Synthetix is a decentralized synthetic asset issuance protocol built on Ethereum. These synthetic assets are collateralized by the Synthetix Network Token (SNX) which when locked in the contract enables the issuance of synthetic assets (Synths).
This pooled collateral model enables users to perform conversions between Synths directly with the smart contract. This mechanism solves the liquidity and slippage issues experienced by DEX’s.
A decentralized exchange (DEX) is a cryptocurrency exchange that operates in a decentralized way, i.e., without a central authority. Decentralized exchanges allow peer-to-peer trading of cryptocurrencies.
Because users have ownership of their assets, decentralized exchanges reduce the risk of theft from the hacking of exchanges. Decentralized exchanges can also prevent price manipulation or faked trading volume through wash trading.
Volume is one weak point of DEX, and Synthetix is certainly not different from other projects in this regard.
The “new thing” that Synthetix is trying to bring to the table are synthetic assets. Which at its core are the equivalent of “options” on the traditional markets, but using the Synthetix coin as collateral.
Another difference is that in this DEX you don’t hold any other asset other than synth itself their synthetic assets
The SNX stakes as collateral to back Synths and entitles stakers to receive fees generated by Synth trades on Synthetix.Exchange.
In March 2019 the team announced a major update to the Synthetix monetary policy: the addition of SNX staking rewards.
Each week, each SNX staker can claim their proportion of the weekly SNX staking rewards. Their rewards are calculated by measuring what proportion of the total Synth supply they have minted against their SNX.
SNX rewards can be claimed for up to two weeks in arrears (this period may be changed in the future). Any unclaimed rewards (beyond the given two weeks) are simply added back into the entire pool of SNX rewards to be distributed in the next reward period.
The Billion dollar incident
On June 24 the company lost track of more than 37 million synthetic ether (sEth). All of which happened in a couple of trades generating 1000x profits. This happened after all trading on the exchange had been halted for 24 hours.
Synthetix crypto-backed synthetic asset tokens are priced against the euro, Japanese yen, Korean won, Australian dollar, gold, and the United States dollar. But essentially an oracle was the cause for the incident.
Oracles are used in blockchains to verify real word information and then report back the findings to the blockchain, triggering the implementation of smart contracts.
In this case, an oracle, responsible for providing external data to Synthetix’s smart contracts, transmitted false data, which a bot took advantage of. One bot owner’s balance was inflated due to an incorrect sKRW price feed, which he then converted into an inflated amount of sETH.
According to Kain Warwick, the founder of the platform, all the sETH were recovered, and the situation has since been resolved. The company contacted the owner of the arbitrage bot that unintentionally hacked the oracle and agreed on a bounty deal with him in order to return the funds.
But this didn’t end as happily as Kain says it did. As responsible for the creation of the bot and the one that “received the bounty”. Then went on to reddit to tell the world how things really went.
- Market Cap: $202,830,721 USD
- Market Cap ATH: $227,471,446 USD
- Current price: $1.32USD
- Price ATH: $1.55 USD
- Circulating Supply: 153,530,356 SNX
- Total Supply: 159,080,754 SNX
- Total % of the supply released so far: 96.51%
CEO and founder of Synthetix.
Before launching Synthetix, Kain built the largest cryptocurrency payment platform in Australia, with tens of millions in transaction volume.
Current CTO (Chief Technology Officer)
Justin is a former Director of Engineering at MongoDB and has significant experience designing and deploying high availability systems at scale.
Senior architect of Synthetix
Clinton has 18 years of experience in software engineering and is a former Architect Lead at JPMorgan Chase in trading technology.
On paper, this project hits most of the right spots. Every user has control of their assets and provides a huge variety of trading options. Synthethix tried to approach the decentralized exchange in a different way but they couldn’t beat the liquidity problem that ends every other DEX.
Some would attribute this to the high fees that they charge on their trading platform (0.1% – 1%). Others would say that since the scandal with the 1 billion dollar incident and the creator of the bot saying that the owners can change the price of contracts at will. And Kain doesn’t deny it.
“We have openly stated many times that we have the ability to upgrade the system, including the ability to redeploy contracts with modified balances. We have never used this ability before nor do we intend to”.
Something to take into account when trading on this exchange is that your money is not your money. Your money is property of Synthetix, who lets you use it as long as you aren’t using it in a way they disapprove of.