Synthetix Report


Synthetix is an Ethereum-based protocol that allows users to issue and trade synthetic assets. These synthetic assets are tokens backed by $SNX collateral that mimic the performance of other assets including cryptocurrencies, commodities, etc.

These synthetic assets are collateralised by $SNX as they are locked in the smart contract allowing the issuance of the aggregate assets (called Synth).

Synthetix’s asset exchange model allows users to make the switch between Synths directly with the smart contract without slippage, avoiding third-party interference.

What is Synth?

In the Synthetix ecosystem, Synths are understood as synthetic assets.

Above example, Synths are sUSD. You can understand it as a token whose price is equivalent to the price of the coin anchored and its value is backed by the $SNX Token.


Why is Synthetix valuable?

Total trading volume has been reached $2.8 billion since Feb 20th, 2020. This resulted in a total of $11 million in fees, which translates to an average trading fee of 0.38% and an average daily trading volume of ~$8.5 million. That brings a huge amount of profit for $SNX holders.


Objective: The idea allows users to optimise their capital, through the issuance of Synths.


  • These synthetic assets require very high liquidity to handle payment requests. The liquidity is real on the Synthetix platform and has not yet extended drastically beyond this ecosystem.
  • The synthetic assets is made by smartcontract which represents $iToken. Therefore, smartcontract risks as exploit vulnerabilities and hack which are effect to platform.

Potential Solution

  • Such as the need to use the synthetic asset as a derivative tool to increase profits or hedging. The parties involved are hedgers, speculators, liquidity providers will make the platform grow.
  • The fee earned from the operation will be shared with the $SNX holder, attracting investment, holding $SNX and increasing its value.

Token High-Level Summary

Token Summary

The system uses 2 types of tokens: Synthetix network token ($SNX) and synthetic asset or Synths.

$SNX is a utility token to the Synthetix ecosystem. It allows holders to govern the system and earn a reward through staking. There is a total supply of 260,263,816 $SNX in the market.



A place to exchange between Synth and $SNX without the need for a third party.


It is a decentralised application for $SNX owners to release synthetic assets (Synths) and join the Synthetix Network.


To provide users with an overview and honesty about the Synthetix ecosystem.

Synthetix in DeFi (Products)

Since March 2020, the Synthetix platform supports over 30 synths representing fiat currencies, commodities, and crypto assets. Stocks, indices, and other derivatives are planned.

Currently, Synthetix is a decentralised derivative exchange with the largest amount of assets locked in the protocol with more than $700 million.

Similar to other defi projects, Synthetix also provides the idea when the user provides the bar or staking if the incentives are effective enough to reach more people involved in the ecosystem, helping Synthetix to grow.

  • Build on ETH blockchain
    • Using Solidity Languages
    • Ethereum has the most developers building on it and most active community of users
  • A property management place
    • Bring resources to the most beneficial place in ETH blockchain
    • It connects to other protocols by smart contract
    • These smart contracts are like robots seeking the best profitable places.
    • Transfer fund to these places.

Market Design

Design of the environment in which the tokens and users exist in

1. Thickness of Market

The global derivatives market is huge. Some estimate it to be more than 10 times the total world GDP, making it almost a large value market. With the new DeFi movement exploding, projects are building their businesses around derivative products with very high growth potential.

Synthetix is currently the leading decentralised platform for derivative trading. By being one of the first projects on the market, the project was able to gain the advantage of its predecessor. This is currently the only decentralised platform with such a large amount of combined assets.

However, given the large market opportunity, competition is likely to intensify from both other centralised and decentralised players.

On the decentralised front, projects like Universal Market Access (UMA) are building a platform that allows users to create any type of crypto derivative. Although it differs from Synthetix in terms of technology, it aims to achieve similar goals. However, it is still relatively new to the market and it will likely take time before it can start making significant competition for Synthetix.

The other competitor is ABRA. At its core, ABRA is using the cryptocurrency as collateral to create a synthetic asset. However, the project is more centralised than Synthetix and was recently fined by the SEC for allowing US residents to trade the property.

Centralised technologies currently carry a much higher risk to Synthetix. Large centralised exchanges have made up a sizable share of options trading. For example, Derebit has been the largest cryptocurrency option trading platform on the market. As the market matures, centralised players are likely to be much faster at expanding trading options than decentralised competitors, thus attracting more volume and users to their platform.

With the advantage of being a pioneer, Synthetix is currently the market leader. However, in the future, the competition is likely to become increasingly fierce and the project will have to proceed much faster to remain competitive in the market.

2. Reduce Congestion

Synthetix is a decentralised synthetic asset issuance protocol built on Ethereum. To create a new Synth, the user has to take out collateral and assets are locked in the platform.

This platform needs to maintain a fixed price for the assets traded on it.

Synthetix is using Pegging Mechanism (Synthetix Pegging Mechanism section) to maintain transactions.

Previously, the project had problems with its oracles, and the foundation suffered an attack and over 37 million ETH were taken away. However, now the problem seems to have been resolved.

The project is also actively building very active GitHub. The project has released the final protocol upgrade recently.

Security and correctness are paramount goals for the Synthetix platform. The project is working with several different audit partners to validate the integrity of smart contracts. Since its launch, the project has undergone 18 security checks. The last two were conducted in June 2020.

Overall, from a technology perspective, Synthetix is a solid project. While the platform is quite secure and premium, the right people are constantly working to improve and add new functionality.

3. Safety & Ease of Use


  • Jan 29th, 2018: HAV Smart Contract Audit

    ZK Labs and Sigma Prime audited version 1.0 of the Havven platform.

  • April 12, 2018: eUSD

    Sigma Prime audited eUSD component of the Havven platform.

  • June 8, 2018:

    Sigma Prime and Bloctrax audited nUSD.

  • Feb 11, 2019:

    Sigma Prime and iosiro audited multicurrency synths.

Ease of Use

  • Synthetix.Exchange has limited order functionality, payment improvements, stake rewards improvements, and a few other improvements.
  • User-friendly interface.

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Mechanism Design

Rules of the game that people have to follow


Ownership of tokens within the Synthetix ecosystem is determined by a public network of Ethereum smart contracts.

However, the basic protocol design, incentive parameter settings, and system development are presently governed by the Synthetix foundation.

1. Decision Making

Since the protocol’s launch in 2018, the team has taken concrete steps to downsize the Synthetix Foundation’s role in protocol management. Currently, the protocol is under the control of a separate DAO trio including

Protocol DAO

Control over protocol Improvement and Configuration Change

Synthetix Improvement Proposals (SIPs)

The SIP format describes protocol standards and proposed updates.

SIPs have been used to modify the fee/reward structure, allow the liquidation of unused synths, introduce new synths, and implement various exchange rate front-running protections.

Synthetix Configuration Change Proposal (SCCPs)

SCCPs are similar to SIPs, but concern modifications to system configuration values such as exchange fees and the global collateralisation limit.

Synthetix grantsDAO

The Synthetix grantsDAO was set up to fund community grant proposals for such purposes as infrastructure and promotional resources. The DAO consists of 3 community members and 2 core contributors.

Community Governance Calls

Community governance calls are a venue for the Synthetix team to consult with the community. These calls occur on a semi-regular basis and typically have a pre-set agenda of issues to be discussed and resolved.

2. Resolution mechanisms

Wrong governance

Members of the protocol DAO have access to the system and can pause an individual Synth or an entire system to ensure a quick response in the event of a power outage or breakdown.

Bad member in protocol DAO

If one or more members of the protocol DAO initiate action against the system, other members of the protocol DAO can vote to remove the malicious members from the DAO.

In the future, token holders will have the ability to eliminate the protocol DAO’s members who commit malicious actions.

Non-Finance Incentive

1. Voting Protocol

The basic protocol design, incentive parameter settings, and system development are presently governed by the Synthetix foundation, and will gradually decentralise in the future.

2. Allocation mechanism

Minting Synths

An $SNX holder can mint sUSD by locking their $SNX as collateral via the Synthetix smart contract:

  • The Synthetix contract checks that the $SNX staker can mint Synths against their $SNX, which requires their Collateralisation Ratio to be above 750% (can only burn Synths when below 750%).
  • Their debt is added to the Debt Pool and is stored in sUSD
  • The debt is assigned to the staker, the sUSD is issued the new amount. It adds it to its total supply and assigns the newly minted sUSD to the user’s wallet.


If a user purchases the synthetic assets (from sUSD to sBTC in this example).

  • Burn sUSD, update to wallet address’s sUSD balance and the total supply of sUSD.
  • Establish the conversion amount (i.e. the exchange rate, based on the price of each currency).
  • Charge an exchange fee (0.3%), and send the fee as sUSD to the fee pool
  • A user gets 99.7% of sBTC value, and the sBTC total supply is updated.

Claiming Fees

When claiming fees, a staker also claims their $SNX staking rewards.

  • Check currently available fees and whether the staker is eligible to receive fees.
  • The fees in sUSD are sent to the staker’s wallet and the fee pool is updated
  • A pro-rata amount of escrowed $SNX is assigned to the wallet address from the $SNX staking rewards contract.

Burning Debt

A staker mints 10 sUSD by locking $SNX as collateral and wants to burn 10 sUSD to unlock it. But if the debt pool fluctuates (and therefore their individual debt fluctuates) while they are staked, they may need to burn more or less debt than they minted.

  • The Synthetix contract determines their debt balance and removes them from the Debt Pool.
  • The required amount of sUSD is burned, and the total supply of sUSD is updated along with the sUSD balance in the user’s wallet.
  • Their $SNX balance becomes transferrable.

The Debt Pool

The system tracks the debt pool each time an $SNX holder mints or burns Synths. And updating the Cumulative Debt Delta Ratio.

This measures the $SNX staker’s proportion of the debt pool at the time they last minted or burned, as well as the debt change caused by other stakers entering or leaving the system.

The system uses this information to determine the individual debt of each staker at any time in the future, without having to record the changing debt of each individual staker.

Market Structure

1. Bargaining Protocol

Users in the Ecosystem

$SNX holders can use service in the system by staking or providing liquidity. Non-$SNX holders also use these by purchasing Synths or sUSD at the external market and participate in the Synthetix system.

Change Synthetics

No counterparty is required to exchange, as the system converts the debt from one Synth to another. Hence no order books or order matching is required, resulting in infinite liquidity between Synths. No debt change is required to be recorded against the debt pool either, as the same value is burned from the source Synth and minted from the destination Synth.

2. Community information

External Synth Liquidity Pool on Dex

Synthetix diverts a portion of its token inflation budget towards users who supply sUSD and sETH on and Uniswap.

Liquid Synth markets will attract more traders, who will then generate more fees for $SNX holders, allowing the $SNX inflationary program to be wound down once a critical mass of users has been reached.

Price Oracle

The value of all synthetic assets in the Synthetix system is currently determined by oracles that push price feeds on-chain. It uses an algorithm with a variety of sources to form an aggregate value for each asset. The price feeds are currently supplied by both Chainlink’s independent node operators and Synthetix, and will soon all be supplied by Chainlink.

Token Design

Rules of the game that tokens have to follow

Token Policy

1. Monetary Policy

Inflationary Monetary Policy

Initially, there was a fixed supply of 100,000,000 $SNX. To encourage participation in the ecosystem, the New Monetary Policy implements 5 years, increasing the total supply from 100 million to ~ 260.263.816 $SNX, with a gradual decrease in annual allocation. Start on 03/2019.


This additional $SNX will be distributed to $SNX holders who have locked their $SNX as collateral. This will ensure there is more opportunity for early participants, rewarding people who are willing to contribute to the system.

To ensure this increased supply does not harm issuance, $SNX earned through staking will not be transferable within the first year of being issued. It has had an enormously positive result in terms of active participation in the network and has played a key role in attracting a large number of additional stakers.

However, after that, there were proposals to improve monetary policy, with the following 2 changes:

  • 1.25% weekly rewards decline
  • 2.5% annual terminal inflation rate

The final inflation schedule was updated below.


Generous rewards led to increased interest in the project which, in turn, led to an increase in the price of $SNX, allowing stakers to mint more liquidity for the network. Currently, about 78.8% of $SNX tokens are staked with a reward of about 49.7%.

But despite the growth in liquidity, traders haven’t rushed to participate. When stakers minted sUSD, many were keeping their funds in their wallets or selling them for a discount on the external market.

The concern with such a model is that investors are primarily attracted by the $SNX rewards that come from token inflation, while the Synthetix Exchange fees remain relatively small. In the future, the volume on the Synthetix Exchange will need to increase significantly for such a system to survive. Otherwise, staking rate could drop significantly, negatively affecting the entire protocol.

Although the above change creates better liquidity, it is not enough to support the protocol. Now, the project needs to use the variety of resources it has to further develop usage and volume on the platform.

Supply Formula

In which:

y: supply

a = 75m/52: const

x = 1.25% : Weekly Decay Rate

t: time

$SNX as collateral

How does $SNX back Synths?

All Synths are backed by $SNX tokens. Synths are minted when $SNX holders stake their $SNX as collateral using Mintr.

Synths are currently backed by a 750% collateralisation ratio.

$SNX stakers incur debt when they mint Synths, and to exit the system (i.e. unlock their $SNX) they must pay back this debt by burning Synths.

Fees or rewards are not recognised for assets that take no risk for the debt pool.

The Collateralisation Ratio (C-Ratio)

If C-Ratio falls below 750%, $SNX stakers will be unable to claim fees until they restore their ratio. They adjust their ratio by either minting Synths if their ratio is above 750%, or burning Synths if their ratio is below 750%.

The Pooled Debt

Since Synths are mimicking real asset’s returns, any profits made by Synth holders mean losses must be borne by someone. In the case of Synthetix, the counterparty is the entire pool of $SNX stakers, who collectively take the other side of the price moves of all Synths.

$SNX stakers incur a ‘debt’ when they mint Synths. This debt can increase or decrease independent of their original minted value, based on the exchange rates and supply of Synths within the network.

2. Token Valuation 

Currently, the benefit of holding $MATIC is a reward from the transaction fee. Evaluate transaction volume against the Polygon network then use the discounted cash flow model to value $MATIC

Financial Incentives

1. Platform Activities

Maintain Network

To maintain the network, Polygon encourages users to participate in the network for increased security by staking $MATIC. This is also how to participate in the consensus process on Network.


Polygon’s core mission is to perform transaction verifications and provide publishing proofs. Any transactions that take place will pay a fee of $MATIC for validators.

2. Financial Returns

Validating and Fraud Prevention

Verifying transactions and providing proof of fraud are both rewarded with $MATIC.


Staking $MATIC will bring passive income to holders, who will authorise Block Producers and receive transaction fees from the network.

Token Architecture

Useful for non ERC-20 tokens. And how financial products are structured.

Token distribution


Polygon demand is growing due to a shortage in Layer 1 infrastructure. The solutions offered by Polygon are perfectly suited to the current market needs.

In terms of design mechanism, Polygon focuses entirely on network activities, voting incentives are undertaken by the core team. $MATIC holders have voted only for selecting Block Producers.
In terms of token mechanism, $MATIC has major benefits from transaction verification. Beside, providing evidence of fraud is also rewarded.

In the future, Polygon will do well until Layer 1 has a better, cheaper way for users to improve performance. For example, Ethereum’s Sharding launches, this network will operate more efficiently and cheaper, then demand from Polygon will decrease. However, They are developing solutions that take Layer 1s themselves a lot of time to develop. This is the potential that Polygon will be able to achieve in the future.

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