What is Synthetix Crypto? Synthetix Staking?

Looking for what Synthetix crypto is? Get to know more about Synthetix staking? Keep reading.

In this short article we’ll answer the question; “What is Synthetix crypto?” as well as explain how Synthetix staking works.

*This article includes affiliate links to Binance.com

What is the Synthetix Network Token?

In short:

• Synthetix is a token trading platform built on Ethereum.
• It allows to creation of real world assets, like stocks and shares to be bought and traded using crypto.
• Synthetix started out as a stablecoin, before pivoting to DeFi.

The trading of stocks, currencies, commodities, and other assets are still dominated by the likes of Wall Street, London, Hong Kong, and other traditional financial centers. Synthetix wants to bring that toolkit over into the decentralized, global, permission-less, and 24/7 world of crypto.

Read on to discover how a crucial pivot in tokenomics turned Synthetix into one of the hottest DeFi products available.

What is Synthetix Crypto?

Synthetix allows users to bet on crypto assets, stocks, currencies, precious metals, and other assets in the form of ERC20 tokens. Synthetic assets or “Synths” copy the price of an asset in the “real world” and brings it onto the Ethereum blockchain giving that Synth all the properties of an ERC20 token.

Holding a Synth is not the same as holding an asset. For example, a synthetic MKR token is the same price as a “real” MKR token, but without the voting rights an actual MKR token holder would have. This system allows users to bet on the price of an asset without holding the actual asset.

Sort of like certificates in the world of stocks.

Synthetix Technology?

Synthetix is a decentralized trading platform for synthetic assets that looks to alleviate liquidity and slippage issues of DEX’s through a pooled collateral mechanism that enables users to convert from one synthetic asset (Synth) to another directly with the contract. Synthetix currently supports assets that track the price of fiat currencies, cryptocurrencies and commodities.

Asset Creation Anyone can create Synths by specifying the asset they wish to create and depositing SNX into the Synthetix smart contract so that the collateralization ratio (C-ratio) is greater than 750%. This debt created is added to a Debt Register in the amount of the new Synth minted and stored in XDR’s (Synthetix Drawing Rights), which uses a basket of currencies to stabilize the value of the debt. This functions similarly to the IMF’s special drawing right (SDR) and brings currency prices in through an on-chain oracle. The newly created Synths are added to the stakers wallet and must be paid back in order to receive the SNX tokens from the Synthetix smart contract.

SNX holders are incentivized to stake their tokens and mint Synths in several ways. Firstly, there are staking rewards where they are compensated through protocol level inflation. From March 2019 to March 2024, the total SNX supply will increase from 100,000,000 to 245,312,500, with an annual halvening. These SNX tokens are distributed to SNX stakers on a pro-rata basis provided their C-ratio does not fall below the optimal threshold. If the C-ratio falls below the threshold, they will need to burn Synths to restore an adequate ratio.

Asset Exchange The second means is through Synth exchange rewards. These are generated whenever someone exchanges one Synth to another (i.e. on Synthetix.Exchange). This is done by burning the original asset and paying a 0.30% trading fee that is sent to a fee pool, available for SNX stakers to claim their proportion each week. In the same way Dai represents $1 of debt in the MakerDAO system, synthetic USD (sUSD) represents $1 of debt in Synthetix. If you wish to exchange it, what you are doing is repricing the debt owed where instead of $1 of USD you are saying you would rather pay back $1 of BTC, for example. This creates synthetic bitcoin (sBTC) and now gives you long exposure to the price of bitcoin.

Synthetix (SNX) Staking & Rewards?

Staking is the process that converts the SNX token into pooled collateral for the network. When an investor stakes their tokens, they’re “minting” sUSD to be used to trade for synthetic assets, whether by the staker or another investor. The staker can trade the sUSD for a synthetic asset on Synthetix Exchange or exchange it for ETH or another ERC20 token on a variety of exchanges.

Why stake Synthetix (SNX)?

Stakers earn weekly rewards for collateralizing the network. Without staking, an SNX investor can only profit from an increase in the price of the token. As of February 2020, about 80% of SNX tokens are staked. Synthetix has a dashboard with up-to-date stats on the network, including the percentage of staked tokens.

Cons of Synthetix Staking

• SNX staking rewards (not sUSD fees) have an escrow period of one year before they can be vested. This just means that they are locked and can’t be transferred during that time.
• However, you can stake your escrowed SNX staking rewards, allowing you to mint more sUSD and increase your yield.
• Some stakers have complained about having to manage their C-Ratio and/or claim rewards so regularly, particularly when gas costs are high, but this is important because the supply of Synths needs to be managed closely. The total system C-Ratio must be kept near the target to ensure people maintain confidence that Synths are comfortably collateralised.
• You receive two kinds of rewards for staking SNX: sUSD fees generated on Synthetix.Exchange, and SNX inflationary rewards. These rewards must be manually claimed in the one transaction each fee period (i.e. once a week) or they will be returned to the pool and redistributed to other stakers.