Synthetix is a decentralised trading ecosystem built on Ethereum. It exposes users to different assets such as stocks, commodities, fiat currencies and even other cryptocurrencies, without having to hold the underlying asset. It does this through the creation of so-called ‘synths,’ ‘synthetic’ digital versions of the real-world assets which can be traded on the network.
SNX tokens are used as collateral for the synthetic assets that are minted. This means that whenever synths are issued, SNX tokens are locked up in a smart contract.
TLDR; Synthetix brings real world assets into the digital realm.
Understanding Synthetic assets
A synth is essentially a derivative, a financial instrument whose value is based on the performance of an underlying asset, index, or reference rate. It derives its value from the price movements of this underlying asset. Derivatives can take various forms, such as futures contracts, options, swaps, and forwards. Investors use derivatives for purposes like hedging against risks, speculating on price movements, or gaining exposure to markets without owning the underlying assets directly.
They're called derivatives because their value is derived from the value of something else, such as a stock, commodity, or currency. This means that the price of a derivative is directly related to changes in the price of the underlying asset, making them a type of financial contract derived from another asset's performance.
SNX, the native token of the Synthetix protocol, which is available to trade on Luno, is not a derivative.
How does Synthetix work?
A user can mint synthetic USD (sUSD) by locking up SNX tokens as collateral. The sUSD token tracks the value of the US dollar, allowing users to trade it on the Synthetix exchange just like any other cryptocurrency. Similarly, users can mint synths for other assets like synthetic Bitcoin (sBTC), synthetic gold (sXAU), or synthetic Apple stock (sAAPL).
Trading these synthetic assets allows users to gain exposure to various markets without owning the underlying assets directly. Synthetix also enables users to engage in derivatives trading strategies such as longing or shorting assets, hedging against price fluctuations, and accessing markets that may be difficult to access otherwise.
A crucial element for protocols like Synthetix is a network oracle. These are smart contracts built to monitor real-world asset prices and provide this data to blockchain networks. Network oracles enable synths to accurately reflect the prices of the underlying asset.
The Synthetix protocol uses Chainlink as its primary oracle network to fetch real-world asset prices and provide this data to smart contracts on the network. By integrating Chainlink’s decentralised oracle network, Synthetix ensures the reliability and security of price feeds for its synthetic assets.
What is the native cryptocurrency of Synthetix?
The native cryptocurrency of the Synthetix blockchain is called SNX (Synthetic Network Token). SNX serves multiple purposes within the Synthetix ecosystem. It’s used as collateral to back the value of synthetic assets (synths) created on the platform. Holders of SNX can stake their tokens as collateral and earn fees from trading activity on the platform.
SNX holders can also participate in the governance of the Synthetix protocol, allowing them to vote on proposed changes and upgrades to the system.
Note
On Luno, you’re simply buying, selling, sending or receiving SNX, like any of our other supported coins. The crypto assets held in your Luno wallets are not involved in Synthetix protocol functions, such as vote-locking or governance. If you’d like to participate in any of that, you can visit Synthetix’s website to learn more.
Tip
Keen to explore Synthetix a bit more? You can learn about SNX basics and get all the latest cryptocurrency news on Luno Discover.
Want to know how to buy, sell, send, or receive SNX? We’ve got answers in the following help articles:
This information is not intended to be nor does it constitute financial, tax, legal, investment or other advice; nor is it a call to trade. The information is intended as general market commentary for information purposes only. Before making any decision or taking any action regarding your finances, you should consult a qualified Financial Advisor.