The Bankless Guide to Synthetix

Synthetix is a decentralized finance (DeFi) protocol that provides the infrastructure for derivatives trading in the cryptoeconomy. It allows users to mint, trade, and manage synthetic assets, which are “onchain” representations of real-world assets like currencies, commodities, stocks, and indices.

What is Synthetix

Synthetix facilitates the creation of synthetic assets, or Synths, which are tokens that track and provide the returns of another asset without requiring the holder to own that asset. For example, synthetic USD (sUSD) is designed to track the value of the US dollar.

The Synthetix Protocol itself is powered by the Synthetix Network Token (SNX), which is a governance token and is used as collateral to mint Synths. To account for price fluctuations, creating Synths requires over-collateralization, meaning the value of staked SNX must be higher than the value of minted Synths. Users also earn a cut of transaction fees generated by the protocol and SNX rewards for staking.

With a Synth like sUSD in hand, you can begin exploring the DeFi app ecosystem that has blossomed on top of Synthetix in recent years. Apps here include Kwenta (DeFi exchange for crypto, commodities, and forex), Lyra (a decentralized options protocol), and Thales (parimutuel markets).

As for where Synthetix stands today, the protocol has brought in over $3.6 million USD worth of protocol fees over the last month and currently enjoys over $386 million in total value locked (TVL), making it the 26th-largest app in DeFi at the time of this guide’s most recent update.

How to use Synthetix

On Synthetix you can mint sUSD by staking SNX, and over time you can claim rewards thanks to staking. The basics of these processes are as follows:

• 🔴 Go to staking.synthetix.io/, connect your wallet, and switch over to the Optimism network
• 🪙 Press “Start Staking” and then enter the amount of SNX you’d like to stake and the amount of sUSD you’d like to mint
• 🆗 Confirm the staking transaction to continue
• 🙌 As your rewards stream in, you can claim them from the same dashboard you started staking from by pressing the “Claim your rewards” button
• ✅ Be sure to maintain your collateralization ratio (C-ratio) as you pay off your debt over time in order to avoid liquidation

Risks of Synthetix

As with any decentralized finance (DeFi) protocol, using Synthetix comes with its own set of risks. Here are some of the main ones you may encounter:

• 💻 Smart contract risk: Synthetix's operations are based on smart contracts. Despite rigorous testing and audits, there's always a risk that these smart contracts could have undiscovered bugs or vulnerabilities that could be exploited, leading to loss of funds.
• 🔮 Oracle risk: Synthetix relies on decentralized oracles to provide accurate price feeds for the assets it tracks. If an oracle provides incorrect information, or if an oracle is manipulated, it could impact the value of Synths and potentially lead to losses.
• 🌊 Liquidation risk: If the value of your staked SNX falls and your C-Ratio drops below the required threshold, your staked SNX could be at risk of liquidation. This means your SNX could be sold off to repay the debt.

Additional Synthetix resources

To learn more about cbETH, consider exploring the following resources:

1. 📚 Synthetix docs
2. 🏛 Synthetix governance hub
3. 🦙 DefiLlama Synthetix dashboard

Zooming out

Synthetix is an innovative protocol in the DeFi space, offering users a way to gain exposure to a range of assets, from crypto to commodities, without the need to own them directly. And while Synthetix may be one of the oldest DeFi apps, it’s still advancing. Recently, the protocol’s team has been working on a major upgrade known as Synthetix V3. Currently in its alpha stage, Synthetix V3 will enhance the scalability and efficiency of the protocol and introduce new features like batched transactions.