Analysis of DEFI Product: Synthetix (SNX)

Analysis of DEFI Product: Synthetix (SNX)
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Analysis of DEFI Product: Synthetix (SNX)
1 Basic Description
1 Project/Company Description
Synthetix (SNX) is a decentralized finance (DeFi) protocol for synthetic cryptocurrency assets. The idea of synthetic crypto assets was born following the 2018 bear market, and alongside companies such as Compound, Maker, and Uniswap, among others, SNX paved the way for DeFi protocols to dominate the largest segment in the cryptocurrency world (Binance Academy, 2021). Formerly known as Havven, SNX began as a stablecoin project before it became a full-fledged protocol for synthetic assets. Backed by a massive community, many of the mechanisms pioneered for SNX are now known as the gold standard in the DeFi space. Today, the SNX protocol continues to be one of the core building blocks of DeFi on the Ethereum blockchain (Binance Academy, 2021). The community has also actively worked to launch the platform on a layer 2 (L2) scaling solution, Optimism. According to Henn (2022), Optimism exists as a discrete system connected to ETH although not part of it and will allow users to transact on a separate layer before feeding the transactions on the main blockchain. This will make things much cheaper and fast and is expected to be a key part of DeFi in the future.
2 Problem
Today, the world of commerce is largely dominated by the trading of fiat currencies, stocks, raw materials, and other assets seen in most markets and exchanges globally. Nevertheless, individuals in the cryptocurrency space have no direct way of reaching these assets, and this is enormous potential if these users could as well have a platform that represents these assets and make them available for crypto holders (Bit2me Academy, 2022). Crypto holders need a platform that represents the gold market and as well as interact with it from the platform and other exchanges supporting it. According to Kain Warwick, the founder of Synthetix, 2016 and 2017 witnessed a significant spile in the spread between crypto prices, especially in Australia, the United States, and Europe. At this moment, there was a need to build a stablecoin to arbitrage price spurts and move money around more efficiently. At the moment, only Tether (USDT) was available in the crypto community and a new protocol to help people transfer value in stable tokens was needed. From this challenge, Havven was born. Out of the problem of regulated stablecoins such as USDC, TREOS D, and Paxos in 2018, Havven promised a new way of decentralization of stablecoins. By 2018, there was no way of repricing debts and moving between different synthetic assets without slippage (Shin, 2019). Warwick thought of a way of having synthetic US dollar tokens as well as other synthetic tokens of silver, gold, and other assets.
3 Solution
With SNX, anyone has exposure to bonds, stocks, currencies, real-estates, or any assets on the smart contract of Ethereum (ETH) blockchain without the need for a central authority, “Know Your Customer (KYC)” systems, or holding the underlying assets (Lorance, 2022). This is so because Synthetix is a permissionless and decentralized derivative liquidity protocol that is built on top of the ETH blockchain. With SNX as a token, users can stake while creating tokenized synthetic assets known as “synths”, the on-chain tokens capable of tracking the values of assets in the real-world (Henn, 2022). With these possibilities, Rahman et al (2022) note that Synthetix aims to resolve the issues of slippage and liquidity common among traders on both centralized exchanges (CEXs) and decentralized exchanges (DEXs). The platform achieves this by pooling together all the synths borrowed from the protocol into one debt pool. Besides, users can also speculate on any form of real assets by creating synthetic assets with the ability to track prices in real-time. Another solution that SNX seeks to resolve is related to transaction costs and speed, which is enhanced by the L2 scaling solution, Optimism.
4 Team and GitHub Repository
The team behind Synthetix includes Kain Warwick, who founded the company Havven that later rebranded to Synthetix. Warwick is also a co-founder at Blueshyft, one of the largest cryptocurrency payment platforms in Australia that covers tens of millions of transactions, mostly in Bitcoin (Forbes, 2022). Justin Moses is the project’s CTO, and before joining Synthetix, he worked for 8 years as the Head of Engineering at several companies such as MongoDB, one of the leading cross-platform database systems. The board of advisors at Synthetix includes Walter De Brouwer, the CEO at Doc.Ai, Renqi Shen, the Managing Partner at Blockasset, Mathew Di Ferrante, founder of ZK Labs, and several other experienced individuals with successful projects (Forbes, 2022). Jordan Momtazi is also one of the lead members of the team and he is the VP-Partnership at Synthetix. Others include Garth Travers, the Communications Manager (Manager Operations), David Goldberg, Tech Lead, (Engineering), Jeremy Chiaramonte, Core Contributor, and Mark Barrasso, the Senior Solidity Engineer (Operations) (Crunchbase, 2022). Initially governed by a non-profit foundation, the company’s structure was later dissolved in June 2020 and replaced by three decentralized autonomous organizations (DAOs) (Kraken, 2022). Today, these DAOs serve as mechanisms by which SNX holders can vote on developments to the protocol or make decisions about its future outlook. The project’s GitHub codebase repo can be accessed using the following link: https://github.com/orgs/Synthetixio/repositories
2 Technology
5 Problem and Operation
Synthetix aims to solve the problem of traditional centralization and volatility of crypto assets by combining the advantages of a decentralized mechanism with the stability of conventional financial assets (Forbes, 2022). In achieving these goals, the project has implemented a dual token solution consisting of a stabilized ETH-based utility token, SNX as well as Noin, a reserve token that backs it. Nomin has been pegged to 1 USD and it is the primary token for performing transactions on the platform (Forbes, 2022). SNX tokens are used in collateralizing and stabilizing the system as the holders earn benefits from the transaction fees. The more contributions users make towards the stability of the Nomin token, the higher the rewards. Holders of SNX tokens lock their assets in an escrow account to issue Nomins since the total value of SNX is always higher compared to Nomins in circulation. Usually, the collateral ratio of Nomins to SNS is 1:5, and this ensures that Nomins can always be redeemed for their face value regardless of the drop in SNX price (Forbes, 2022). Volatility in the market in the underlying financial concept and serious pain points that Synthetix aims to address
6 Interoperability
Synthetix lives on the ETH blockchain, but in August 2018, there were plans to switch to EOS to overcome the challenge of scalability often common to all projects on the ETH platform. Nevertheless, after spending several months tinkering on the issue, the team at Synthetix decided that the migration would be costly and gave up on the idea. Today, Synthetix remains on the ETH blockchain and users can store t...