What is Synthetix Network Token (SNX)? [A Comprehensive Guide to Understanding Synthetix]

By Mr.CryptoWiki | cryptocurrency | 4 days ago

$7.28 tipped


If you’re a crypto investor, you’ve probably researched and wondered what will kick off the next bull run? After all, we all want to get in early and see massive gains, am I right? 

In order to do this, we must first identify the leading trends that could potentially kick off the next parabolic bull run. 

In 2017, the bull run was primarily fueled by Ethereum and the ERC-20 token standard which enabled pretty much anyone to run an initial coin offering (ICO) and generate hype around their token. 

There was so much hype surrounding new crypto projects that nearly everything exploded in price. Projects with nothing but a whitepaper gained multi-million-dollar valuations and everyone was trying to get in on “the next Bitcoin”. 

Then at the end of 2017 and early 2018, the bubble burst and every crypto came cascading down giving up all the gains that were made in 2017. 

Soon after, everyone was looking for what would kick off the next bull. In the middle of 2018, it was widely touted that security token offerings (STOs) would be the spark to kick off the next mad rush bull run, just like with ICOs in 2017.

However, this did not happen as STOs are far from ready to take off due to regulatory restrictions and likely won’t be ready for years to come.  

Following the STO hype came the initial exchange offering (IEO) hype, which was touted as being the next wave of ICOs and would bring newfound interest and investment in the space. But this never panned out either as most IEOs, especially the more recent ones, are already showing negative returns on investment.

Is there any trend that can kick off the next bull run?

Yes, there is one trend that’s clearly defining the shape of the crypto industry right now and its decentralized finance (DeFi). DeFi projects are the ones I believe will lead us into the next crypto bull run and for good reason.

Some Defi projects have been around for quite a while such as MakerDAO which started in 2015, but more recently there has been an influx of others making waves in the crypto space. 

According to DeFi Pulse, an analytics and ranking site of DeFi protocols, decentralized finance has been in a raging bull market since the beginning of 2018 and currently has a total USD value of nearly $700 million locked in DeFi protocols. 

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Right now, MakerDAO is the leading DeFi protocol with roughly $320 million USD value locked in it. However, there is a newer project that’s hot on Maker’s heels, has been exploding in price, and is now ranked #2 on DeFi Pulse with $180 million USD value locked in its protocol.

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As seen from the charts above, DeFi protocols are clearly growing in popularity and I don’t see this trend slowing down anytime soon. In fact, I believe it’s just getting started, which is why I think DeFi projects will lead us into the next crypto bull run.

And one of the DeFi projects leading this charge is Synthetix Network Token (SNX) – a cryptocurrency token and decentralized synthetic asset issuance protocol built on Ethereum.

In the following article, I provide a comprehensive and subjective look Synthetix Network Token (SNX) so that you can fundamentally understand what Synthetix is and see the value proposition of its cryptocurrency SNX. 

I delve into its unique characteristics, its history, purpose, partnerships, as well as the issues and controversies surrounding it. 

So buckle up and enjoy this comprehensive guide to understanding this new and innovative DeFi protocol and its token – Synthetix Network Token (SNX).

History of Synthetix Network Token (SNX)

Synthetix, as it stands today, is a DeFi protocol and platform built atop of Ethereum enabling the issuance of synthetic assets (Synths) representing cryptocurrencies, fiat currencies, commodities, and more. These synthetic assets are collateralized by the Synthetix Network Token (SNX) which when locked in the smart contract enables the issuance of Synths. 

That’s what Synthetix is today, but it didn’t start out this way. 

The Synthetix platform started out as a stablecoin project dubbed Havven with its native cryptocurrency, Havven Token (HAV). 

Initially, the protocol enabled the creation of only a single stablecoin dubbed nUSD, but now the protocol enables the creation of multiple synthetic assets, not just stablecoins. 

The project made its transition to the Synthetix brand in December 2018 but was initially launched as Havven in February 2018. 

From this point on, I’ll refer to the project as Synthetix. 

Synthetix was founded by Kain Warwick, a serial entrepreneur who before Synthetix, built the largest cryptocurrency payment platform in Australia, with tens of millions in transaction volume. 

Then, in December 2016 he came up with the idea for Synthetix and began building his vision for a future of digitized assets. 

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Synthetix Network Token (SNX) Launch and Distribution

Back when Synthetix was known as Havven, the project raised $250k in a seed round and had Synapse Capital conduct an ICO in February 2018 where Synthetix raised $30M selling SNX at a base rate of $0.67 per SNX.

As for Synthetic Network Token distribution, at launch, the total supply was 100,000,000 SNX. 60 percent of this was sold in the token sale, 20 percent was reserved for the team and advisors, 3 percent went towards bounties and marketing, 5 percent went towards partner incentives, and 12 percent was reserved for the Synthetix Foundation.

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- Source: www.synthetix.io 

While the Synthetic Network Token launched with a total supply of 100M SNX, the supply has since increased with the inflationary monetary policy that was introduced in February 2019. 

The policy was introduced as an incentive to bootstrap network effects and over the next 5 years, the supply will increase from 100M to 250M SNX with inflation diminishing over time. At the time of writing, the total supply is 154,807,692 SNX and the circulating supply is 148,338,954 SNX.

As for the current Synthetic Network Token distribution, the stats can be seen in the screen capture below:

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- Source: https://etherscan.io/token/tokenholderchart/0xc011a72400e58ecd99ee497cf89e3775d4bd732f

Purpose of Synthetix Network Token (SNX)

Synthetix Network Tokens are used as collateral when issuing synthetic assets (Synths) which can currently represent cryptocurrencies, fiat currencies, and commodities. Other derivatives are expected to be added soon including stocks, indices, and others.

This is the basis of the decentralized synthetic asset issuance protocol and it’s actually quite similar to MakerDAO, which enables ETH and other cryptocurrencies to be used as collateral for the issuance of DAI – Maker’s decentralized stablecoin.

However, one major difference between the Maker protocol and the Synthetix protocol is that Synthetix utilizes its native SNX cryptocurrency as collateral, while Maker utilizes Ether (ETH) and other cryptocurrencies as collateral.

Moving on, the Synthetix pooled collateral model enables users to perform conversions

between Synths in a decentralized manner with the smart contract. There is no need for counterparties and this mechanism solves the liquidity and slippage issues experienced by decentralized exchanges (DEX’s). 

Staking SNX to be Used as Collateral

By now you know that all Synths are backed by SNX tokens that are locked (staked) in a smart contract. Users can stake their SNX tokens to mint/issue Synths through a decentralized application (dapp) called Mintr, which interacts with Synthetix smart contracts.

Currently, if a user wants to mint a Synth they must stake enough SNX tokens for the Synth to be backed by a 750% collateralization ratio (this ratio may be changed in the future through community governance mechanisms). When a staker wants out of the system, they must burn their minted Synths to unlock their SNX tokens.

Why would SNX holders want to stake SNX and mint Synths?

As of December 3, 2019, 82.96% of the total SNX supply (128.4M SNX) is locked up in Synthetix smart contracts. 

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SNX holders are incentivized to stake SNX and mint synths for two different reasons:

  1. They receive exchange rewards from fees generated on Synthetix.Exchange where Synths can be traded for one another.
  2. They receive SNX staking rewards that come from the exchange’s inflationary monetary policy.

How Synthetix Works

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While Synthetix is a complex protocol with various mechanisms surrounding staking, minting, burning, pegging, and governance, as far as SNX holders and Synthetix users are concerned, the basics of the protocol are very simple and can be broken down into 3 steps.

Step 1

Lock SNX as collateral

  • SNX holders lock their SNX as collateral to stake the system.

Step 2

Mint Synths

  • Synths are minted into the market against the value of the locked SNX, where they can be used for a variety of purposes including trading and remittance.

Step 3

Receive rewards as SNX holder

  • All Synth trades on Synthetix.Exchange generate fees that are distributed to SNX holders, rewarding them for staking the system.

Synthetic Assets (Synths)

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Synthetix plans to offer a wide range of synthetic assets such as cryptos, fiat currencies, commodities,stocks, indices, and more that can be traded on the decentralized Synthetix.Exchange. 

Currently, Synthetix offers the issuance and trading of 19 different Synths (sAsset) representing crypto, stablecoins, commodities, and forex as well as 11 different inverse Synths (iAsset) representing crypto.

Synthetix Network Token (SNX) Issues and Controversies

As Synthetix stands today, it’s difficult to see many issues with it. It is the fastest-growing DeFi protocol in 2019 as it went from $1M to nearly $200M in locked USD value in just 1 year. 

It’s also one of the best performing crypto assets of 2019, having started the year at just $0.037 and reaching a recent high of $1.56. 

It seems that nothing can stop Synthetix and it’s SNX cryptocurrency at this point. The network value and token price just keeps on growing, seeing high after high. 

However, nothing goes up forever and what goes up must come down… right? While this statement is true, the real question is, how high can it go before correcting down?

No one can say for sure how long the Synthetix network can continue to grow, but I’d be willing to bet that when it’s growth does slow down, stop, or decreases, the price will follow suit. 

That being said, after seeing such explosive growth, some people will be wary about getting involved at this point and any negative press or events could potentially send the price down as early investors lock in profits. 

Also, another thing to keep in mind is that despite growing so much, Synthetix is still experimental and there are no guarantees that it will continue to unfold as intended. 

Many crypto enthusiasts claim Synthetix is still very centralized by necessity and remind investors that SNX is largely dependent on the success of Ethereum. 

The Synthetix protocol and its products are built on top Ethereum and if Ethereum suffers a major attack or has a crippling bug, it could also be detrimental to SNX.

Moreover, another issue that could potentially arise is regulatory uncertainty. For example, Synths may be classified as derivatives or securities in some jurisdictions which could have major implications on Synthetix’s legality. 

All in all, despite how amazing any particular project may seem, there are always things to keep in mind as nothing is guaranteed in investing, especially when investing in crypto.

Synthetix Network Token (SNX) Partnerships and Working Products

Synthetix didn’t get to where it is today without any working products. In fact, the project has three well-polished working products that enable people to interact with the decentralized synthetic asset issuance protocol. 

See an overview of Synthetix’s products below:

Synthetix.Exchange

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Synthetix.Exchange is a decentralized trading platform for synthetic assets (Synths). The exchange is built on Ethereum and accessible via web browser on desktop computers. 

On the platform, users can convert between the full range of Synths available including synthetic forms of fiat currencies, cryptocurrencies, and commodities.

In order to use Synthetic.Exchange, users must simply connect a wallet such as MetaMask, Trezor, or Ledger with at least 1 Synth. Once connected, the user’s balance is shown and they can then convert between other Synths with simple clicks of a button. 

All conversions are carried out on-chain without the need of any third-party intermediaries. 

Mintr

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Mintr is the dapp for SNX holders to mint Synths and participate in the Synthetix Network. Without Mintr, there would be no synthetic assets as no one would know how to interact with the protocol. 

Essentially, the Mintr dapp is the user interface that enables SNX holders to interact with the Synthetix Network and it does this by providing a clean and intuitive interface that allows users to:

  • Mint and burn Synths
  • Manage their collateralization ratio
  • Collect fees generated by circulating Synths
  • Send sUSD to a selling queue
  • View their balances and Mintr history
  • Unlock escrowed SNX

Synthetix Dashboard

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The Synthetix Dashboard is an analytics dashboard for the most relevant information to do with the Synthetix protocol. It includes everything from:

  • Synthetix.Exchange volume
  • Fees generated
  • SNX market cap
  • SNX price
  • Synth asset market caps
  • Synth asset prices
  • Network collateralization ratio
  • Locked SNX value
  • Locked SNX ratio
  • And much more

Synthetix Partnerships

Synthetix Network announced many partnerships in its earlier days as Havven and continues to partner with various crypto companies today. 

See below, a list of some recent Synthetix partnerships 

  • ChainLink
  • THORChain
  • Framework Ventures
  • Kyber Network
  • Kovan
  • Dether
  • ARAW
  • Bamboo
  • Groundhog
  • LocalCoinSwap
  • Elysian
  • MarketPROTOCOL
  • AllDayZip
  • Alchemy
  • intimate.io

Conclusion

The next crypto bull run may be right around the corner and Ethereum DeFi projects like Synthetix (SNX) are already paving its way. 

The Synthetix Network Token is one of the best performing crypto assets of 2019 and it’s currently showing no signs of slowing down. The project is providing something truly unique by offering investors synthetic assets that are easily traded in a decentralized manner without any third parties. 

Synthetix already offers beautifully designed products and is making meaningful partnerships and developments that should help the project fulfill its vision of bringing decentralized synthetic assets to the world.

What do you think about Synthetix Network Token (SNX)? Will this DeFi project soon surpass MakerDAO in the DeFi protocol rankings? 

Let me know what you think in the comment section below.


Mr.CryptoWiki
Mr.CryptoWiki

In crypto since 2002 ;)


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