Synthetix Network Token

Synthetix is a decentralized protocol built on Ethereum and Optimistic Ethereum. It serves as a synthetic assets (synths) issuance platform against SNX collateral. Synths are derivative tokens providing exposure to a range of assets. They can be traded with infinite liquidity and zero slippage. Synthetix allows it thanks to the protocol’s unique pooled collateral model. This model solves the liquidity and slippage issues some DEX's experience. Any trade on the platform generates a small fee, which gets distributed as a reward to SNX liquidity providers.

Synths provide exposure to a digital asset without holding the underlying resource. This comes with several advantages. Reducing friction when switching between assets, expanding accessibility, and improving censorship resistance, to list a few. Trading on Synthetix as opposed to decentralized exchanges also comes with advantages. Due to the lack of an order book, all trades are executed against the contract in the form of peer-to-contract trading. Permissionless on-chain trading is also a major advantage. As are the previously mentioned infinite liquidity and zero slippage.

Synths are backed by the Synthetix Network Token (SNX). It is staked as collateral at a ratio of 400%. When a user decides to mint synths, a Synthetix smart contract runs the following steps. It checks if the SNX staker can mint their synths against their SNX collateral. Debt shares are issued to the staker to track their issued debt amount when minting or burning synths. When the staker receives their debt shares, they are issued the correct amount of synths. When the price of SNX increases, an equivalent portion of a staker’s SNX gets unlocked as collateral. This effectively means they can convert more SNX into synths.

Synthetix also supports an additional form of collateral in Ether (ETH). This allows ETH holders to instantly start participating in synth trading. Staking ETH requires a collateralization ratio of 150% and creates a debt denominated in ETH. ETH stakers do not participate in the pooled debt feature of the system. They also don't receive fees or rewards as they take no risk for the debt pool.