Synthetix started as a stablecoin project called Havven, before doing a major pivot during the crypto bear market to become a protocol for synthetic assets. The community behind Synthetix pioneered many of the mechanisms that are now considered to be a standard in the DeFi landscape.
Continuing to be one of the core building blocks of DeFi on Ethereum, and with an impending launch on a layer 2 scaling solution, Synthetix will likely remain a key part of DeFi for the foreseeable future.
What is Synthetix?
Synthetix is a synthetic asset protocol that allows for the issuance of synthetic assets on Ethereum. You could think of a synthetic asset as a kind of derivative product. It gives you a way to get exposure to an asset without having to own it.
The idea is that by using Synthetix, traders can get exposure to certain assets that don’t exist on-chain. Synthetix also allows for the creation of indexes like the DeFi index, which tracks the price of a basket of multiple DeFi assets.
How does Synthetix work?
Synths are different. They track the price of assets through a complex mechanism of smart contracts. Owning sXAU doesn’t mean that you own any underlying gold. It just means you have exposure to the price of gold.
Synthetix Network Token (SNX)
Synths are created by users staking collateral (SNX) and minting a synthetic asset against it. In other words, each Synth is essentially debt against the posted collateral.
Stakers must manually manage this ratio by minting and burning Synths (debt) or adding more collateral to ensure they can continue to earn staking rewards.
Infinite liquidity and no slippage
In essence, when you make a trade on Synthetix, you don’t trade against an individual or market maker. Instead, you repay part of your debt from the debt pool and borrow the same amount of debt in another Synth.
Synthetix & Optimism
Synthetix is a synthetic asset protocol on Ethereum. Synths track the price of an underlying asset without users actually having to own the asset itself. Synthetix is one of the oldest DeFi projects out there that has a decentralized governance structure through the SynthetixDAO. Although not the easiest project to understand, Synthetix may experience increased adoption as it gets deployed on Optimism’s rollup implementation.