Understanding Synthetix: A Protocol That Can Profit Even in a Bear Market
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Understanding Synthetix: A Protocol That Can Profit Even in a Bear Market
Based on 30-day revenue, Synthetix should be the most undervalued protocol in the DeFi space.
Navigating Web3 tides with focused insightsWritten by: The DeFi Investor
Translated by: TechFlow intern
Based on 30-day revenue, Synthetix should be the most undervalued protocol in the DeFi space. How does it work? And how did it generate $11 million in revenue over the past 30 days? Let's dive into Synthetix and its roadmap.
Synthetix is defined as a decentralized synthetic asset issuance protocol, enabling the creation of synthetic assets (Synths) without requiring ownership of the underlying asset.
Why would anyone use synthetic assets? Because they offer the following benefits:
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You can hold synthetic tokens to track any value asset (AAPL, oil, S&P 500, euro, BTC, etc.)
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Whales can execute large swaps with nearly zero slippage
Each synthetic asset is backed by Synthetix tokens (SNX). Suppose Bob wants to exchange 1 sETH (synthetic ETH) for sBTC. The amount of sBTC he receives depends solely on price feeds from oracles.
In this example, oracles push price data on-chain based on prices from multiple exchanges for the underlying assets. Thus, Bob receives sBTC in exchange for his sETH without affecting the original asset’s price or causing slippage.
Synthetic Asset Issuance
SNX holders must stake their SNX tokens. After staking, they can mint synthetic assets using their staked SNX at a minimum collateral ratio of 400%. When users swap synthetic assets, they pay transaction fees, which vary depending on the asset.
Since minting synthetic assets is crucial to Synthetix's success, SNX holders receive all fees paid by traders.
SNX Token
Currently, 54% of the total supply is in circulation. To ensure SNX holders continue minting synthetic assets and staking their SNX even during periods of low fees, stakers receive approximately 85% APR rewards in sUSD and SNX. SNX inflation depends on generated fees:
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More fees — lower SNX staking rewards
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Fewer fees — higher SNX staking rewards
As a result, staking reward APR remains around 85%, with new SNX tokens issued only when necessary.
Debt Pool
Unfortunately, if you want to profit, you can't just stake SNX and forget about it. Your collateralization ratio (must stay above 400% to keep earning rewards) depends on the overall debt pool ratio. Therefore, your debt may fluctuate based on synthetic asset prices. You can use certain financial tools to hedge against collateral ratio risks and avoid liquidation.
Roadmap
The team plans to launch:
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Synthetix Futures Perps V2: It will provide traders with better user experience, lower fees, more predictable funding rates, and access to new markets
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Synthetix V3: It will enable permissionless asset creation, improved credit control, and more.
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The DeFi Investor
