What is Synthetix?
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 7 min
In short
Synthetix is a protocol for issuing and trading synthetic assets that track the price of equities, currencies, commodities and other references. Participants lock SNX as collateral to mint synths, and that shared collateral pool has historically acted as the counterparty to trades. Today it runs on Ethereum and Optimism, mainly as liquidity infrastructure for perpetual futures.
Key points
- Trades exposure to assets via oracle prices, without holding the underlying
- SNX holders post collateral to mint synths and share the resulting debt as a pool
- The collateral pool, not an order book, is the counterparty, so trades fill without a matching order
- Pivoted to this model in 2018 from Havven, an earlier stablecoin project
Definition
An Ethereum-based derivatives protocol that lets users mint and trade synthetic assets tracking external prices, backed by SNX posted as collateral.
Synthetix set out to provide price exposure to assets that do not live on a blockchain. Tokenising equities, gold or fiat normally requires an issuer and custody; Synthetix instead holds none of the underlying and mints synthetic assets that track oracle-reported prices.
The mechanism turns on a shared debt pool. Anyone who locks SNX can mint synthetic dollars (sUSD) up to a collateral ratio. Each minter carries a share of the pool's total debt, and that debt figure moves as the prices of the outstanding synths move. To withdraw collateral you must repay your share, and falling below the required ratio exposes you to liquidation.
Because the pool rather than an order book is the counterparty, trades settle instantly at the oracle price. That design is also vulnerable to trading against stale prices, and early on the protocol was exploited through oracle latency. Dynamic fees and delayed settlement were added in response.
Its main use now is perpetual futures. The protocol runs on Optimism for lower fees, and separate front ends such as Kwenta and Polynomial build trading interfaces on top of Synthetix liquidity. V3 restructured the system so that new collateral types and markets can be added by outside builders.
Watch out for
- · Positions are liquidated if the collateral ratio falls below the threshold, and SNX price moves feed straight into that ratio
- · Minters owe a share of the pool's total debt rather than the synths they personally minted, so other people's trading can increase what they must repay
- · Prices come from oracles, so oracle downtime or bad data affects trading directly
Frequently asked questions
Does holding a synth mean I own the underlying stock or gold?
No. A synth only tracks the price. It carries no claim on the underlying, no voting rights and no dividends; what backs it is the crypto collateral posted to the protocol.