Hey folks, welcome to my 4th installment in my series of articles that looks into different altcoins that I’m keeping tabs on — altcoins that I think have not only some major upsides going into the bull market, but that also seem to have been a relatively safer hold while we’re waiting on this bear market to end.
Today I’m going to be doing a bit of a deep dive on the Synthetix token ($SNX) and why I’m pretty bullish on the Synthetix ecosystem as a whole, and why we’ve already seen $SNX have an already nice run-up so far in 2023:
Despite a potential buying-the-rumor-sell-the-news type of event, I think that $SNX’s #realyield is only just beginning because have yet to reflect what utilization might be in the future:
As I’ll break down in this article, I’ll go into each of these moving parts that are being built out in the Synthetix ecosystem why it’s such a big deal.
But before I go into all that, first let me first break down the basics of the Synthetix protocol and how it works.
What is Synthetix?
At the heart of Synthetix is a borrowing platform that allows users to put up $SNX tokens as collateral (locked for a minimum of 7 days) in order to mint/borrow their stablecoin $sUSD:
As you can see in the graphic above, there are a few things of note that are worth mentioning:
: Unlike many other protocols such as Liquity, the collateral ratio (otherwise known as the c-ratio) is at the moment at 400%, meaning that the ratio of your collateral to amount borrowed is approximately 4:1. Your C-Ratio will change if the value of your $SNX fluctuates in price. (To note, the c-ratio is subject to change depending on whether or not a proposal/resolution to do so is passed by the Spartan Council — the elected governing body of the the Synthetix protocol. )
Liquidations: When opening your position, you can only mint your $sUSD at the 4:1 ratio, however you don’t have to worry about getting liquidated until your ratio falls below 160%. If you do fall below this threshold, you fortunately have an 8-hour grace period to try to either pay off your loan, self-liquidate, or do a burn to target burn max, which is where with a click of a button, you can burn some of your $sUSD thus minimizing your borrowed amount.
OK, so by now you might be wondering why would somebody lock up so much collateral on Synthetix when there’s so many other protocols where you can lock up a lot less and/or borrow more collateral — well, there’s a lot of reasons. in fact a whole army of them.
An Army of Protocols and Perps (#RealYield)
If you’re unfamiliar with Perpetuals trading in regards to finance, Perpetuals trading allows a trader to buy or sell a specified asset in the future — often times with leverage. Last I wrote about how many different leverage trading platforms were popping up, and the trend has definitely continued as now there really seems like there’s a dime a dozen (future article probably on this later).
Regardless, there’s a clear reason for why these trading platforms are popping up left-and-right — they’re all really popular and very profitable. on Arbitrum and GainsTrade on Polygon on certain days have the most largest transaction volumes and highest fee generated on their respective Layer-2’s:
Fees generated by GMX in just the last few months
Given the amount of building that’s occurred in the past few months, it now appears that Synthetix is willing to fill the needs of perp traders, but this time on Optimism. There are multiple perpetual trading platforms that will be utilizing the Synthetix/Optimism ecosystem, all which have fees being routed back to $SNX holders. The most notable players include:
— Considered a front-end operator for Synthetix, is The biggest partner in TVL and fee-generation — exchange fees which are sent back to $SNX stakers to claim. Kwenta offers around 20 or so different options for crypto-futures at 25x leverage
DecentrixAnother front-end operator, Decentrex just got their launch on Optimism this past December and they offer 25x leverage as well too.
Lyra, a protocol where users can buy and sell cryptocurrency options, Synthetix provides liquidity and fees are generated by the traders to the LPs.
Polynomial ProtocolPolynomial Protocol just announced beta launch on Optimism earlier in the month.
Toros Financeknown for their high-yield automated strategies, Toros just smashed through the $20 million TVL last week.
anyone else using Synthetix’s Atomic Swaps — Atomic swaps allow users to get exposure to different synthetic assets and swap with practically no slippage; all fees going back to $SNX stakers
As the Synthetix ecosystem continues to get flush with different protocols and perps, I would imagine that the intrinsic value to people providing liquidity — namely the $SNX stakers will be the ones profiting the most. Although we may not see a whole lot of significant marketshare move from GMX/Arbitrum any time soon, I imagine that all these Optimisitc perps will help attract a lot of TVL and fees towards those not wanting to bridge over to Arbitrum. Additionally, with the recent introduction to allow Optimistic users to trade futures on 22 new assets, I imagine that this will really give GMX/Arbitrum a run for its money.
Synthetix provides the liquidity needed to make these perps attractive for traders — liquidity which makes other perp platforms like GainsTrade and GMX attractive as well.
Summing up the returns + Icing on the Cake
Right now if you decide to stake your $SNX you’ll earn:
- About 13.43% APY in $SNX rewards
- Another ~10% APY in trading fees (of course dependent upon consistent trading activity)
- Because of another SIP that’s being voted upon right now may allocate another 200,000 $OP to $SNX stakers via all these Perps V2 trading rewards — an incentive that could last for 17 weeks.
A conservative estimate would probably lead this to at least around 30% APY, and this is assuming that the growth in perpetual trading doesn’t draw in more revenue.
Bullish yet? Well let’s take a look now at some possible drawbacks…
Risks and other factors to consider:
Staking Yield/Inflation: You’ll notice that simply by staking $SNX, you can currently earn a nice looking 13.43% APY:
This APY is not considered to be real yield, and due to inflation, and yes as of right now, $SNX is an inflationary token. There’s been a lot of discussion and different proposals to reduce/adjust the inflation rate dating all the way back to , but the most recent information given by one of their community admins is that there’s a current vote to make the token deflationary in the future, with approximately 8 million tokens left to be printed (Currently according to Coinmarketcap there’s roughly 313 million token in circulation).
Personally I don’t think the upcoming 2–3% cliff is that big of a deal, because as we’re still in a bear market I can’t imagine that there’d be a lot of people selling off, especially when we’ve seen $SNX reach ATH’s of more than $20 dollars in the last bull.
$SNX isn’t really backed by anything except market demand: Ok so before you go running for the hills, technically neither is gold and neither is $BTC. $SNX derives its value not by collateralization, but by demand and utilization of the Synthetix ecosystem. In other words, if there are more and more people minting/burning/trading different synths (synthetic assets), in turn more fees/value are infused with the $SNX token (or at least with the stakers) itself.
However just as we’ve seen there to be an overnight collapse of the multi-billion dollar Terra ecosystem, I have no clue what a stress test of that magnitude would look like and how it might or might not affect the Synthetix ecosystem — the main point that I’m drawing here is that we can’t rule out the simple possibility of it happening. And speaking of Terra Luna, this leads me to my next point…
It doesn’t matter if the contracts are good, the ecosystem could still fail: Last May in conjunction with Terra’s collapse, Mirror Protocol —a protocol known for its mirrored “synthetic” assets — was backed by $UST and $LUNA. In the death spiral where both tokens dropped by more than 95% in value in a matter of days, was a stressor that was obviously too much for the protocol to handle. From my understanding, it wasn’t necessarily Mirror’s fault that they were caught in Terra’s death spiral — they simply just picked the wrong blockchain. Nonetheless, it shows that although the mechanics of synthetic assets might have been sound, the protocol still collapsed because the ecosystem itself was not.
Lock-ups suck, but you can still beat inflation and not have to worry about escrow: So as I mentioned before, $SNX stakers get inflationary rewards as well as fees generated from the protocol. In order to stake, this requires at least a 7-day lock-up period and on top of that, the $SNX rewards you claim are in escrow for a year. If you want to avoid that (but also lose out on fees), the Byte Masons team have created a single-sided vault which at time of writing, offers 22.9% APY in native yield:
This looping strategy is taken from Sonne.finance, which you could technically do yourself but that would give you exposure to the $SONNE token as well.
It’s very apparent through the hundreds of different SIPs and SCCPs that Synthetix is truly an ever-evolving system that continues to adapt and grow. Yet at the same time, all the changes made learning about $SNX a bit challenging because half of the information I looked at seemed to be significantly outdated. If you have specific questions/concerns about $SNX or the Synthetix ecosystem itself, I highly recommend joining their Discords #snx-fundamentals channel and asking yourself — the community is super active and very responsive.
We tend to call crypto the Wild West, and Synthetix is a perfect example of how this fits the case as they’re constantly building upon a whole new ecosystem laced with perpetual futures. And given the direction and speed at which they’re growing, I imagine that these expansions will continue tp attract a LOT of capital (and fees).
Thanks for taking the time to read this and be sure to follow me on twitter (https://twitter.com/CryptosWith) to get all my latest updates. Also, looking for a gift for your Crypto-loving/hating friend? Give them a REKT journal to cheer them up!
This is my fourth article writing about a particular altcoin that I’ve been keeping my eye on, so if you’re interested in reading about what other altcoins I’ve been looking at or why I’m looking at them in the first place, I recommend that you check out my recent articles on , as well as , and please comment if you disagree with anything that you see.
Disclaimer: And as a final reminder, this is not financial advice and this is for educational and entertainment purposes only. Please as always, do your own research and find what investments are best for you. Cheers everyone!
