Synthetix

Derivatives

Synthetix is a derivatives protocol that lets anyone mint on-chain synthetic assets that track the prices of real world assets like commodities and stocks.

Risk Rating
Average
Protocol Code Quality
Protocol Maturity
Protocol Design
Summary
What we like
Offers users a simple way to get exposure to crypto assets, indexes, gold and more, through synthetic assets ("synths") that mimic the price of the underlying asset.
What we like less
Synthetix collateral are mostly backed by its native SNX token which exposes the platform to reflexivity risks in the event of a significant price drop in SNX.
What it means for you
Allows you to trade synthetic assets with infinite liquidity (up to the total available collateral) and zero slippage across all synth markets.

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Information
Exploit/Hacks
None
Info
  • Website
  • Token: SNX
  • Tags: Derivatives
Key Metrics
  • TVL: $399.4M (Rank #41)
  • TVL Ranking by Derivatives: #0
  • Blockchain: Ethereum, Optimism
  • Chain TVL
    • Ethereum: $252.45M
    • Optimism: $146.99M
Risk Assessment
Average
Protocol Code Quality
  • Code reviewed by several experienced auditors; OpenZeppelin and iosiro
  • Public team promotes accountability
  • No documented protocol hacks since launch
Protocol Maturity
  • Latest protocol version launched in 2022; maturity over one year minimizes technical risk as smart contracts are well battle-tested
  • Top 5% by total value locked reduces risk
  • Multisig wallet controls protocol upgrades
  • Multisig consists of at least 4 signers, which means the protocol is less susceptible to centralization risks
  • No timelock exists or no information documented, which mean a malicious actor could approve upgrades without any delay
  • Low voting power concentration reduces risk
Protocol Design
  • Protocol could be susceptible to negative feedback loops
  • Robust controls to mitigate oracle price manipulation
  • Isolated markets enable asset risks to be contained to each individual pool without impacting the entire protocol
  • Basic controls in place to prevent risky borrowing
  • Solid mechanisms in place to ensure healthy liquidations
  • No reserves or no stability module
  • Synthetix uses a similar mechanism to Maker`s to mint synthetic assets by providing its own SNX token as colletaral. This eliminates price slippage when swapping between two synthetic assets. If the value of SNX goes up, more synthetic assets can be minted but if the value goes down, it reduces the supply of synthetic assets, thus being reflexive
Things to know about Synthetix

How Synthetix works

Synthetic asset created on the Synthetix platform are known as "synths". It is minted against the value of the native SNX token which acts as the primary form of collateral backing synthetic assets available on Synthetix. All Synths are currently backed by a 400% collateralizatoin ratio, though this can change through future governance proposals. SNX stakers incur debt when they mint Synths and burn Synths to exit the system. SNX holders are incentivized to stake their SNX token to earn their proportional fees each week, as well as inflationary rewards. Stakers are unable to claim fees if the value of their collateralization ratio falls below 400%, which ensures Synths are backed by sufficient collateral to absorb large price movements. Synths can bve traded on Kwenta, Synthetix's decentralized exchange (DEX) with zero slippage.

How Synthetix makes money

Synthetix charges an exchange fee whenever a user exchanges one synth for another through Kwenta. The fees typically average around 30bps but can range anywhere between 10-100bps. The generated fees are automatically sent to the fee pool which can be claimed proportionally by SNX stakers each week as long as they maintain at least a 400% collateralization ratio.

How you make money on Synthetix

You can deposit SNX as collateral to get exposure to synthetic assets and realize profits through longing and shorting the underlying asset on the Kwenta exchange. SNX holders can also stake their tokens and earn protocol fees and inflationary SNX emission over time.

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