How to make money on Synthetix (Lite)
Learn about Sythetix including how to stake SNX and use snyth assets
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Dear Crypto Natives,
If we solve a couple of the outstanding problems I’m convinced synthetic assets backed by crypto monies are absolutely world changing. In particular, synthetics based on Ethereum are a big reason to be bullish on ETH. DAI is a synthetic.
One of the most interesting projects in synthetic assets right now is Sythetix. Their platform grew from $1m to $90m in locked value over the last nine months. They move fast and take a pragmatic approach to just about everything—if Maker is DeFi’s version of Coinbase then maybe Sythetix is DeFi’s version of Binance.
Their SNX token is particularly interesting. A bank bet entitling its holders to a share of usage fees, but also used as a collateral to back the system itself, just as ETH is used to back DAI. Self-referential yes, but also a clever way to bootstrap the system?
Today’s tactic will teach you the basics of the Sythetix system including how to make money by using it—both as a beginner and as a power user. I asked Bankless member Fiskantes to write this one. He writes far better on Sythetix than I could.
Ready to level up on Sythetix? Let’s go!
How to make money on Synthetix
Get access to decentralized derivatives, provide liquidity for derivatives exchange and bet on price of gold, stocks or indices on Synthetix.io. Learn about synthetic assets, how to use them, mint them, and assess the risks involved.
Goal: Learn how to stake SNX and use synthetic assets
Effort: 2 - 3 hours
ROI: Expected positive, but with high risk
Please be aware that we are dealing with early stage crypto technology, which is very risky. You can lose your funds playing with it. Nothing written here should be taken as an investment advice and you should only use the amount of money you can comfortably lose.
What are Synths?
Synths, or synthetic assets, are derivatives similar to CFDs. Buying them lets you participate on price movements of underlying assets without needing to hold the underlying assets—there is no delivery of the underlying asset. Almost any asset can be mirrored as a synth—cryptocurrency, token, commodity, stock, indice, or fiat.
Synthetix uses price oracles to feed prices of assets into its smart contacts to mirror the price of underlying assets.
Examples of synths
sXAU - By buying synthetic gold (sXAU), you participate on the price change of gold (price of sXAU mirrors market price of 1 gold ounce), but you of course do not have access to any physical gold and there is no real gold backing sXAU token anywhere. It's yet another way to buy tokenized gold, bankless way.
sUSD - synthetic USD (sUSD) that mirrors the price of USD. Apart from DAI, synthetic fiat currencies are one of the few decentralized stablecoins backed by crypto collateral. Staking SNX and minting sUSD is similar to opening a CDP.
iBTC - reverse synths, with symbol “i”, are used for getting short exposure. iBTC means bitcoin short position - e.g. if you hold 1 iBTC, you are short 1 BTC and when price of BTC goes down, “price” of iBTC goes up).
sCEX - this synth represents an indexed basket of assets, in this case a basket of exchange tokens such as BNB, LEO, Huobi Token, OKex token and Kucoin Shares. Buying this synthetic asset gives you exposure to the whole segment of crypto exchange tokens. It's essentially a “bank bet”, as outlined in crypto money portfolio.
sAAPL - Even stock indices and individual stocks (in this case Apple stock - AAPL) can become synthetic assets.
Derivatives are huge part of legacy financial system and synths are their bankless version. What are they actually being used for?
Long and short speculation - you can bet on rise (long) or decline (short) in the prices of multiple crypto assets. Do you believe that BTC will go up, but you don't want to leave the comfort of decentralized Ethereum ecosystem? Just buy sBTC! Are you convinced TRX (Tron) is over-priced and dump is imminent? Buy iTRX. Just note that, there are some restrictions (profit / loss cap) for inverse (short) synths.
Hedging - biggest use case of derivatives, apart from speculation, is hedging - insuring against price of an asset failing. Imagine an ETH 2.0 staker, who has ETH tokens locked in staking, but expects price drop. He can simply open leveraged iETH position on SNX and when the price drops, he will cover his loss on staked ETH with profit from shorting.
Index investing - Some investors don't want to pick individual projects to invest in, and rather want to bet on the whole segment or industry, such as betting on centralized exchange tokens, via the sCEX synth we covered earlier.
Stocks and commodities - Being able to long and short gold, silver and stocks without leaving Ethereum ecosystem. All synths are tokenized, so they can be utilized within the whole DeFi ecosystem.
Leveraged trading - trading derivatives on margin let's use leverage (borrowed money) to get bigger position with smaller capital. However, it's very risky and recommended only to very experienced traders. Currently it's not possibly, but leverage is on project roadmap.
Parts of the Synthetix engine
Synthetix exchange - Native DEX, where you can buy or sell various synths. Its flat trading fees of 0.3% per trade is distributed among SNX stakers. There is no order book, since trades are settling directly with the smart contract (Peer-To-Contract) in the whole synth liquidity pool.
Mintr- app used by stakers and minters who provide liquidity for synths and earn rewards.
Dashboard - monitor metrics from Synthetix ecosystem.
Since Synths are tokenized they can be used in the Ethereum ecosystem outside of the Synthetix exchange. Synths are a money lego. They can be composed into clever use cases, dDAI for example, allows you to lend DAI, and earn interest in synthetic gold. Synths can be traded on exchanges like Uniswap and used as medium of exchange.
What is the SNX Asset?
How to make money on Synthetix?
Final Thoughts & Action Steps
Author's Bio: Fiskantes is an Investment Director of Sigil Fund private hedge fund, investing in digital assets, crypto money and decentralized networks. Sigil is relying on deep fundamental research and only investing in assets, which are already battle-tested on mainnet and listed on exchanges—no pre-sales, no SAFTs, no whitepaper phase ICOs. Author also co-founded Crypkit—digital assets tracking and accounting toolkit for crypto companies.
Filling out the skill cube
Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.
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