Cryptocurrency is a constantly developing technology, and there are always new projects and blockchains popping up on our radar. Recently, a project called Synthetix began to rise in popularity and become one of the top 50 coins on CoinMarketCap.
But what is Synthetix? And should you invest in it? We are going to cover all the basics of this cryptocurrency in this article, so keep reading.
Synthetix is a cryptocurrency protocol built on the Ethereum blockchain that is very similar to fiat synthetics. Synthetics are an investment vehicle that allows you to invest your money in the performance of a product without actually needing to invest in that product.
Synthetix does the same, providing cryptocurrency users with a way to invest in cryptocurrencies and other assets that they don’t actually need to hold in their wallets. Synthetix is the name of the protocol which users can use to issue synthetic assets. Synthetic assets can be issued for almost any real-world asset, including properties and other stock assets.
As of the writing of this article, Synthetix can be used to issue assets that track both real-world assets and crypto assets with some restrictions. Some examples include the price of gold and silver and stock indexes. Some assets Synthetix cannot be used for include physical properties, although indexes that include these can be invested in.
Related: Ethereum 2.0 Protocol Basics Explained
Synthetix is built on a type of smart contract called decentralized oracles. These oracles are bridges to real-world information and allow them to be tracked on the blockchain. When a user sees a real-world asset they wish to invest in, the protocol will issue tokens, called Synths (abbreviated SNX), for the user to hold in exchange for the user locking up collateral in a smart contract. Then, the user can be exposed to the price changes and reap the returns of the underlying asset without needing to hold that asset—all they have to do is hold on to their Synths. Users can also use the platform to open a variety of options contracts.
It's important to note that Synths aren’t backed by the commodity themselves and that the platform does not hold any collateral on behalf of users, similar to using synthetics in fiat trading. Rather, all Synths created are backed by other Synths or other cryptocurrencies.
Once you hold Synths, because they are built on Ethereum, they can easily be moved to other platforms and traded or used to provide liquidity for transactions.
Synthetix also has its own built-in decentralized exchange and staking protocol (built on a proof of stake consensus mechanism). Those who purchase SNX can use their tokens to stake the protocol and trade their SNX for other commodities.
Although Synthetic recently gained popularity, it has actually been around since 2017 under the name Havven. The protocol was created by Kain Warwick, the Australian native who created the live auction site Pouncer.
Kain is still heading the project as far as we know and works alongside Peter McKean, Jordan Momtazi, and Justin J. Moses to improve the project on a regular basis.
Currently, as of August 2023, there are 269,231,655 SNX tokens in circulation. Unlike other cryptocurrencies, the maximum supply of SNX can change based on the tokens locked up in smart contracts. The current maximum supply of tokens is 308,069,419 SNX, but this number can change.
If you are interested in using the Synthetix protocol, you will first need to buy Ethereum, or sUSD and a wallet built to hold either of these assets. If you see Synth (SNX) tokens on an exchange, you can also just purchase them to use on the platform.
SNX are ERC-20 tokens and can be purchased on most platforms that support ERC-20 trading. Some examples include:
Of course, there may be other platforms that support SNX, so take a look at the current platform you use to see if they have SNX before deciding to open an account on another platform.
Related: Uniswap (UNI) ERC-20 DEX Overview
Just like in the fiat world, Synthetix is considered a high-risk investment. This is because, at the end of the day, all you own is a contract for a commodity and not the commodity itself. Many seasoned traders stay away from synthetics because of their volatility and high-risk factor, and unless you are knowledgeable in trading cryptocurrencies, we advise you to do the same.
This is not to say that the Synthetix platform is bad because it isn’t, in fact, it is one of the more reputable platforms we have reviewed. However, synthetics are always risky, whether they are fiat or cryptocurrency, and with cryptocurrency, they are even more risky.
Unless you have a high tolerance for risk and understand the dangers of trading synthetic assets, it is probably better to stay away from Synthetix. If you do decide to invest, ensure you invest money that you are okay with losing.
Because stablecoins are cryptocurrencies that are backed by real-world assets, many people assume that Synthetix is another stablecoin. Unfortunately, this is not true.
Synthetix, as we mentioned above, isn’t backed by any physical or monetary assets. Rather, it is backed by itself and by other cryptocurrencies locked into smart contracts. This means that it is not a stablecoin and does not share any features with stablecoins.
Overall, Synthetix is definitely useful for the cryptocurrency world, especially those invested in cryptocurrency trading. It is a well-built platform and is trusted by many users. However, it is very risky to get involved with trading synthetic assets, and we do not recommend it unless you are aware of how synthetic assets work and the risks you carry by trading them.
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