Why Synthetix Is One Of The Most Promising DeFi Projects

2021/07/05 12:00:00

Imagine if could make money from the cryptocurrency market whether prices are bullish or bearish. There are ways to achieve that but Synthetix offers one of the most interesting ones. For instance, it offers synthetic assets that have an inverse relationship to an asset on which they are pegged. If the price of an asset falls, the inverse pegged asset’s price rises. This might be extremely handy for market participants and it is just the tip of the iceberg of what Synthetix offers.

What is Synthetix?

It is a decentralized platform based on the Ethereum blockchain and it performs various functions. For example, it offers decentralized exchange services, which means users can swap or exchange digital assets without the need for a central authority or intermediaries. It leverages smart contracts to facilitate transaction execution and completion.

Although its DEX services are an interesting part of the platform, the more interesting aspect is the fact that it also issues synthetic assets called Synths, which likely explains its name. Synths are blockchain-based assets that are pegged to real-world assets such as commodities, fiat currencies and even cryptocurrencies.

Synthetix is able to track the prices of the assets to which the synths are pegged by leveraging Chainlink’s oracle. The implication is that you can take advantage of price movements in those assets within a blockchain environment with minimal platform fees and without giving out any personal information. You can buy the synthetic version of your favorite stock at a low price and sell it at a higher price. The only downside is that you will not earn dividends like investors who purchase the actual stock.

Shorting with synthetic assets

Synthetix makes it extremely easy to short asset prices through inverse synths as iBTC which rises when the price of BTC is bearish and falls when the price of BTC is bullish. It offers access to inverse synths of multiple major cryptocurrencies including BNB and ETH. Interestingly, it also offers users the opportunity to provide liquidity to the ecosystem by staking their synthetic assets, thus earning rewards.

SNX tokenomics and price action

SNX is the native token on the Synthetix platform and it provides utility to the platform through staking and collateral provision. It currently has a circulating supply of 114.8 million SNX which is expected to reach 224 million by 2024. Its current market cap is $931.7 million and is currently trading at $9.28 on Decoin after rallying by 22.13%, making it one of the top gainers in the last 24 hours.

Source- Decoin

SNX’s current price is heavily discounted compared to its peak price of $28.08 which it achieved in February 2021. Its price has been relatively bearish since then, but it looks like it might have recently found a new bottom at around $5.74 towards the end of June.

SNX might be in for another massive rally as the platform continues to gain popularity. The demand is particularly driven by the huge amount of Synth that is necessary to mint synthetic assets. Users will be required to deposit about 7.5 times the amount of collateral to the ratio of synthetic tokens that they want. The huge ratio is aimed at providing a buffer for price changes. To put it to perspective, if you want 1 synthetic DAI, you will have to deposit SNX worth 7.5 DAI.

While the mechanisms that support the platform’s operations seem complex, there are definitely some benefits to be had. However, the large staking ratio might be a turn-off for some users and so is the lack of dividends. Nevertheless, it highlights strong potential for a decentralized platform and one whose demand may allow its token to recover to previous highs and potentially beyond.

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Patrick Smith United States

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