Hello Publish0x community and welcome back in this new article of my “Easy & Short Cryptocurrencies Made Accessible” area.
This Sunday we talk about advanced features of Synthetix Network!
Last Sunday I introduced you Synthetix Network (SNX) and I said that it is a decentralized synthetic asset issuance protocol built on Ethereum. If you missed the article you can recover it here before to continue this one.
Today I want to go deeper into the Synthetix system architecture and Synthetix exchange.
Last Sunday I talked about staking with SNX. With Staking and the SNX token the liquidity for the system is created and it will be used to maintain the derivatives.
SNX holders can use Synthetix smart contracts to mint sUSD by locking their SNX as collateral. The steps involved for SNX holders are:
- The Synthetix contract checks that the SNX staker can mint Synths against their SNX, which requires their Collateralization Ratio to be below 750%.
- Their debt is added to the Debt Register. The debt is the amount of the new value minted, and is stored in sUSD
- With the debt assigned to the staker, the Synthetix contract instructs the sUSD contract to issue the new amount. It adds it to its total supply and assigns the newly minted sUSD to the user’s wallet.
The steps involved for the smart contracts to process a Synth exchange are:
- Burn the source Synth (sUSD), which involves reducing that wallet address’s sUSD balance and updating the total supply of sUSD.
- Establish the conversion amount.
- Charge an exchange fee, which is currently 0.3% of the converted amount, and send the fee as sUSD to the fee pool, where it can be claimed by SNX stakers.
- The remaining 99.7% is issued by the destination Synth (sBTC) contract and the wallet address balance is updated.
- The sBTC total supply is updated.
Image source: https://defiprime.com/synthetix
Whenever SNX holders mint or burn Synths, the system tracks the debt pool. It does so by updating the "accumulated debt incremental ratio." This can measure the proportion of SNX stakeholders in the debt pool when they were last minted or burned, and the change in debt caused by other stakeholders entering or leaving the system. The system uses this information to determine the debt of each staker at any time in the future, without actually recording the changes in the debt of each individual staker.
Probably, after a period of time, you would like to exit from staking or reduce the debt and unlock staked SNX so you must pay back your debit.
How can you pay back this debit?
To reduce your debit to zero you have to complete this process:
- Synthetix contract determines its debt balance and deletes it from the debt register.
- The required amount of sUSD is burned, and total supply of sUSD is updated along with the sUSD balance in the user’s wallet.
- The SNX balance becomes transferrable.
Once having understood how to pay back the debit let’s see how Synths work.
Synths are synthetic assets that track the price of the underlying asset. They allow holders to gain exposure on Ethereum to various asset classes without holding the underlying assets themselves or trusting a custodian. Synths are backed by the Synthetix Network Token (SNX), which is staked as collateral at a ratio of 750%.
Synthetic assets provide exposure to assets without the need to hold basic resources. This has a range of advantages, including reducing friction when switching between different assets expanding the accessibility of certain assets, and censorship resistance.
Trading on Synthetix.Exchange has many advantages over centralized trading and DEX-based order books. The lack of an order book means that all transactions are executed according to contracts, which are called P2C (Peer-to-Contracts) transactions. The price information provided by Oracle is used to assign exchange rates to assets and can be converted using Synthetix.Exchange dApp. This provides unlimited liquidity up to the total amount of system collateral, zero slippage and unauthorized on-chain transactions.
Image source: https://synthetix.exchange/#/markets
By providing synthetic assets to users worldwide, Synthetix is at the forefront of the DeFi movement, allowing users to use specialized trading strategies. Synthetix has the potential to create a massive tokenized market on the Ethereum blockchain.
The market share that synthetic products on the blockchain will have could undoubtedly be significant.
Have you ever traded on Synthetix.Exchange?