Premise
Like all the other insights I have written in other posts on Publish0x, I remind everyone that this article provides a general overview. It is advisable to consult the official website of the project and other reliable sources.
Synthetix Network is an Ethereum network-based decentralized finance (DeFi) project that allows users to mint new crypto assets (also called on-chain synthetic assets or simply "Synth") that mimic real-world assets such as FIAT coins and crypto assets.
We can define Synthetix as a decentralized asset insurance protocol, guaranteed via the Synthetix Network Token (SNX), therefore without the need for a financial intermediary.
Simply, users will not have to "trust" an institution or person to manage the created cryptocurrencies, but trust that the code will execute as written.
How does it work?
The SNX token is purchased and locked in a special contract that can be used to generate new assets, the famous "synths".
For example, a synth designed to imitate the value of the dollar is called sUSD, if it imitates Bitcoin sBTC, to also get to commodities such as gold and silver, or other FIAT.
Using data feeds called oracles, synths track the value of other assets allowing users to gain exposure to gains or losses related to those markets.
The guarantee ratio of all Synths created through staking the SNX token is noteworthy, equal to 750%, determined by the governance of the community.
Through staking SNX and minting sUSD, users are essentially taking on debt that reflects the amount of sUSD that needs to be burned to unstake their SNX. This in turn represents a portion of all the debt on Synthetix and is called sUSDT and this debt rises or falls based on the supply of Synthetix, as well as exchange rates.
Another special feature is peer-to-contract (P2C) trading, where the trades themselves are executed quickly and easily without any order book. A distributed pool of token holders is responsible for providing this collateral on the platform, as well as maintaining the stability of the entire exchange.
Pros and cons
PRO
Synthetix Network is designed for anyone who wants to invest in real assets, such as stocks, commodities, indices, crypto and fiat without having to purchase them directly.
This can be useful for several reasons:
- Accessibility: real assets can be expensive to buy and maintain, also considering the various commissions while Synthetix Network allows you to invest even small sums of money and with very low commissions;
- Liquidity: real assets can be difficult to sell quickly, while on the network in question everything happens very quickly and with just a few clicks;
- Diversification: The network offers the possibility of diversifying your portfolio by investing in assets of all kinds, with the advantages mentioned above.
CONS
- Counterparty risks: Synthetix is decentralized, therefore there is no central controlling body such as a bank or stock exchange and there is a risk that the synth supplier is unable to fulfill its obligations;
- Volatility: If the price of the synth becomes too volatile, suppliers may have difficulty maintaining their position, causing poor liquidity.
Investing in stable assets, such as Gold or Silver, or in liquid assets and carefully monitoring the synth market are useful measures to reduce exposure and risks in a market that is already very risky.
Synthetix Network is working to introduce new Synths as crypto derivatives, improve liquidity thanks to new incentives for stakers and collaborations with new exchanges and finally improve security through audits to which it already undergoes and with new security controls to protect users from cyber attacks.
In conclusion, Synthetix Network is a really interesting platform for those who want to invest in real assets without having to purchase them directly, although considering the pros and cons of the platform. As always, do your research!
