Synthetix is a protocol for synthesizing assets (called Synths) on Ethereum. Synthetix consists of two parts: Synths and its exchange Synthetix.Exchange. On Synthetix, users can issue and trade synthetic assets.
Derivatives are a type of contract whose value comes from other benchmark assets such as stocks, commodities, currencies, indices, bonds or interest rates. Futures, options and swaps are several common derivatives. The purpose of each derivative is different, and the trading purpose of investors is also different.
Reasons for investors to trade derivatives include: hedge against the volatility of the underlying asset, speculate on the directional movement of the underlying asset, or increase asset holdings. Derivatives are inherently risky, and you must have a wealth of financial knowledge and strategies when trading.
More blockchain technology and application classification:
Blockchain applicationBlockchain development
Ethernet Square | Fabric | BCOS | cryptography | consensus algorithm | bitcoin | Other chain
Token Economy | Traditional Financial Scenarios | Decentralized Finance | Anti-counterfeiting Traceability | Data Sharing | Trusted Deposit
Decentralized finance:
- A preliminary exploration of MakerDAO
- Introduction to Decentralized Lending Compound Project
- Synthetix, a decentralized derivatives protocol
- Decentralized fund management TokenSets
- Decentralized Lottery PoolTogether
- Decentralized payment and Sablier
- Uniswap of Decentralized Exchange (DEX)
- DYdX of Decentralized Exchange (DEX)
- Decentralized Insurance Nexus Mutual
1. Concept
As the name suggests, Synthetix is a protocol for synthetic assets (called Synths) on Ethereum. Synthetix consists of two parts: Synths and its exchange Synthetix.Exchange. On Synthetix, users can issue and trade synthetic assets.
2. What is Synths?
A synthetic asset is an asset or a mixture of assets that has the same value or function as another asset. Synthetic assets track changes in the value of the underlying assets and allow exposure to assets without the need to hold actual assets.
There are currently two different types of synthetic assets-synthetic assets and reverse synthetic assets. Synthetic assets are positively correlated with benchmark assets, while reverse synthetic assets are negatively correlated with benchmark assets.
- Synthetic gold (sXAU) is a type of synthetic asset that tracks the price performance of gold. Synthetix uses the Chainlink service to track the price of real-world assets. Chainlink's smart contract oracle obtains price information from multiple trusted third-party sources to prevent data tampering.
- An example of a reverse synthetic asset is reverse bitcoin (iBTC), which tracks the reverse price performance of bitcoin. Every reverse synthetic asset has 3 key data-entry price, lower limit and upper limit.
Take the reverse synthetic asset iBTC as an example. Suppose that at the time of creation, the price of Bitcoin (BTC) was $10,600-the entry price. If Bitcoin drops by US$400 to US$10,200, then the value of iBTC's reverse synthetic asset will increase by US$400, at a price of US$11,000. vice versa. If Bitcoin rises to $11,000, the value of iBTC's reverse synthetic asset will become $10,200, as shown below.
BTC 10600 ↓400 10200 BTC 10600 ↑400 11000
iBTC 10600 ↑400 11000 iBTC 10600 ↓400 10200
The trading range of reverse synthetic assets is 50% of the upper and lower limits of the entry price. This will limit the user's maximum profit and loss on reverse synthetic assets. Once any limit is reached, the exchange rate of the token will be frozen and the position will be liquidated. Once freezing and liquidation occur, these reverse synthetic assets can only be exchanged at Synthetix.Exchange at a fixed value. Then they reset the upper and lower limits.
3. Why choose synthetic assets?
As mentioned above, synthetic assets allow traders to make price exposures to the asset without actually holding the underlying asset. Compared with traditional gold brokers, synthetic gold (sXAU) allows traders to enter the market with a lower threshold (no registration, no travel, no middleman, etc.). Synthetic assets have another purpose-they can be freely traded with each other, which means that synthetic gold can be easily converted into synthetic yen, synthetic silver or synthetic bitcoin on Synthetix.Exchange. This also means that anyone with an Ethereum wallet can now buy any real-world asset.
4. How are synthetic assets generated?
The logic behind creating synthetic assets is similar to that of issuing DAI on Maker. First, you need to mortgage Synthetix Network Token (SNX), the collateral to support the entire system. Compared with ETH, SNX has less liquidity and its price usually fluctuates more. To solve this problem, the minimum initial collateral required by Synthetic is at least 750% compared to the minimum 150% initial collateral required by Maker. This means that to issue 100 USD worth of synthetic USD (sUSD), you will need at least USD 750 worth of SNX as collateral.
The issuance of synthetic assets is a fairly complex system. This requires the mortgager to assume the debt, and the debt level will dynamically change according to the total value of the synthetic assets in the global debt pool, which causes the debt owed by the mortgager to fluctuate as the value changes.
For example, if 100% of the synthetic assets in the system are synthetic ether (sETH) and the price doubles, then the debt of all owners will also double, including the mortgager’s own debt. If you want to trade synthetic assets, but don't want to assume debts or issue synthetic assets yourself, you can buy them in the sETH Uniswap pool. The sETH pool on Uniswap is currently the largest pool of funds on Uniswap, with a liquidity of more than 35,000 ETH (approximately US$80 million, calculated at a price of US$200 per ETH).
V. Supporting asset classes
- Digital currencies: Ethereum (ETH), Bitcoin (BTC), Binance Coin (BNB), Tezos (XTZ), Maker (MKR), Tron Coin (TRX), Litecoin (LTC) and Chainlink (LINK)
- Commodities: Gold (XAU) and Silver (XAG)
- Legal tender: U.S. dollar, Australian dollar, Swiss franc, Japanese yen, Euro and British pound
- Index: CEX index and DEFI index
6. Index synthetic assets
Index synthetic assets enable traders to own a basket of certificates without having to purchase all the certificates. The index will reflect the overall performance of the benchmark token. Index synthetic assets allow risk exposure to specific areas of the industry and diversify, without the need to actually hold and manage various tokens.
sCEX
sCEX is an index synthetic asset that aims to give traders access to a basket of centralized exchange (CEX) tokens, roughly close to its weighted market value. The current sCEX index includes Binance Coin (BNB), Bitfinex's LEO Token (LEO), Huobi Points (HT), OKEx Points (OKB) and KuCoin Token (KCS). There is also a reverse synthetic asset called iCEX, which is opposite to the sCEX index synthetic asset and has the same operating principle as other reverse synthetic assets.
sDEFI
With the increasing attention to DeFi, sDEFI index synthetic assets have emerged to provide traders with index exposure to a basket of DeFi application tokens in the ecosystem. The current sDEFI index is composed of the following tokens: Chainlink (LINK), Maker (MKR), 0x (ZRX), Synthetix Network Token (SNX), REN (REN), Loopring (LRC), Kyber Network (KNC), Bancor Network Token (BNT) and Melon (MLN).
The index reverse synthetic asset is called iDEFI.
7. Synthetix Exchange
Synthetix Exchange is a decentralized trading platform dedicated to the trading of SNX and synthetic assets without the order book technology used by most decentralized exchanges. In other words, Synthetix Exchange does not rely on users to provide liquidity peer-to-peer systems (such as Uniswap and dYdX), but allows users to directly trade with contracts that remain constant and have sufficient liquidity, thus theoretically reducing price fluctuations and The risk of lack of liquidity.
Since the user purchases the contract of the synthetic asset, rather than the transaction counterparty asset, the user can purchase all the collateral in the system without any influence on the contract price. For example, a BTC buy/sell order worth 10 million US dollars may cause the price of traditional exchanges to fall sharply, but it will not cause the price of Synthetix exchange to jump because users directly trade with Synthetix contracts.
Starting in 2020, a series of new trading functions will be launched successively, including support for new assets such as synthetic indexes and stocks, leveraged trading, binary options, synthetic futures, and trigger orders.
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Original link: Synthetix, a decentralized derivatives protocol