Synthetix (SNX) Total Locked Value Exceeds $1 Billion as DeFi Investor Interest Increases

After other DeFi protocols such as Compound and Aave, Synthetix has reached the $1 billion milestone in value locked. Synthetix (SNX) is one of many DeFi tokens that has seen solid gains in 2020, hitting an all-time high of $7.32 on Aug. 15 and is up more than 400% so far this year.

SNX/USDT daily chart. Source: TradingView

Much of the hype for the 2020 altcoin season has focused on lending, liquidity, and yield farming in cryptocurrencies. However, Synthetix has been able to make strides in the DeFi space by providing crypto investors with access to the world of traditional finance. Synthetix is also the fourth-largest DeFi protocol by total value locked, according to DappRadar.

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How does Synthetix work?

Report: CME Bitcoin Futures Contract Premiums Fall as Institutional Investors Unwind: March 1 News According to a recent report from Arcane Research, the monthly, quarterly and semi-annual contract premiums for CME Bitcoin futures contracts relative to The weekly average is declining. Futures contracts expiring at the end of March on the CME rose just 0.6%, compared with a 1.19% premium on the unregulated exchange. The June 2020 contract premium on the CME and other exchanges fell to 2.71% and 3.29%, respectively. Notably, according to Arcane, the premium for the quarterly contract has dropped significantly. Just two weeks ago, the premium for the March contract was as high as it is for the June contract today, the report noted. The report lists premium rates averaging over 10% since October 2019. These premiums come as the price of bitcoin has been falling after peaking at $10,300 in early February. Since the February 14 high, the 25% annual premium has gradually declined, and this decline has been the same across regulated and unregulated exchanges. The March 2020 contract is at a premium of 7% as the market is now threatening to consolidate to the downside in a range around $8,600. Below the aforementioned average, institutional investors in CME were "less optimistic," as reflected in a sharp reduction in their exchange's open interest. Over the past two weeks, over 37% of open interest on exchanges has been liquidated. Prices are not expected to recover in the short term, and this trend is likely to continue. (AMBcrypto)[2020/3/2]

Synthetix is a decentralized exchange (DEX) built on the Ethereum blockchain through a series of smart contracts. However, instead of trading between tokens and ERC-20 cryptoassets like stablecoins, Synthetix offers trading between synthetic assets (Synths).

Exclusive | Huang Qiaomeng, co-founder of BKFUND&GDF: As the usdt consensus is broken, the stablecoin 2.0 era is coming: Regarding today’s USDT incident, Jinse Finance exclusively interviewed Huang Qiaomeng, co-founder of BKFUND&GDF. He said that today a large number of investors sell USDT to buy Into the mainstream currency, leading to a surge in the digital asset market. As the usdt consensus is broken, its market share will face major challenges. The spring of emerging stablecoins is not far away, and the era of stablecoins 2.0 is coming. [2018/10/15]

Synths are tokenized forms of other assets. Synths track the price of tokens known to investors in other traditional assets. 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 backtrack asset prices (iUSD, iETH, iXAU, etc.). This makes Synths one of the ways to short an asset in a purely decentralized manner.

With Synthetix, over-collateralization is required

These Synth tokens are created by using another asset as collateral. However, instead of using an underlying asset such as USDT or wBTC, nor relying on an established asset such as ETH (MakerDAO’s DAI), the protocol’s native token, SNX, is used.

This means that, in order to create a new Synth, users must stake SNX tokens at a collateralization rate of 750% via the platform’s Mintr smart contract.

While it might seem counterproductive to lock up $750 to get $100 in sUSD, users can also acquire Synths via another decentralized exchange or by borrowing it. Under the protocol's inflationary monetary policy, newly issued tokens incentivize those who stake SNX to do so.

Users will not only receive staking rewards, but SNX staking holders will also receive transaction fee sharing from the exchange. Therefore, community members are encouraged to provide liquidity to Synths and lock up their SNX tokens.

This creates scarcity and is likely a major factor in the rapidly growing market cap as well as the growing amount of value locked.

DeFi connects investors with cryptocurrencies and traditional assets

While the decentralized finance space has taken the crypto storm by storm in 2020, there are still several key projects leading the way and driving the space forward.

Notably, lending and lending platforms and yield farming have been gaining traction, especially after the launch of the Compound protocol and its token.

However, this new subset of DeFi has become increasingly popular with projects like UniSwap and its fork SushiWap, which allows decentralized trading of ERC-20 tokens and rewards liquidity providers. There is also dYdX, a fully decentralized platform that allows users to trade assets on margin.

As DeFi continues to become part of the mainstream, the need for solid infrastructure and interoperability between protocols and traditional finance becomes paramount. DeFi is gaining traction not only because investors are interested in profiting from collateralized assets, but also because the industry has the potential to provide investors with access to crypto and legacy assets.

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