DeFi platform Synthetix (SNX) surpassed $1 billion in total value locked but what’s fueling the protocol’s growth? Synthetix has reached the $1 billion in value locked milestone, following other DeFi protocols like Compound and Aave. Synthetix (SNX)
has been one of the many DeFi tokens that has made substantial gains in
2020, having hit its all-time high of $7.32 on August 15 and rallied
more than 400% year-to-date.
SNX/USDT daily chart. Source: TradingView
Most of the hype around the 2020 altcoin season
has been focused around lending, liquidity, and yield farming within
crypto. However, Synthetix has been able to make strides in the DeFi
sector by offering crypto investors an inlet to the world of traditional
finance. Synthetix is also the fourth biggest DeFi protocol by total value locked according to data from DappRadar.
What makes Synthetix tick?
Synthetix is a decentralized exchange
(DEX) built on the Ethereum blockchain through a series of smart
contracts. However, Synthetix does not offer trading between crypto
assets (typically ERC-20 tokens) like tokens and stablecoins, but rather between synthetic assets or “Synths.”
Synths
are tokenized representations of other assets. They track the price of
other tokens that are traditional assets investors know well.
Commodities and stocks can be traded directly on the Synthetix exchange.
Examples include fiat currencies (sUSD,sEUR), cryptocurrencies (sETH,
sBTC) and commodities like gold (sXAU).
Another unique
feature of Synthetix is the ability to create and trade Synth tokens
that track the price of assets inversely (iUSD, iETH, iXAU, etc). This
makes Synths one of the only ways to short an asset in a purely
decentralized manner.
With DeFi, it takes money to make money
These Synth tokens are created by using another asset as collateral. However, instead of using the underlying asset (like USDT or wBTC) or relying on an established asset like Ether (MakerDAO’s DAI), the protocol’s native SNX token is used.
This
means that in order to create new Synths, users must stake SNX tokens
at a 750% collateralization ratio through the platform’s Mintr smart
contract.
While locking up $750 to access $100 of sUSD
may seem counter-productive, users can also acquire Synths through
another decentralized exchange or by borrowing it. Those staking SNX are
incentivized to do so through the staking rewards which come from new
tokens issued in the protocol’s inflationary monetary policy.
Not
only do users receive staking rewards, SNX stakers receive Synth
exchange rewards generated by the exchange’s fees. As such, members of
the community are incentivised to provide liquidity to Synths and to
lock their SNX tokens.
This creates scarcity and may be a major factor in the rapidly growing market cap as well as the growing value locked figure.
DeFi connects investors to crypto and traditional assets
While the Decentralized Finance sector has taken crypto by storm in 2020, there are a few key projects that are taking the lead and pushing the space forward.
Notably,
lending and credit platforms along with yield farming have been in the
spotlight, especially following the release of the Compound protocol and
token.
However, this new subset of DeFi is becoming more popular with projects like UniSwap
and its upcoming fork, SushiSwap, which allow for decentralized trading
of ERC-20 tokens and rewards liquidity providers. There’s also dYdX, a
fully decentralized platform which allows users to trade assets with
margin.
As DeFi continues to make its parth to mainstream appeal,
the need for solid infrastructure and interoperability between protocols
and traditional finance becomes paramount. The growing allure of DeFi
is not just in the interest to be earned from staking assets but also
from the sector’s potential to provide investors with decentralized access to crypto and legacy assets.
source link : https://cointelegraph.com/news/synthetix-snx-surpasses-1b-tvl-as-defi-investor-interest-grows
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