What Is It?

Synthetix is a protocol for issuing and trading synthetic assets on Ethereum and Optimism.

About Synthetix

Synthetix is a Decentralised Finance (DeFi) protocol that allows for the trading of any asset that has price movements in the form of synthetic assets (Synths). This would include not just cryptocurrencies, but also commodities, fiat currencies and more. Synthetix is hence an infrastructure that allows for the production of Synths as well as the provider of incentives to maintain Synth prices. Synths are ERC-20 tokens that track the prices of external assets.


Synthetix was launched in September 2017, originally named Havven. It was rebranded to Synthetix a year later. The founder, Kain Warwick, has experience in previous cryptocurrency projects. Synthetix currently has over US$214M in total value locked (TVL) as of 13 October 2022. With the integration of Optimism, there are now more products being built using Synths from Synthetix which we will now dive into.

Products

Built on Synthetix

There are currently 3 notable product offerings leveraging the innovations of Synthetix.

Kwenta Perpetual Futures

Kwenta is a decentralized derivatives trading platform, live on Optimism, offering real-world and on-chain synthetic assets using the power of the Synthetix protocol.

Kwenta has two products it offers; Swaps and Futures (up to 25x leverage). Although Futures will be the flagship offering of Kwenta. Kwenta will support easy swaps of Synthetic assets similar to the likes of 1inch and Uniswap.

Lyra Options

What is Lyra?

Lyra is an options automated market maker (AMM) that allows traders to buy and sell options on cryptocurrencies against a pool of liquidity. The Lyra protocol has two key user groups, liquidity providers and options traders.

Liquidity providers (LPs) deposit sUSD (a stablecoin) into one of the asset-specific Lyra Market Maker Vaults (MMVs). This liquidity is used to make two-sided (buy and sell) options markets for the asset that the vault specifies (e.g. ETH Market Maker Vault LPs quote options on ETH). LPs deposit liquidity to the vault to earn the fees paid when options are traded.

Traders use Lyra to trade options. They can either buy options from or sell options to the MMV. Traders pay fees (in the form of the market-making spread) to LPs, as compensation for their liquidity.

Get started by learning about how Lyra’s AMM prices options here. Lyra uses the Synthetix Protocol in three different ways:

  • As a settlement currency
  • As collateral for calls
  • For delta hedging

Polynomial Vaults

Polynomial automates financial derivative strategies to create products that deliver passive yield on various assets. Polynomial Earn is the first DeFi Options Vault (DOV) that executes completely on-chain by selling options directly to an AMM.

Polynomial vaults sell the newly minted options to Lyra AMM in batches to collect yield.

Through the use of a weekly automated covered call strategy, the vault generates a return on its deposits. In order to effectively compound the returns for depositors over time, the vault reinvests the yield gained back into the strategy. Vaults only accept synthetic assets (sUSD for put/call-selling vaults, sUSD for Gamma vault, and sETH for call selling ETH vault).

Please note that the vaults only accept deposits with Synthetic Assets. Synths are created by Synthetix Protocol. Synths are derivative tokens providing exposure to a range of assets. They can be traded with infinite liquidity and zero slippage by leveraging the Synthetix protocol’s unique pooled collateral model.

Association with Synthetix

There are many additional protocols that have spun out of Synthetix ideas, or have very close relationships with Synthetix. The protocols below do not utilize Synth exchanging, but they do have a very close relationship with Synthetix.

Thales

Thales is a decentralized protocol that allows users to take part in peer-to-peer Parimutuel Markets on Optimism and Polygon.

The simple but powerful smart contracts at the foundation of Thales Market allow you to participate in markets for different crypto assets. Traders can take part in custom markets and speculate on real-world events (like timing “The flippening”) in an uncensorable and fully permissionless way using the Exotic Markets platform.

They have many other product offerings, such as Overtime Markets and Exotic Markets. The main form of collateral used on Thales is sUSD.

dHedge

dHEDGE is a platform for managing investment activities on the Ethereum blockchain where you can put your capital to work in different strategies based on a transparent track record. On dHEDGE, managers can trade synthetic crypto, forex, commodities, and even equities – both long and short.

dHEDGE leverages the Synthetix protocol and their zero-slippage model. They have risk-adjusted ranking of managers which makes it easy for investors to find good managers. As with most DeFi protocols, dHEDGE is non-custodial in nature, meaning that investors remain in control at all time and choose to enter or exit a pool at any time.

Toros Finance

Toros Finance is a dHEDGE incubated protocol integrating Aave and 1inch. Toros Finance aims to simplify access to complex derivative strategies, safely, via offering these strategies through a single token. Toros Finance offers a suite of on-chain tokenized derivatives products. Currently Toros is deployed on Polygon and Optimism.

Toros recently launched the Synthetix Debt Hedge token on Optimism, which is a strategy that mirrors the composition of the Synthetix Debt Pool – enabling users to hedge their Active Debt exposure with low risk.

Aelin

Aelin is a permissionless multi-chain protocol for capital raises and OTC (over the counter) deals. It allows anyone to raise capital for their project or an OTC deal to seek out investors. It also leverages the established decentralized governance framework of Synthetix.

A user can create a pool and invite potential investors to deposit funds. The pool creator (called a sponsor), then arranges a deal and users can choose to accept or decline the deal. It is also possible to gate pools using non-fungible tokens (NFTs) or make private pools.

Tokenomics

SNX is the utility token of Synthetix, mainly used for governance, collateralization of Synths and reward distribution (more details under Products section).

At the time of writing, the token has a circulating supply of 239M and a total supply of 300M. The total supply, however, is not fixed as inflationary economics were introduced to SNX in March 2019. The inflation rate of SNX was meant to be reduced by 1.25% each week from 11 December 2019 up till September 6 2023 where annual inflation rate will only be 2.5%. 

As of February 2022, the Synthetix inflationary system is derived from a target staking ratio. This change introduces a target ratio for staking of 85%. It then adjusts the inflation weekly up or down by 10% depending on whether the staking ratio is below or above the target ratio to incentivize stakers to hit this target. If staking ratio is 70% for example, inflation will be increased by 10%. If it is between 80-90%, then inflation is decreased by 5%.

Appendix

  1. Synthetix Website: https://synthetix.io/ 
  2. Synthetix Docs: https://docs.synthetix.io/ 
  3. Synthetix Token Distribution: https://messari.io/asset/synthetix/profile/launch-and-initial-token-distribution 
  4. Synthetix Price and Supply: https://www.coingecko.com/en/coins/synthetix-network-token 
  5. Synthetix Stats: ​​https://grafana.synthetix.io/d/pjPJZ6x7z/synthetix-system-stats?orgId=1 
  6. Kwenta Website: https://kwenta.io/ 
  7. Lyra Website: https://www.lyra.finance/ 
  8. Thales Website: https://thalesmarket.io/ 
  9. dHEDGE Website: https://www.dhedge.org/ 
  10. Toros Finance Website: https://toros.finance/ 
  11. Synthetix ETH Address: 0xc011a73ee8576fb46f5e1c5751ca3b9fe0af2a6f

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