What is Synthetix?

Are you looking for an innovative way to trade traditional assets like gold or stocks without the limitations of centralized systems? Then let me introduce you to Synthetix! This decentralized platform leverages the power of the Ethereum blockchain to create synthetic assets, or "synths," that represent a range of assets, including cryptocurrencies, fiat currencies, commodities, and more.

Synthetix started out in 2017 under the name Havven. The project was initially focused on creating a stablecoin that was backed by a basket of cryptocurrencies, but later pivoted to a new vision of creating a platform for synthetic assets. 

The Synthetix protocol officially launched in February 2019, and has since became one of the most valuable protocols in DeFi, with its platform enabling billions of dollars in trading volume. 

Synthetix eliminates the need for intermediaries, allowing anyone to create, trade, and hold synths with ease – the only requirement is to stake SNX tokens as collateral. To give a bit more info, Synthetix assets are collateralized by stakers via the SNX token, which when locked in a staking contract.

This pooled collateral model allows users to perform conversions between synths directly with the smart contract, avoiding the need for counter-parties or KYC checks. In other words, users issue synths via a smart contract rather than trading with other users. This means that there is always liquidity available for trading, regardless of the level of demand for a particular asset at any given time, resulting in a correct price.

The primary use case for the SNX token is to serve as collateral for issuing synths. It also serves as the governance token for the Synthetix DAO. Governance participants need to have skin in the game, in the sense that their SNX tokens have to be staked in order to gain voting rights. 

The Synthetix Protocol has several governing bodies and artifacts which co-exist to enable the decentralized nature of the protocol. These governing bodies are the - Spartan Council, Treasury Council, Ambassador Council, and Grants Council. All of the councils are elected by Synthetix Stakers.

How does Synthetix work?

Synthetix is a protocol that enables the issuance of synthetic assets (synths) on the Ethereum blockchain. 

Synths use decentralized oracles, which are smart contract-based price discovery protocols, to track the prices of the assets represented, allowing you to hold and exchange Synths as if you actually own the underlying assets. In this manner, Synths provide exposure to assets that are normally inaccessible to the average crypto investor — gold and silver, for example — and lets you trade them quickly and efficiently.

Synths are different from tokenized commodities, such as Paxos’ PAX Gold (PAXG), which is backed by gold bars. Owning PAXG means that you own the underlying gold and that Paxos holds it for you, whereas owning Synthetix’s sXAU means that you do not own the underlying asset — you merely have exposure to the price of gold.

Because Synths are issued on Ethereum, you can deposit them on other DeFi platforms such as Curve and Uniswap and use them to provide liquidity and earn interest. Synthetics and derivatives are important for building mature markets — i.e., markets that have reached equilibrium — by facilitating price discovery and helping to hedge against volatility.

SNX Token

On Synthetix, all Synths created by staking SNX tokens are backed by a 600% collateralization ratio, which is determined through community governance. Stakers must manage their ratio manually on Mintr by minting sUSD if it is too high, and burning sUSD if it is too low.

When you stake SNX and mint sUSD, you take on debt reflecting the amount of sUSD that must be burned to un-stake your SNX. This debt, which also represents a proportion of all the debt on Synthetix, is denominated in sUSD and increases and decreases in accordance with the supply of Synths and their exchange rates. For example, if half of Synthetix’s Synths were synthetic ether (sETH) and the price of ether doubled, then the total debt and each staker’s debt would rise by one quarter.

How to make money on Synthetix?

Synthetix lets traders capitalized on exposure to assets without having to own the underlying assets. 

Let's say that a trader wants to invest in the price of gold, but they don't want to actually own physical gold or invest in a gold-backed ETF. Using Synthetix, the trader can instead buy a synthetic asset called "sXAU" which tracks the price of gold.

The trader can purchase sXAU using SNX tokens as collateral. The value of sXAU will increase or decrease based on the movement of the price of gold. If the price of gold goes up, the value of sXAU will also go up, and the trader can sell their sXAU to realize a profit. If the price of gold goes down, the value of sXAU will also go down, and the trader can sell their sXAU to limit their losses.

In this way, the trader can gain exposure to the price of gold without having to physically own the asset. They can also trade sXAU on the Synthetix platform at any time, without having to worry about liquidity or slippage issues, as the protocol uses a pooled model to ensure that trades can always be executed at the correct price.

Price Prediction for SNX: Can it hit $1000?

Buying and hodling SNX — the native token of Synthetix— is one way of potentially making money on Synthetix.

By looking at its current price, it’s natural to think about the chance of SNX hitting $1000 per token. This can happen sooner, or way in the future, and is determined by a couple of ever changing factors.

Let’s examine the potential growth of the SNX token by analyzing its tokenomics. SNX’s current market cap sits comfortably at ${MARKET_CAP}. With {CIRCULATING_SUPPLY} SNX tokens being in circulation today, that means a price of {PRICE} per SNX.

How did we come to that calculation? It’s quite easy, the price of a SNX token is equal to its current market cap divided by the number of tokens in circulation. Dividing ${MARKET_CAP} by {CIRCULATING_SUPPLY} gives us a result of {PRICE} for each SNX coin. 

By changing the order in the simple formula above we can use it to calculate other things as well. This helps us a lot because we can deduce the market cap of SNX at different token prices. Then, we can use the result to compare it to the current state of the network and see what would be required for SNX to hit that price.

At a price of $1000 per token, that means the current market cap of SNX would equal ${{CIRCULATING_SUPPLY} * 1000}. Remember that we arrived at this number by multiplying the amount of circulating tokens by $1000.

Now let’s shift our attention to the fully diluted market cap.

Some blockchains may have their tokenomics built in a way that only a small percentage of tokens are circulating at the beginning. This can be misleading because we don’t have the full picture and only take into account the current number of coins released in the market.

The fully diluted market cap represents the total value of a coin if all tokens were in circulation. SNX’s whole supply of tokens is {MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY} SNX which means that no more coins above that number will ever be created.

These tokens are not created at the discretion of a specific entity. They are created automatically by the network to reward different actors that keep it secure.

How does this impact the price of SNX? Taking into account the current price of a SNX token, that would result in a fully diluted market cap of ${MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY * PRICE}. SNX coins that have been burned are not taken into consideration because they have been permanently removed from circulation.

Whether it seems gigantic or not, the number we came to above only takes into account the current price of a SNX token. Doing the same calculation but with a price of $1000 gives us a result of ${{MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY} * 1000} for the SNX protocol fully diluted market cap.

These are all crucial details to know when calculating if SNX can reach the price of $1000 per token. If the diluted market capitalization is way too high, the token has little room left to grow. Blockchains in general have no cap on the value they can reach, whether that number seems possible it’s totally up to you.

The future of SNX depends solely on its growth as a network used by tens and hundreds of millions of users.

If you’re looking to add some SNX to your portfolio, the most trusted places to get some are Binance and Coinbase.