Synthetix is a derivatives liquidity protocol allowing anyone, anywhere to gain on-chain exposure to a vast range of assets. It enables the creation of synthetic assets called Synths, which are derivative tokens tracking the price of other assets, including cryptocurrencies, forex, indices, equities, and commodities. These Synths are backed by SNX, which is staked as collateral, entitling stakers to fees generated by Synth trades.
What problem does Synthetix solve?
Synthetix allows people to gain exposure to assets on Ethereum they might not otherwise be able to access. It also solves problems of liquidity and slippage, as all trades between Synths are operated peer-to-contract. The protocol does all this without compromising on decentralization — traders retain custody of their funds at all times. Other decentralization trading options like AMM’s have major liquidity and slippage restrictions for most assets.
Synths, such as sUSD and sETH, are already being used across a range of platforms that leverage the underlying Synthetix protocol. Curve Finance uses sUSD in its deep stablecoin liquidity pool, dHedge uses Synths in its non-custodial mimetic trading platform, and while most Synth trading currently occurs on Synthetix.Exchange, it was recently announced that a new dApp called Kwenta will offer a completely revamped trading experience, still powered by the Synthetix protocol. sETH is a synth pegged to ETH which Synthetix users can mint through staking SNX in the Mintr interface.
The SNX token enables all of this — it gets staked as collateral to mint these Synths, creating a distributed liquidity pool. The incentive for SNX holders is that all contract exchanges between Synths generate trading fees, which are shared between SNX stakers. There is a correlation between the value of SNX and the number of Synths that can be minted into the system, which means there is a self-scaling mechanism built into the protocol.
Synthetix is currently running a testnet trial with Optimistic Ethereum, the Layer 2 scaling solution from Optimism, and has been showing unrivaled initiative in pushing DeFi onto L2. The other major milestone on the Synthetix roadmap is synthetic futures, which will allow non-custodial perpetual futures trading, offering high leverage trading across a range of assets.
For more information, visit the website and check out the Synthetix litepaper. A summary of the network statistics across the various platforms using the Synthetix protocol is available at stats.synthetix.io. If you’re interested in learning more, you can join the Synthetix community on Discord.