Open Finance Fundamentals: Synthetic asset protocol bursts onto the scene in 2019

This report is part of a weekly series where we will explore the mechanics behind major Open Finance protocols and evaluate them on a fundamental basis. You can view prior reports here.

Synthetix, a platform to gain exposure to a variety of real-world and crypto assets – without users or another party needing to hold them. Details on how Synthetix works can be found on the asset page, but in short, it uses an "infinite liquidity" peer-to contract model that relies on a pool of collateral to creates synthetic assets. Similar to how DAI represents $1 and it is backed by ETH, sUSD represents $1 and is backed by SNX. Where Synthetix differs is that you can take the dollar-pegged asset and go the Synthetix Exchange to change it to represent $1 of BTC. This exchange (which is really just a repricing of debt owed to the system) charges a 0.3% fee which is available to claim for those staking the collateral/minting the assets.

If you were looking to measure the growth of this network, a key indicator would be the exchange volume and related fees charged.

In March, Synthetix implemented changes to its monetary policy, opting for inflation to subsidize stakers. This change was pivotal in bootstrapping interest in creating assets to be exchanged, and as you can see, volume started picking up towards the end of spring. As the volume increased and more fees were paid to stakers, the SNX tokens become more valuable. This fundamental growth of the network was reflected in the price of the token over time demonstrating a shift towards a more rational market. Going forward as the inflation rate decreases, the exchange volume will be a key indicator of the overall growth of the network and the sustainability of the SNX market.

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