Amid the excitement of Crypto’s biggest bull run in history, some assets have even outperformed the current high-performance market. Synthetix (SNX) in particular was on an epic rift, leading the growth of the entire niche.
News of a Coinbase listing in December helped explain part of it. However, at the time of writing, SNX is up over 225% since mid-December. Currently, the SNX is trading above $ 16.7, cementing its position as one of the best performing tokens in the ongoing rally.
In addition to the Coinbase effect, the main reason for the rise in the SNX price is the real demand for what Synthetix has to offer – namely digital, synthetic assets. So why all the fuss about these instruments and what are they used for?
A brief history of synthetic assets
Like many other elements of the cryptocurrency markets, plastics came from the traditional financial sector. Plastics are used to simulate certain instruments, changing some key features in the process. This allows investors to get exposure to underlying assets without necessarily having to hold them.
In the cryptocurrency space, tokens are a digital synthetic representation of all other assets, including those in the real world, such as stocks, commodities, or fiat currencies. Cryptosynthetics can also be used to expose cryptocurrencies and tokens. A simple example could be some of the “packaged” assets used in Ethereum’s DeFi applications.
Wrapped Bitcoin (WBTC) has had success over the past few months. This is evidence of the appetite for such assets. It soared from a market cap of around $ 1.1 billion in September to $ 4.7 billion at the height of the recent Bitcoin rally over $ 40,000. The recent release of a synthetic version of Monero could help potential investors bypass the restriction on exchanging privacy coins. It offers investors exposure to Monero (XMR) without having to find their way through the ongoing delistings, while also offering the opportunity to participate in Wrapped Monero (WXMR) in the various decentralized financial applications based on Ethereum.
Synthetix – first mover advantage
Synthetix benefits from being the first company to hit the market with a decentralized exchange that also allows users to mint synthetic assets called synths and use cryptocurrencies as collateral. The platform operates SNX as a native token. Owners can use SNX as collateral to mint Synths and earn a portion of the fees paid by Synthetix DEX users. Hence, the SNX token offers a real utility as it encourages users to create synths on the platform and add further value to the token itself.
In the past three months, Synthetix has seen significant growth from around $ 500 million in late October to over $ 2.3 billion at the time of writing, according to DeFi Pulse.
While there are synthesizers out there that traders can use to speculate on the price of non-crypto assets like oil, it is evident that the vast majority of users are using Synthetix to access synthetic USD and crypto assets using sUSD, sEther, and USD sBitcoin is the most popular on the platform. According to the Synthetix statistics page, they make up over 75% of the total market capitalization of all synthesizers.
The sUSD Synth alone accounts for around 50% of the total Synth market cap, indicating that DeFi users continue to have an appetite for stable currencies to trade. However, SUSD is also the most liquid synth that can be traded on central exchanges like Binance and KuCoin, as well as on decentralized Curve and Balancer exchanges.
The most popular is the sUSD / sETH pair on the Synthetix Exchange, which currently has a daily volume of around $ 10 million. Even so, the number of traders using the platform is quite low, with an average of 130 over the past 30 days. This indicates that liquidity is highly concentrated.
Contender for Synthetix
With decentralized funding expanding rapidly, other companies are likely to enter the room. There are currently two main competitors in operation.
Universal Market Access is an open source protocol that allows users to enter into priceless financial contracts on Ethereum based on templates and set prices according to an oracle. Simply put, it means developers can set up ERC-20 tokens to trade a synthetic version of any asset.
Currently, over $ 63 million is tied to UMA in nine projects. With PerlinX, users can generate their own synthetic assets. Like Synthetix, PerlinX uses a native token called PERL, which is used as security for the generated synthetic asset. The platform launched in the third quarter of 2020 and is currently suspended at $ 250,000, despite peaking above $ 600,000 in December, according to DeFi Pulse.
At the time of writing, PerlinX has not yet enabled the feature that allows a user to create their own synthetic assets. As with Synthetix, it is therefore up to the application owners to decide which ones get onto the platform. This will likely limit the usefulness of the platform, allowing PerlinX to become a more significant rival to Synthetix once users can shape their own assets.
Another project, the Mirror Protocol, was recently launched on the Terra platform, which is one of the most widely used blockchains thanks to the Chai payment app, which the company claims has a base of 2 million users in South Korea. The mirror appears to be in a developed state in which many “mAsset” synthetics already live. They track stocks, indices and commodities.
There is currently around $ 93 million blocked for the Mirror protocol. So there is still some work to be done before it becomes a real rival for Synthetix. However, liquidity has risen sharply since it launched in December. It also appears from the types of assets available that Mirror attracts those looking to speculate on the broader financial markets, while Synthetix provides a base for the Ethereum DeFi crowd.
A bright outlook
Given the popularity of Synthetix and the fact that more new entrants are entering the market in 2021, it is likely that synthetic crypto assets are anchored in the DeFi landscape and the market will continue to grow.
Given the potential for disruption in traditional financial markets, it is expected that there will be more competition for digital plastics that reflect all kinds of real assets. This is a corner of the DeFi area that is definitely worth a visit during the year.