Text: Wang Ye
Production: Odaily Planet Daily (ID: o-daily)
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The crypto asset industry 2019 is called the year of DeFi by many people.
According to defipulse data, in the past year, the total amount of assets pledged in various DeFi applications has increased from US $ 275 million to US $ 686 million, which has nearly tripled.
It is worth noting that not only has the DeFi platform hedging asset changed, the Defi hedging application ranking is also changing.
The "Defi Big Three", previously known as MakerDAO, Dharma and Compound, has quietly changed hands. Synthetix, a decentralized synthetic asset issuance protocol based on Ethereum, has innovated its own token economic model and captured the lock-up value of $ 170 million for itself. In just one year, it squeezed out Dharma, surpassed Compound, and leapt to the top of DeFi. The second throne, second only to MakerDao, has also made many people optimistic about the market potential of synthetic assets.
Synthetix token name SNX was issued in February 2018. Since the beginning of the year, the price of SNX has increased by more than 30 times, and the current price is 1.19 USDT.
SNX transaction volume also increased from less than US $ 1 million in August to nearly US $ 10 million in December, and launched a new stablecoin that can compete with Dai—Synthetix USD (sUSD).
So, behind the 30-fold increase in SNX, is there any mechanism to support it? What gameplay and profit points does it have? The mechanism is relatively complex and difficult to understand, why would it come later? Today, Odaily Planet Daily will read them one by one.
What is Synthetix?
Synthetix is essentially a distribution agreement for synthetic assets, built on Ethereum.
Synthetic assets can be used to simulate other financial instruments. In other words, the risk or return of any financial instrument can be simulated with a combination of other financial instruments.
Synthetic assets are composed of one or more financial derivatives, and their asset value is based on the value of the underlying assets (financial derivatives), including: forward commitments: futures, forward contracts and swaps. Contingent claims: options, credit derivatives (eg credit default swaps, CDS) and asset-backed bonds.
The stable coin Dai on Ethereum is actually a synthetic asset, and Maker is also a synthetic asset issue agreement. Maker generates Dai by over-collateralizing ETH. Dai anchors the US dollar, which can be regarded as a synthetic asset of the US dollar.
Synthetix's method of synthesizing assets is similar to MakerDao. It also over-collateralizes certain volatile tokens to generate another token or asset. The difference between Synthetix and MakerDao is that its collateral is currently only the ERC20 token SNX of the Synthetix protocol.
You can also understand Synthetix as a converter. It is a token circulation conversion pool before the cross-chain technology is mature. For example, if you want to have three assets, BTC, ETH, and EOS, you need to cross three chains to have this at the same time. Three assets, but now through the conversion of Synthetix, you can get these three assets at the same time in Synthetix's asset pool.
As of now, Synthetix supports a total of 10 synthetic assets and 77 corresponding trading pairs. Its synthetic assets can currently be divided into four categories: fiat currencies, commodities, cryptocurrencies and reverse cryptocurrencies.
Fiat currency synthetic assets include sUSD, sEUR, sJPY, etc .;
- Commodity synthetic assets include sXAU (synthetic gold) and sXAG (synthetic silver);
- Cryptocurrency synthetic assets include sBTC, sETH, sBNB, etc .;
- Reverse secret currency synthetic assets include iBTC, iETH, iBNB, etc. They track the price of cryptocurrencies in reverse. When the BTC price drops, the iBTC price will rise.
Synthetix team: formerly known as the stablecoin project
Synthetix, formerly known as Havven, was founded in 2017 and consists of a distributed payment network and a stablecoin.
In the beginning, Havven used a dual token system to reduce price volatility: one is the stable token Nomin, which is measured in fiat currency to maintain price stability (value pegged to the US dollar) as the first medium of exchange. Another type of reserve token that is supported is called Havven, which is a sign of providing collateral for the system. Its supply is constant and its market value reflects the total value of the system.
At the end of 2018, Havven was working hard to issue "multi-currency" stable currencies, such as the euro and the British pound. At this time, the team realized that the Havven system has the potential to launch multiple assets, including synthetic cryptocurrencies (long and short), indices, and derivatives assets such as stocks. The team then changed its name to Synthetix and transferred the stablecoin project to a synthetic asset issuance agreement.
Before officially renamed Synthetix, Havven disclosed two financing rounds.
In September 2017, Havven announced a $ 250,000 seed round.
In March 2018, Haven raised a total of $ 30 million through private and public fundraising.
The investor's name was not disclosed in either case.
On October 28, the Synthetix Foundation announced that Framework Ventures had purchased 5 million Synth (SNX) from treasury of the Synthetix Foundation for approximately $ 6.3 million. Synthetix further stated that several other institutions have also purchased "a large number" of SNX tokens, but did not disclose their names.
The Synthetix team is based in Australia, Kain Warwick is the founder and CEO, and previously served as CEO of an encrypted digital payment provider called Blueshyft. Blueshyft has 1,250 sites in Australia and provides digital payments for online businesses through the iOS platform, which has become Australia's largest A cryptocurrency payment channel that processes tens of millions of dollars of transactions per day.
Recently, in an interview with DeFi Labs, Kain stated that derivatives trading on the decentralized chain has unlimited development space in the future, and Synthetix's goal is to become the next BitMEX.
How to make money on Synthetix?
After introducing the comprehensive information of the project, let's get started with Synthetix's transaction process.
Synthetix is not only an agreement to issue synthetic assets, but also a trading platform for synthetic assets. Users can trade synthetic assets on Exchange.synthetix and trade.
Synthetix not only involves collateral, but also involves long and short derivative transactions. When you hold an asset, you can get a certain return through price changes. The operation flow is as follows:
1. Buy SNX for collateral.
Currently, the channels of SNX purchased are Uniswap, Kyber, and KuCoin. According to data on CoinGecko, the highest trading volume is SNX / ETH trading pair on Uniswap. KuCoin only accounts for less than 20% of the circulation. Most players still choose to exchange SNX with ETH on Uniswap.
2. Found synthetic asset sUSD.
After users hold SNX, they can use Mintr (https://mintr.synthetix.io/) to mortgage SNX tokens to generate synthetic assets sUSD.
Will Synthetix be the first Defi to replace MakerDAO? Because the volatility of SNX may be much higher than that of ETH, Synthetix set a 750% over-collateral to generate stable currency sUSD, that is, only when the target threshold of 750% is reached, users will have the opportunity to obtain transaction fees and Reward for SNX new tokens.
This ultra-high mortgage rate incentive mechanism is mainly to ensure that the mortgage assets supporting synthetic assets can cope with large price fluctuations. This will also encourage mortgagors to increase their mortgage rates, deposit more SNX, or destroy synthetic assets.
SNX rewards are similar to Staking rewards. According to data from StakingRewards.com, Synthetix's current mortgage rate is 85.16%, and the mortgage reward is 54.92%, which is currently relatively high.
Will Synthetix be the first Defi to replace MakerDAO? Dividends on transaction fees are commissions generated when users trade through Exchange.synthetix. 0.3% of each commission is placed in the dividend pool and distributed to users of mortgage tokens.
In the process of casting synthetic assets, users generate new debt (the value of the new synthetic assets minted), which are stored in XDR (Synthetix Drawing Rights). XDR uses a basket of currencies to stabilize the value of debt, similar to the IMF's Special Drawing Right (SDR). The price of these synthetic assets fluctuates according to the price of the oracle, that is, its debt is variable.
(Odaily Planet Daily Note: A special drawing right can be used to repay IMF debt and make up the balance of payments between member governments' balance-of-payments assets, whose value consists of US dollars, euros, yuan, yen, and pounds A basket of reserve currencies.)
When the debt is distributed to the mortgagor, the Synthetix smart contract will issue new synthetic assets and add them to the total supply, and the new synthetic assets will also be distributed to the user's wallet. Since the synthetic asset is over-collateralized with SNX, it has a target threshold of 750%. If the value of SNX increases, then SNX can be unlocked accordingly, and of course more synthetic assets can be issued.
3. Trading synthetic assets.
This step needs to be completed at Exchange.synthetix. You can exchange sUSD for assets on any platform, and you can trade (long or short) assets such as cryptocurrencies, commodities, fiat currencies.
For example, if you are long on BTC, you can buy sBTC (or, on the contrary, buy iBTC). When the BTC price rises, your sBTC price rises, and then you can sell directly to the exchange market Exchange.synthetix.
What is interesting is that the trading of synthetic assets mainly interacts with smart contracts. There is no order book and no counterparties. Instead of buying iBTC, it is borne by the entire "debt pool". The debt pool can be understood as a pool of all synthetic assets, which changes with the price of synthetic assets.
Will Synthetix be the first Defi to replace MakerDAO? For the system, its asset trading is just to swap the debt from one synthetic asset to another, and there is no order book or order matching in the process. This way users don't have to worry about liquidity issues.
But the risk is that we share the value changes brought about by the debt pool. So even if you hold sUSD, you may lose money when the debt pool changes.
Because the token price is obtained off-chain through the oracle, which is currently operated by the Synthetix team, which is a risk for users.
4. Destruction of debt.
When SNX asset mortgagors want to reduce debt or exit the system, they need to destroy the synthetic assets first.
Will Synthetix be the first Defi to replace MakerDAO? For example, the mortgagor generates 1000 sUSD through the SNX mortgage. In order to unlock the SNX mortgaged, the user needs to destroy the 1000 sUSD first. If the debt pool changes during the mortgage period (and personal debt also changes), this may result in users needing to destroy more or less sUSD to destroy their debt.
The destruction process is also completed through smart contracts. Synthetix smart contracts will determine the user's sUSD debt balance, then delete it from the "debt register", destroy the corresponding sUSD, and update the sUSD balance of the user's wallet and the total supply of sUSD. After that, SNX unlocked successfully.
Figured out how to make money on Synthetix, let's take a look at the earnings. Synthetix pays out dividends every Wednesday. A large SNX user mortgaged 33,000 SNX tokens. Now the weekly trading reward is 115.48 SNX (about 956 yuan). SNX's new token reward per week is 328.94 SNX (approximately 2724 yuan). In general, if 33,000 SNX is mortgaged, it will receive 3680 yuan in dividends per week, and the unit price of this big SNX is less than 4 yuan. Now an SNX is priced at 8.28 yuan. In short, the more SNX you mortgage, the higher your debt and the more SNX dividends you get each week.
At present, many domestic investors are accustomed to buying SNX on Uniswap, but due to network delays and stuttering factors, sometimes the transaction is not smooth. Today, you can also buy SNX on the domestic exchange KuCoin.
Risks at Synthetix
Synthetix's model design is very interesting. It combines minting stablecoins and staking, and attracts users to lock their positions by adding rewards and transaction fee dividends. But Synthetix's current risks cannot be ignored.
The first thing to mention is that the Synthetix team has the risk of manipulating the price of the oracle. This has also been discussed by many media and research institutions before.
In June of this year, Synthetix lost more than 37 million sETH due to Oracle Attack.
Since both SNX and XDR have certain volatility, in order to ensure the solvency of synthetic assets, Synthetix system keeps SNX to support synthetic assets with a 750% mortgage rate. Synthetix tracks the debt of the system's synthetic assets through the following mechanisms.
The total debt in the Sythetix system's debt pool is the sum of the different synthetic assets times their current exchange rate. At present, the prices of all synthetic assets in the Synthetix system are determined by a predictor that feeds price information onto the chain.
Whenever a SNX mortgagor mints or burns a synthetic asset, the system tracks the debt pool and the debt of each mortgagor. This is achieved by updating the Cumulative Debt Delta Ratio. It uses algorithms from multiple sources to form the aggregate value for each asset, and it is currently operated by the Synthetix team.
The Synthetix team has already recognized this problem. Kain said in an interview with DeFi Labs, "As an early project, there are still many risks. We are currently researching the oracle machine and feeding the price on the chain." December 20 Synthetix announced cooperation with Chainlink, a decentralized oracle, and officially joined the Chainlink oracle on Ethereum to provide users with accurate decentralized price data.
However, some investors still question Chainlink is not really decentralized, only a few nodes are providing data; secondly, as God V said, if the market value of the oracle machine is lower than the market value of the oracle DApp, then the oracle machine node will have a cooperative evil risks of.
Secondly, Sythetix only guarantees the repayment of synthetic assets through the incentive of SNX additional issuance and transaction fees, and there is no clearing mechanism to protect the interests of investors. MakerDAO triggers liquidation when the mortgage rate of the CDP (mortgage debt warehouse) is lower than 150%, avoiding the losses caused to investors by the swell in ETH prices.
When the market value of SNX declines or the synthetic assets rises greatly, incentives alone may not guarantee that the mortgagor can adjust its mortgage rate in a timely manner to keep it at an appropriate rate. MakerDAO does not set an upper limit on the mortgage rate, only sets the minimum mortgage rate, and introduces a liquidation mechanism to punish the mortgagors with insufficient mortgage rates. The clearing mechanism can better protect the interests of investors in the event of a sharp drop in the price of the currency.
Compared to MakerDAO, Synthetix does have an advantage in trading synthetic assets, allowing traders to reach more types of assets and trade with less friction. However, currently Synthetix only supports mortgage of its native token SNX, instead of using ETH as collateral like MakerDao. If the price of SNX drops sharply, the value of the mortgage asset will plummet, which may cause system problems.
Of course, Defi is still a niche early market. In fact, it is far from talking about who replaces who, but it is still in the stage of updating the mechanism, improving the user experience, and trying to attract incremental.
Finally, Odaily Planet Daily reminds investors once again that the current liquidity of SNX tokens is poor, and the increase is too high. There is a possibility of unlocking the market, judging the market rationally, and avoid blindly chasing high.
Reference tools and information:
TokenGazer: "Synthetix: Synthetic Asset Market Grows Rapidly and Its Death Spiral Is Worrying to Watch"
Blue Fox Notes: "Read Synthetix in One Article"
Bajute's Dinner: "What is the support behind SNX, which has increased more than 30 times this year? 》
Decentralized financial community: "What's the problem with Synthetix? 》
Defi Labs: Dialogue with Synthetix: DeFi Changer 2019