Synthetix
Synthetix is a decentralized synthetic asset issuance protocol built on Ethereum and Optimistic Ethereum (a layer two scaling solution built on Ethereum). These synthetic assets are collateralized by the Synthetix Network Token (SNX) which when locked in the contract enables the issuance of synthetic assets (Synths). This pooled collateral model allows users to perform conversions between Synths directly with the smart contract, avoiding the need for counterparties. This mechanism solves the liquidity and slippage issues experienced by DEX’s. Synthetix currently supports synthetic fiat currencies, cryptocurrencies (long and short) and commodities. SNX holders are incentivized to stake their tokens as they are paid a pro-rata portion of the fees generated through activity on Synthetix from integrators (Kwenta, Lyra, Curve, dHEDGE, and many others). It is the right to participate in the network and capture fees generated from Synth exchanges, from which the value of the SNX token is derived. Trading on the Synthetix infrastructure does not require the trader to hold SNX.
Many protocols have built ontop of the Synthetix infrastructure. These include but are not limited to, Kwenta which offers perpetual futures and spot exchanges, Lyra which offers options trading, Curve which offers cross asset swaps, and dHEDGE which allows traders to pool capital and offer a decentralized hedge fund service.
Why SNX holders stake
Synthetix staking is vastly different from other DeFi protocols; it allows anyone to earn rewards by contributing collateral (SNX) to the Synthetix protocol. Staked SNX enables the many benefits for protocols built on Synthetix, such as deep liquidity, low slippage, and highly competitive fees for traders.
Staked SNX performs several crucial tasks:
- Creates deep liquidity for Synths trading on Synthetix
- Supports various protocols that rely on Synthetix liquidity (Kwenta, Lyra, Curve, dHEDGE, etc.)
- You receive two kinds of rewards for staking SNX: sUSD fees generated from traders (Kwenta Futures, Lyra options, Kwenta Spot, Polynomial, Curve cross-asset swaps, etc) and SNX inflationary rewards.
- Both of these rewards must be manually claimed in the one transaction each fee period (i.e., once a week), or they will be returned to the pool and redistributed to other stakers.
For basic steps on how to stake and for claiming weekly see this guide: https://blog.synthetix.io/basics-of-staking-snx-2022/
Synthetix has partnered with dHEDGE to deploy a one-click debt mirror index for SNX stakers on Optimism. Initially, this tool was launched onto mainnet, but it is now live on Optimism. This guide can be found here: https://blog.synthetix.io/dhedge-debt-mirror-index-token-2/
Recently Synthetix partnered with Gelato to allow stakers to automatically claim their SNX staking rewards on Optimism. As of right now, the integration enables stakers to claim their weekly rewards once their C-Ratio is above the target C-Ratio (as of right now, this is 350%). To learn how to do this go here: https://blog.synthetix.io/automated-claiming-from-gelato-only-live-on-optimism/
Synthetix and Partner Protocols
Why trade synthetic assets?
Synthetic assets provide exposure to an asset without holding the underlying resource. This has a range of advantages, including reducing the friction when switching between different assets, expanding the accessibility of certain assets, and censorship resistance.
**Advantages of Synthetix Infrastructure **
Trading on Synthetix infrastructure provides many advantages over centralized exchanges and order book based DEX’s. The lack of an order book means all trades are executed against the contract, known as P2C (peer-to-contract) trading. Assets are assigned an exchange rate through price feeds supplied by an oracle, and can be converted using the Kwenta.io dApp. This provides infinite liquidity up to the total amount of collateral in the system, zero slippage, and permissionless on-chain trading.
Synthetic futures
Synthetix has recently launched Perpetual Futures Beta. Anyone with access to the internet can leverage Synthetix’s infrastructure to access up to 10x leverage on an evergrowing list of Synthetic assets. https://blog.synthetix.io/synthetix-perpetual-futures/
Kwenta, a fully decentralized and composable protocol with an easy-to-use trading UI, is the first partner to integrate Synthetix’s perps. Synthetix perps markets are accessible through a dedicated Kwenta UI.
Synthetix's perpetual futures enable a much expanded and capital-efficient trading experience by allowing both leveraged longs and shorts on a large selection of assets.
For SNX stakers, futures provide an additional revenue stream due to exchange and funding rate fees and reduce the need to hedge the additional debt due to inherent self-hedging and controlled exposure through market size limits.
Another useful property of Synthetix’s perps markets is that support for new assets can be expanded more readily for futures than for spot assets. This is because perpetual markets don’t share some of the limitations and risks of spot synths, allowing for more assets to be safely added. This means that the Synthetix protocol may soon offer a broader range of perpetual futures pairs than many competitors.
Atomic Swaps
Atomic Swaps are a new exchange function allowing users to atomically exchange assets with a reasonable fee by pricing synth exchanges via a combination of Chainlink and DEX oracles (Uniswap V3) This helps to enable seamless trading between synthetic assets like sETH, sUSD, sBTC, etc. A unique property of this is that for large trade sizes, it greatly reduces the overall cost for traders due to slippage. Learn about Atomic Swaps and why they benefit SNX stakers here: https://blog.synthetix.io/atomic-exchanges-synthetixs-mainnet-volume/
Future of Synthetix:
Perps V2 and The Future of Perps
Perpetual futures will be updated drastically to improve on the following goals:
- Significantly improve user experience with lower fees and more predictable funding rates
- Increase open interest limits and expand support for additional markets.
Kwenta isn’t the only one building ontop of futures, Polynomial is also building a basis trading vault to generate fees for users by capturing the inconsistencies between the spot market and its corresponding perpetual futures. In this strategy, they’ll try to collect funding rates by going long on the spot market and an equal amount short on the perpetual futures market. https://twitter.com/PolynomialFi/status/1545458668556394496?s=20&t=WL7GKDVJ9M4V_0pYgu9p4Q
Synthetix V3
V3 aims to accomplish what Synthetix set out to do many years ago by transforming the protocol into a permissionless derivatives platform.
Complete rebuild of Synthetix as a more versatile protocol on a much more efficient architecture. Redesigns the entire protocol from the ground up to facilitate development of novel DeFi applications.
What are the benefits for the Synthetix protocol, users, and builders?
Long Term Vision
- Permissionless asset creation - Any financial derivative can be built on top of Synthetix V3.
- Better control of credit - Stakers can pick and choose which assets they'd like to collateralize. It improves the hedging experience and allows new assets to increase their liquidity without being approved by the Spartan Council.
- “Liquidity as a Service” - Synthetix will not just be a protocol to route trading through b/c of its debt pool and assets; it will be a protocol you build on top of if you're looking to increase liquidity for any financial derivative on-chain rapidly.
Why Builders will love V3
- Create a pool to support [nearly] any financial derivative you want to build
- Anything you've ever dreamed of, from traditional financial markets to more exotic markets such as no-loss lotteries or even supporting liquidity for peers protocols.
- Current (perceived) competitors could, in theory, source, and route liquidity through Synthetix to increase their available markets.
- Solves the Cold Start liquidity problem - supports experimentation by simplifying provisioning of liquidity for early markets
- Clean and simple to understand: Integrating with Synthetix will take days not weeks.
Why Stakers will love V3
- Simplified Staking: Staking SNX is as simple as any other protocol
- Differentiated Debt Pool: supply collateral to, and receive fees from, specific asset pools without having to be exposed to every asset the Spartan Council supports (as is the case in V2x)
- Inflation Weighting: veSNX gauges
- Staking Incentives: lock for greater rewards
- Far easier staking experience for new users who only want to hedge certain assets.
To learn more about what has been done in 2022 by Synthetix and what is coming 2nd half of 2022 check out Synthetix's latest blog post: https://blog.synthetix.io/synthetix-2022-release-milestones-halfway-review-and-deep-dive/
History
Synthetix originally launched with an ICO in early 2018 under the name Havven.[1] It was founded by Kain Warwick.[2]
Sources
3. https://docs.synthetix.io/litepaper/
4. https://blog.synthetix.io/basics-of-staking-snx-2022/
5. https://blog.synthetix.io/synthetix-2022-release-milestones-halfway-review-and-deep-dive/