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Synthetix: what is it for and why it uses Ether as collateral
Synthetix: what is it for and why it uses Ether as collateral
Defi

Synthetix: what is it for and why it uses Ether as collateral

By Lorenzo Dalvit - 20 Feb 2020

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Synthetix is a decentralized platform based on Ethereum. A few hours ago it announced that it will finally be possible to use Ether (ETH) as collateral to participate in the liquidity of the project.

The Synthetix platform supports over 20 Synths representing legal currencies, commodities such as gold and crypto assets. The project was developed for the creation of Synths: synthetic assets on the blockchain that track the price of these assets in the real world through oracles.

Stocks, indices and other derivatives are expected to be added in the future.

Synthetix has a native token called SNX. Holders can lock SNX as collateral to mint Synths, freely tradable ERC20 tokens representing a wide variety of assets. 

The transaction fees from Synths traded on Synthetix’s decentralized exchange go to SNX holders / Synth miners, incentivizing the creation of Synths and giving value to the underlying collateral.

Great news for Synthetix

With a 3-month trial period, Synthetix introduces ETH as collateral for the creation and exchange of synthetic tokens.

  • During the trial period, the maximum participation will be 5000 Ether.  
  • The minimum participation position of the individual will be 1 Ether. 
  • At the end of the trial period, all pending loans will be repaid. 
  • The minimum collateral locked in the contract will have to represent 150% of the demand for synthetic products such as sETH, sUSD, sBTC.

The management of this new form of collateral has been introduced respecting the needs of SNX stakeholders, in fact, unlike collateralization with SNX, ETH stakers will not receive commissions or rewards as they run fewer risks associated with the fluctuation of the price of SNX.

Prior to this update, the SNX token linked to the project was the only one to provide liquidity to the platform with a 750% collateral to cover the tradable Assets. 

However, the previous model had a number of problems: by exposing users to SNX-related price jumps, the platform was pushing away a less risk-averse part of the market, limiting the liquidity of the project.

Birth and growth of Synthetix

The project was initially more widely known as Havven and had its ICO in February 2018. The token was HAV. Havven’s goal was to test payment networks through the creation of a synthetic stablecoin backed by the HAV collateral made available by stakeholders. 

As a result of this experiment, the developers realized that much more could be done. 

With the potential of the evolving DeFi ecosystem and the powerful tools made available to the Ethereum ecosystem, Havven started working on Synthetix.

Synthetix ETH collateral

Synthetix focused on taking full advantage of Ethereum to provide its users with a wide range of digital assets better known as synthetic assets.

Its success has been remarkable and it has climbed the rankings of DeFi projects thanks to the price increase of the token and the total locked value.

As can be deduced from the very name of the platform, developers have preferred to talk about synthetic assets in order to move away from the more traditional forms of top-level digital assets such as traditional cryptocurrencies.

The platform allows the generation and trading of tokens representative of assets not directly involved in the exchange.

Through an oracle, the price of the token is linked to the external world while the transactions are protected by the Ethereum protocol.

Imagine wanting to buy a raw material like gold, from which one would expect a future appreciation. It is possible to speculate on the price without having to leave the Ethereum ecosystem.

A representative token is listed and its price is determined by a call to the oracle that determines its value. Every 3 minutes the price is updated.

The function of oracles is fundamental and is also one of the most fragile points of the system. 

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Lorenzo Dalvit

Blockchain enthusiast tutor, expert in sales and marketing, social community manager, artistic director, musician, lover of disruptive paradigms and life. All my skill are about human interaction and connection

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