Synthetix is an Ethereum-based decentralized protocol for issuing synthetic assets. These assets are backed by its native token, SNX, meaning users can mint synthetic assets (Synths) by locking SNX into smart contracts.
How Synthetix Works
Core Components
- Mintr: A decentralized app for managing Synths—users can mint, burn, and claim rewards here.
- Synthetix.exchange (Sx): The platform for trading Synths.
Process Overview
- Users collateralize SNX at a minimum 600% ratio to mint sUSD (the primary Synth).
sUSD can then be traded on Sx for other Synths across five categories:
- Fiat currencies (e.g., sUSD, sEUR).
- Commodities (e.g., gold, oil).
- Stocks (e.g., sFTSE).
- Cryptocurrencies (e.g., sBTC, sETH).
- Inverse cryptocurrencies (e.g., iBTC).
- Crypto indices (e.g., sDEFI).
👉 Explore decentralized trading with Synthetix
Incentives for SNX Stakers
Dual Reward System
- Trading Fees: Stakers earn 0.3% fees from Sx trades, distributed weekly.
- Inflationary Rewards: SNX supply grows from 100M to ~260M over 5 years (+2.5% annually thereafter), shared among stakers maintaining ≥600% collateral.
Current APY: ~20% (token-denominated).
Risks
- Debt Pool Liability: Stakers absorb losses if Synth traders profit.
- Oracle Failures: Incorrect price feeds may trigger losses.
- Front-Running: High-Gas arbitrage exploits can harm stakers.
Debt Mechanism Explained
Synthetix uses dynamic debt allocation, where stakers’ obligations adjust based on Synth price movements. Key scenarios:
| Case | Action | Outcome |
|---|---|---|
| BTC ↑ 50% | Hold sUSD | Lose 25% debt share |
| BTC ↑ 50% | Hold sBTC | Gain 25% profit |
| Mixed Positions | sBTC + iBTC | Net zero-sum impact |
👉 Dive deeper into debt dynamics
Pros, Cons & Risks
Advantages
- Zero slippage via oracle pricing.
- No reliance on liquidity providers.
Limitations
- SNX market cap dictates Synth supply ceiling.
- High collateral ratio (600%).
Critical Risks
- Oracle Manipulation.
- Death Spiral: Falling SNX price → higher collateral demand → reduced Synth minting.
Ecosystem Projects
- Kwenta: Enhanced Synth trading interface (potential Sx successor).
dHEDGE: On-chain fund platform leveraging Synths’ liquidity.
- Example: SNX Debt Pool Mirror hedges staker risks.
FAQs
Q1: What’s the minimum SNX collateral ratio?
A: 600% to mint Synths—e.g., $600 SNX to mint $100 sUSD.
Q2: Can I trade Synths without staking SNX?
A: Yes! Purchase sUSD/sETH on Uniswap for direct trading.
Q3: How are staking rewards calculated?
A: Based on your share of the total SNX staked and weekly fee/inflation distributions.
References: Synthetix Whitepaper, Delphi Digital Research.