed on this DeFi protocol.
- dHedge is the decentralized counterpart of a hedge fund. Investors can lend their sUSD stablecoins to managing portfolio managers or use automated income-generating strategies.
- Lyra is one of the leading decentralized protocols for trading cryptocurrency options. Currently, only options on 6 cryptocurrencies are available on Lyra: BTC, ETH, ARB, OP, XRP and LINK.
In addition, Synthetix provides a steaking protocol through which users can tokenize their SNX tokens and receive credit in the sUSD stablecoin. Users also receive rewards for staking.
Finally, as of 2020, the Synthetix protocol is managed through ProtocolDAO, a decentralized autonomous organization that oversees protocol updates and smart contracts and determines funding streams.
SNX token
The Synthetix team has released its own ERC-20 token, SNX, on the blockchain. Like many decentralized exchanges, including Uniswap and PancakeSwap, Synthetix has its native token but no blockchain.
SNX is used for staking and collateral for transactions and issuing synthetic assets through the Synthetix protocol.
Over the past year, as of December 2023, the price of the SNX token has increased nearly 2.5 times from $1.55 to $3.9. SNX reached its all-time high in February 2021 at $28.77.
The maximum number of SNX tokens is 328 million. 300 million of them are already circulating on the market. According to CoinMarketCap, the SNX token ranks 59th among all cryptocurrencies, with a capitalization of $1.16 billion.
The future of Synthetix
Synthetix is the leading DEX protocol for derivatives trading on Ethereum and throughout the DeFi sphere. Synthetix will likely maintain its position, at least in the near future, given that there has been steady growth in TVL and project capitalization.
The protocol also stands out because, in addition to cryptocurrencies, it offers traders the opportunity to speculate on synthetic assets, tokenized assets whose rate is linked to indices and exchange-traded commodities.
Additionally, the potential of synthetic assets is still largely untapped, so as the ecosystem develops and new financial instruments are added, Synthetix and its token SNX may reach new heights during the next bull cycle.
VanEck forecasts that in 2024, Ethereum will overtake the stocks of major tech companies in terms of capitalization. This means that big money will likely "pour" into this protocol, including institutional money in the case of Bitcoin-ETF adoption. The Synthetix protocol may take some of the new capital.