Synthetix Network is one of the most complex DeFi ecosystems. This platform allows users to create and trade decentralized synthetic assets for collateral. They are called "Synths" and track the value of assets in the real world. Synthetic "Synth" assets are backed by the SNX token which brings value and liquidity to the underlying assets. The advantage is to have a derivative product, without owning the underlying and in a decentralized way.
SNX, SUSD AND SYNTHETICS CREATION
To buy synthetics we have two possibilities:
1) Trade Eth with sUSD on (a dApp that allows trading of synthetics minted by Synthetix) or with other synths such as sBTC
2) The second method is to buy the SNX token, put it in staking minting sUSD and create other synthetic tokens on Kwenta. It allows synth trading using peer-to-contract (all trades are executed via a smart contract that can provide liquidity).
On Synthetix, all synths created via SNX token staking are backed by 400% collateral ratios (this percentage is however variable). The stakers have to manage this ratio by minting sUSD (if the ratio is too high) or by burning sUSD (if the ratio is too low).
Through the staking of SNX and the minting of the synthetic Usd (sUSD) which is done in the "mint & burn" section, users are essentially taking on the debt / profits of the platform. Debts reflect the amount of sUSD that must be burned to unstank their SNX. This represents a portion of all debt on Synthetix, and that debt increases or decreases based on the synth supply as well as its value. The synths can be of any shape and all have the prefix "s", for example fiat synths will be called sEUR, sUSD and so on. Those from crypto sBTC, sETH, etc Users don't have to swap the same kind of synth originally coined. As long as the synth used has the same market value, it will be accepted by the system.
When a user creates a synthetic, they become part of the platform's debt pool. The total debt amount is equal to the total value of all the synths on the network. Debts can rise and fall regardless of the original value of the coined synths.
Synths use decentralized oracles to track their real price, this allows users to hold and trade synths even when they don't own the underlying assets. In this way, synths can provide exposure to assets that would normally be inaccessible to the average cryptocurrency investor, such as commodities, fiatcurrency, stocks, etc. allowing them to trade quickly and effectively. The synths can be made available as liquidity by receiving interest or doing what you want with them (one of the uses is to go short or long through Futures on the dex Kwenta).
CREATION OF SYNTH AND C-RATIO
If you want to create synths, the first thing is to staking your SNX (guarantee) and mint the synth sUSD ("mint max"). SNX will also generate rewards: staking and platform fees (today it is about 100% APR paid in SNX and sUSD tokens. Rewards must be claimed every Wednesday).
If you deposit $ 400 of SNX you will have $ 100 USD. Your SNX will be blocked for 7 days. With the $ 100 of sUSD you can do whatever you want.
sUSD can be provided as liquidity or sold for other synths. The other synths will obviously be volatile. The debt varies based on the work of others (i.e. based on the gains / losses of all those who create synthetics on the platform).
When a synth is created, we share the platform's debt. One stat you need to check is the c-ratio which must be 400% (it's the collateralization ratio). This ratio changes according to the SNX value. The closer you are to the c-ratio (400%) the more the rewards received will be optimized. When you are well below the c-ratio (for example if you go below 200%) you have to burn the excess sUSD.
Debt is the initial value of sUSD that is provided to you when you block SNX. Burn is the reverse of mint and destroys synthetics. If you burn sUSD you increase the "c-ratio", in case it is too low. Being above the target means you have SNX not staking and you are not earning the maximum reward.
To unlock your SNX, you need to "burn" sUSD. The burn will unlock your deposited SNX. Of course you may also just want to burn the excess sUSD and just go to the "burn" section (burn to 400%).
LIQUIDATIONS
The liquidation mechanism has recently been changed.
The initial liquidation mechanism was that the liquidator needed USD to liquidate someone else. The liquidator repays the debt issued by the staker which is liquidated with its sUSD, then burned. The SNX guarantee is purchased at a discount and sent to the liquidator. This system has been modified to avoid large SNX dumps.
In particular when new accounts are reported for liquidation, this causes fear among SNX holders who act by selling themselves. This could result in catastrophic failure of the protocol, leading to significant losses for owners of synths.
-If your c-ratio falls below 150%, you are reported and you do not self-liquidate ... you will be liquidated and incur a 30% penalty on your SNX in staking. A portion of your SNX will be used to pay off your debt; all SNX penalties will be distributed to other stakers.
-If your c-ratio falls below 150%, you are reported, you will have a 20% penalty if you self-liquidate (again a portion of your SNX will be used to pay off the debt).
- If your c-ratio rises above 400% after you have burned sUSD or minted new debt nothing will happen and you will not be liquidated. In this case your SNX deposited as collateral cannot be liquidated but you earn less rewards because you have a part of SNX that is not staking.
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