Synthetix is revolutionizing the crypto community by introducing synthetic assets on the Ethereum and Optimism blockchains. With this innovative protocol, users can now mint and trade synthetic assets, called Synths, which derive their value from an underlying asset.
The advantage of synthetic assets is that traders can speculate on the price movements of the underlying asset without actually holding it. For example, if a trader mints sALGO, which represents ALGO, they can profit from the price action of ALGO without owning the actual asset.
To create Synths, users stake the Synthetic network token (SNX) on the Optimism layer-2 protocol. The SNX token serves as collateral for the minted synths, which are considered as debt. However, after trading, traders can unlock the SNX token by burning the synth, reducing their debt.
To ensure stability and mitigate risk, the Synthetix platform follows an over-collateralization model. This means that the value of the SNX tokens staked must be higher than the value of the Synth being minted. This structure helps the Synths withstand price volatility and provide a secure trading environment.
The Synths minted on Synthetix are traded on decentralized exchanges like Kwenta, built on the Synthetix protocol, or other exchanges such as Uniswap. Traders can access a wide range of spot synths, including crypto assets like Bitcoin and Ethereum, fiat currencies like USD and GBP, and commodities like gold and silver.
Additionally, the platform offers derivative synths in the form of perpetual futures. Traders can take positions on underlying assets without expiry, enabling them to capitalize on market trends over an extended period.
By utilizing Chainlink price oracle, Synthetix ensures that the on-chain synths have access to accurate off-chain price data. This integration enhances the reliability and transparency of price information, allowing traders to make informed decisions.
Governance in the Synthetix ecosystem is managed by three decentralized autonomous organizations (DAOs), elected by SNX token stakers. The Protocol DAO consists of eight signers, who require majority agreement to update smart contracts. The Synthetix DAO oversees the network’s treasury and growth funds, while the Grant DAO reviews funding proposals.
With Synthetix enabling the creation and trading of synthetic assets, the crypto community gains increased access to a wide range of assets and diversified investment opportunities. This protocol serves as a bridge between traditional and decentralized finance, unlocking new possibilities for traders and investors alike.
