I was researching about decentralized finance when I first came across Synthetix from a tweet from @DegenSpartan. (Learned a lot from his views/knowledge about DeFi & Synthetix - definitely worth the follow!)
It was really difficult to comprehend the system at first as I dwell in their discord group to wrap my head around it. With the meaningful ongoing discussions daily, I begin to understand it a little more day by day.
With this guide, I hope it will help people that have just stumbled upon this project have a better understanding of what Synthetix has to offer and a basic overview of how this project works. There are great things in the pipeline and I am very excited about what the future holds for Synthetix.
Introduction to Synthetix
Synthetix was originally known as Havven and held its ICO around February 2018 for its ERC-20 token, HAV. The price of 1 HAV equals 0.67 USD. The goal at the time of launch was to be a decentralized payment network which uses a dual token system to issue stable coins (nUSD) backed by HAV as collateral. HAV holders were then rewarded with a % of fees generated from all nUSD transactions as a result of keeping nUSD stable.
Going forward, the team realized that they can do so much more than just creating a stable coin. The major rebranding to Synthetix was announced on 30th Nov 2018 and HAV became SNX.
Stretching the full potential of the Synthetix platform, it now enables the creation of on-chain synthetic assets which an oracle is used to track the price movement of the same assets in the real world. This has opened up a wide variety of synthetic assets that any user can mint such as stable coins that are pegged to the price of fiat currencies or dollars pegged to mental/indices/commodities, provided it is offered on the exchange. Synthetic assets allow exposure to the price action of the asset without holding the underlying asset. If you do not want the hassle of dealing with KYC on the exchanges and are bullish on the price of Bitcoin in the future, you can buy sBTC to gain exposure to the value of BTC.
For people who are on the other side of the trend (bearish), there are inverse synthetic assets to short the price and gain profit when the price of the asset decreases. (iBTC) More synthetic assets of other popular asset classes and cryptocurrencies will soon be introduced as the exchange gains traction and demand for a certain asset from the community arises.
Purpose of the SNX Token
SNX token is the foundation of the Synthetic network as it acts as the collateral to back the creation of any synthetic asset (Synths) on the platform. It allows the token holders to participate in the minting of Synths. SNX will be locked into the smart contract during minting and you will receive one fifth of sUSD against the SNX that is locked. (E.g. If $1000 worth of SNX is locked, you will receive $200 sUSD) The optimal collateralization ratio is 500% so it requires the minter to play an active role in maintaining the ratio. The incentive for doing so is that the minter would be able to claim rewards compared to other minters who be blocked when their ratio falls below a certain threshold. This will be discussed in greater detail later on.
Update: The optimal collateralization ratio has increased to 750% to curb the over supply of synths. There was also issues in maintaining the peg of sUSD:USD at 1:1 so this proposed change would hopefully restore the peg.
The Step by Step Minting Process
Mintr is the main dApp that SNX holders will access to mint & burn Synths and collect their transaction fee rewards.
Step 1: You would have to get your hands on some SNX. To find which exchanges have listed SNX as one of their markets, head over to this CoinGecko and buy from any of the exchanges that you want, preferably the exchange which has the highest volume. For decentralized exchanges, there is Uniswap where you can buy SNX with ETH with low slippage.
Step 2: Transfer the SNX bought to either Metamask, Trezor or Ledger and connect to the wallet with your SNX holdings through Mintr.
Step 3: Once connected, you will arrive at this page where there is an option to mint sUSD. Based on the screenshot, the value of the 10000 SNX is currently worth $3468.78 and the target collateralization ratio is 500%. If you decide to lock the SNX, you are able to mint 693.76 sUSD which is one-fifth of the value of the SNX holdings.
With the target collateralization ratio being 750% now, you would be able to mint 462.50 sUSD. (3468.75 divided by 7.5)
You would need to hold some ETH in your wallet to pay for fees when minting. Since minting is one of the most complex computations on Ethereum, it would cost a lot more in gas fees. Tip: Follow the recommended gas limit and only tweak the gwei to whatever you want. The lower the gwei, the longer the time it takes for the minting process. It is also based on how congested the Ethereum network is. To find out which is the most suitable gwei to set, head over to ETH Gas Station.
Step 4: You’re set! You can decide on what to do with your sUSD. You can sell it to ETH on Depot which would be put into the queue system on Swappr or purchase synthetic assets through the Synthetix Exchange.
Managing of SNX & Reward Penalties
To unlock all your SNX holdings, you would have to burn the amount of sUSD equivalent to “Total sUSD debt owed” as shown in the dashboard. You will notice that the debt owed would fluctuate from time to time and is best explained here. In the case that the debt owed is higher than the sUSD you have initially minted, you would need to purchase additional sUSD to recover your SNX holdings.
If the price of SNX drops in comparison to the initial value of SNX when you first minted for sUSD, your current c-ratio will drop below 750%. Burning of sUSD, buying of sUSD and buying of SNX are ways to fix your c-ratio and bring it back up to 750%.
However, if the price of SNX increases, your current c-ratio will rise above 750%. This means you can mint even more sUSD to contribute to the network and use it to purchase synthetic assets or simply hold it. The c-ratio will revert back to 750%.
As a minter, you are eligible for 2 kinds of rewards: SNX staking rewards & a portion of the fees generated from the trading volume in Synthetix Exchange in the form of sUSD. If your c-ratio falls below 682%, you will not be blocked from claiming your rewards until you fix your c-ratio.
Rewards are claimable on a WEEKLY basis through the ‘Rewards’ tab. The amount of rewards claimed is dependent on the total Synth balance at the time of snapshot which is currently every Wednesday around 8 am UTC. It will be more accurate to look at the amount of time left to the end of the fee period by looking at Mintr.
Currently, there is a 2 weeks window to claim your fees before it expires. If left unclaimed, it will be rolled over to the pool to be distributed in the next period. Remember to claim your rewards before the window closes! Although it shows that there are no penalties for having your c-ratio above 750%, you are losing out on potential rewards since you minted less sUSD than you could have.
The table above shows the SNX staking rewards schedule where it indicates the amount of SNX that is released into the circulating supply each year. The SNX staking rewards received will be vested for 1 year from the collection date so that the increase in supply would not have a dampening effect on the price. You can check when the rewards will be unlocked under the ‘Rewards’ tab.
Fret not, it will still be included in your total SNX balance when collected which leads to an increase in SNX locked. This means you can mint even more sUSD and claim greater rewards for the following week, creating a COMPOUNDING effect if you claim your rewards frequently.
Check out DegenSpartan’s Twitter thread to learn more about how the whole rewards system works — 100% transparency in real-time!
Other than the litepaper available on their website, I will provide some useful statistics from different websites that you can refer to in order to track the different aspects and growth of the Synthetix platform.
The Synthetix dashboard has all the information that you will need about the health of the network at your fingertips. You can also see the trend of other interesting statistics such as the fees claimable in the fee pool or how well the sUSD is pegged to the US dollar.
DeFi Pulse is a popular tracking tool of key metrics for different projects that are considered to be products built under decentralized finance and are split into different categories - lending, derivatives, payments, etc. It is a great site where you can watch the growth of DeFi projects over time. Synthetix is currently in 5th place with the amount of USD locked. Based on the graph of total value locked (USD), we can see a tremendous rise over the past month which means an increase in SNX locked and the growth of value that SNX holds as an asset. This indicates the amount of confidence that investors have in Synthetix - high!
Another useful statistic that I would like to keep track of daily is the supply of SNX on exchange wallets which can be found on ViewBase. When the supply drops, it indicates that people are withdrawing tokens to their wallets to mint. An increase in supply in the exchange wallets would indicate people are depositing their tokens with the likely intention of selling. The decrease in available supply on exchanges would be beneficial for the price, and vice versa.
Synthetix Exchange Twitter Bot
Last but not least, the Synthetix Exchange bot on Twitter keeps track of the statistics of the Synthetix exchange which includes trading volume & fees generated. This piece of information is useful as it indicates if the exchange is actually growing. More fees will be generated from the growth of exchange activity which results in an increase of reward fees received. As shown in the screenshots, the trading volume in the exchanges saw an increase of $4.29m from May 23 to May 31 and the fees generated increased from 20k to 32k where minters would reap the benefits. The open interest shows what synthetic assets the minters are holding and what position they are taking in this volatile market - longing or shorting a certain asset. It serves as additional information that you can take into consideration when deciding which synthetic asset you want to purchase.
Synthetix has gained the spotlight recently as it climbed through the ranks on Defi Pulse and the price of SNX has greatly appreciated. As more people are getting interested in the project, I hope all the information that is compiled and provided in this guide would suffice for those who are just getting to know Synthetix.
The best way to learn about something is to try it out for yourself! And also discussing the project with like-minded individuals and the team. Hop on to Discord to join in the conversations!
Stay tuned to more in-depth guides about Synthetix and other projects in the DeFi space!
Follow me on Twitter for future updates on articles being posted on the platform! :)
I would love to hear your views of Synthetix on the comments down below! Have a safe day out there trading in this wild wild west!