This is an interesting project with a lot of different facets to it. It took me a while to get the hang of it, but now I am really starting to see the vast potential. It is really a whole ecosystem, and far more than just a dapp. Here is the litepaper for considerably more detail.
The project borrows some ideas (and maybe even code) from the pioneering project called Maker Dao, which uses a smart contract to mint a stable coin called Dai, which is pegged to the USD dollar. It is secured by collateral, (initially Eth, but now also other ERC20 tokens). It also has a borrowing rate, (called stability fee) which can be used to maintain the USD peg. If the value of the Dai stable coin is too high in relation to USD, then they will lower the rate, encouraging more people to take more loans and inflate the value, which will have the effect of decreasing the price of the stable coin. If they raise the rate, there will be more incentive for borrowers to pay off the Dai loans, and the repayments are burned, decreasing the supply of Dai, and raising the value back to 1 USD. If your collateralization ratio falls below 150%, then your collateral could get liquidated, and so the backing on an aggregate level is maintained. If you dont know how Maker works, you should because most other Defi projects are based on the original idea.
How it works (synthetix)
A similar technique is used for Synthetix, but can be applied to producing any synthetic asset with a price feed (called a synth), not just USD, and use a similar process to maintain the peg, in a decentralised way. There are many synthetic assets (called synths) that have been created for things like Fiat Currencies, Commodities, other Crypto assets, tokenized conventional stocks/equities, or stock indices. So, for example sXAU is pegged to the price of gold, or sCEX is pegged to an index of Centralised exchange tokens. You can have synthetic stocks like apple of google, or any real world assets that has a reliable price feed. There are also inverse synths for short positions, (if you want to bet against the synthetic digital asset). You don't have to physically own the underlying asset, only the synthetic representation. One of the advantages of this alternative, is unlimited liquidity, and the lack of slippage when trading one asset for another. The assets which represent the synths don't have to be bought or traded. They just have to be backed up by a sufficient value of collateral.
Another advantage is that the process is decentralised, so that you don't have to trust, and rely on a central authority to maintain the collateral backing the assets. But you do have to rely on the smart contracts, which are opensource, verified by auditors (you can see the report), and tested. They have implemented all chnages recommended by the auditors. There are also bug bounties, so that there is an incentive to report any that may be found.
You can either mint your own synthetic assets, by staking SNX, or you can trade for them on a decentralised exchange like Uniswap. There is also an internal sUSD based exchange where you can trade one synthetic asset for another, with sUSD as a trading pair for all the assets. The exchange is similar to Uniswap or Bancor, but the assets for trading are all synthetic. You can also get rewarded by provided by providing liquidity to the various pools, or reserves.
The SNX token is used for collateral (above) and also for governance (below)
You can claim rewards each week for staking, and minting sUSD, which creates a loan which that to be paid back, but there is no stability fee so you can take as long as you want. But, you have to keep the collateral at 750% of your loaned sUSD, or you don't get the rewards until you top it up. There is also no liquidation if your loan falls below 750%. You just have to top it off, if you want to get your rewards. So, its a different incentive than Makerdao, and the collateralization ratio is much higher. You don't have to worry about liquidation. The worst that could happen is that you don't get your rewards if you don't keep your collateral above the ratio for more than 2 weeks. Then you could still top it off and get your rewards the following week. If the value of SNX goes up, you can mint more sUSD (see MINTR graphic above)
In addition you also get a share of exchange fees that people pay when converting assets from one to another.
Plans for the future
The project is currently running on Etherium, but is designed in a way that it could running on multiple chains if the need arose in the future. For example, they have just formed a partnership with Thorchain, which is a cross chain liquidity network.
They also have plans to add Ether as collateral, in addition to SNX. (see litepaper), and also plans to be able to lend sUSD natively on the platform for interest.
The team is very knowledgeable, and there is a very good discussion forum on discord. The governance is quite transparent and democratic, and votes are held for all major decisions. Anyone can participate, but only SNX token holders can vote. If there is a weakness it is the price Oracles which are centralised, and not very secure. This weakness is being addressed, and all the price oracles are being migrated over to Chainlink, which is much more reliable and secure.
It all sounds pretty complicated when you first read about it. But it makes more sense when you start to use it. I am looking forward to investing in an Index of Defi coins, or shorting the S&P 500 index for example. In the mean time I am holding and staking the SNX tokens. I also get rewards, which are locked for 12 months, and a small share of the transaction fees on their exchange, which is an alternative to using Uniswap to trade any of the synthetic assets.The value of the token has also been going up quite a bit in the last few months, and is considered one of the most valuable Defi projects, with the second most Ether locked up, after MakerDao on Defipulse.