DeFi on TokenPocket | How to issue and trade Synthetic Assets with Synthetix
Synthetix is a synthetic asset (Synths) issuance protocol based on Synthetix. To understand what Synthetix is, we need to know what Synths are first.
What are Synths?
Synths are digital or tokenized representations of a certain asset (e.g. Tesla stock). They can be used to keep track of the price of virtual tokens that are basically traditional assets that investors are already familiar with. You can create a Synth based on the stock module of Tesla. Apart from stock, it could be fiat money, gold, BTC, etc.
The most well-known example of Synths should be USDT, which is the Synth of USD, with 1 USDT representing $1.
There are Synths including sBTC, sETH, iBTC, iETH, sXAU, etc on Synthetix.
Synths are an simulated representation of the original assets, instead of the original assets themselves. Synths resembles a parallel world of the real-world assets. By representing the real-world assets in a simulating way, Synths realized the on-chain swapping of those assets.
Synths are supported by the Synthetix Network Token (SNX), which gives Synths value and enables liquidation. Synthetix provides a channel for DeFi to utilize trading strategies that are more diversified and complicated.
Where do needs for Synths come from?
The needs for Synths mainly come from trading. The aim is to gain the risk exposure of a certain asset by simulating it on-chain, and to access the opportunities of making returns.
For example, Apple stock is not available for all countries. But users are able to buy the Synth of Apple stock to gain returns while taking the risks.
How to issue a Synth?
You need to collateralize SNX to generate sUSD first, and then buy Synths with sUSD.
1. Collateralizing SNX to generate sUSD
Note: TP Mobile has not supported this page yet, so the tutorial is about how to use the website on PC with the assistance of mobile.
First, go to https://mintr.synthetix.io. The latest version of TP wallet has supported WalletConnect protocol, so here we choose WalletConnect as the way to login. A QR code will pop up.
2. Login with WalletConnect
Open TP wallet on you mobile and tap on [scan] to scan the QR code. you can choose another wallet on the next page and then grant authority.
3. Minting process (Collateralizing SNX to generate sUSD)
- After connection, the bottom of the page will show the balance of the tokens in the wallet, including SNX and ETH, as well as the amount of the Synths and debt in the wallet.
- In [What would you like to do] section, click on MINT.
- Enter the amount of sUSD you want to mint and click on MINT NOW. After the transaction confirmation, the minting of sUSD and SNX collateralization will be complete.
The system requires an over-collateralization rate of 750% to generate sUSD, which is pegged to USD with 1:1 ratio. The internal price of sUSD in the system is 1USD but its market price may fluctuate around 1 USD. The 750% over-collateraliza rate is set for the high volatility of SNX. You may ask why users collateralize with such a high rate. One of the reasons is that SNX holders are entitled to inflation rewards and Synth trading rewards from Synthetix.Exchange.
4. Buy Synths with sUSD
To issue a Synth on Synthetix is actually to purchase the Synth with sUSD.
Pegged to USD, sUSD is the native stablecoin of Synthetix. Actually, Synthetix was originally stablecoin platform. With stablecoin sUSD, it is more convenient to trade and calculate the collateralization rate.
After sUSD is gain by collateralizing SNX, you can go to https://synthetix.exchange/#/ to buy Synths, or in another name, to issue Sythns.
For example, if you want to issue sBTC, a Synth of BTC, then you just need to purchase sBTC with sUSD in the sBTC/sUSD trading pair.
5. Synths trading
The essence of trading Synths on Synthetix is the process of burning the original Synths and generating new Synths.
For example, let’s say you want to swap sUSD for sBTC, the system will burn the corresponding amount of sUSD in your address and update the total supply of the sUSD; then, according to the exchange rate provided by the Oracle, the system will charge a percentage of the transaction amount as the transaction fee and send the fee to the Fee pool. The Fee pool is shared among all SNX collateral users proportionate to their collateralization. And the remaining part of the sUSD will be swapped to sBTC by sBTC’s smart contract, and update your wallet balance as well as the total supply of sBTC.
It can be seen from the above that the Synth trading process only involve the interaction with smart contracts, without Order Book or trading competitors.
Assets that can be traded on Synthetix includes crypto and gold. For example, in the picture above, users are allowed to trade sXAU, which is a Synth of gold. You can trade sXAU with sUSD, sBTC, and sETH.
The DeFi on TokenPocket Series is an inclusive knowledge-sharing platform initiated by TokenPocket. It aims to provide community members with knowledge relating to blockchain and cryptocurrencies, as well as wallets. As a leading global wallet, TokenPocket provides crypto assets management service for millions of users worldwide.