Amid all the excitement of the biggest bull run in crypto history, some assets are even outperforming the current high-performing market. In particular, Synthetix (SNX) has had an epic tear and led the growth of the entire niche.
The news of a Coinbase listing in December helped for some of this. At the time of writing, however, SNX is up more than 225% since mid-December, is currently trading above $ 16.7, and strengthens its position as one of the top performing tokens in the ongoing rally.
Beyond the Coinbase effect, the main reason for SNX’s price hike is the genuine demand for what Synthetix has to offer – namely digital, synthetic assets. So why all the excitement about these instruments, and what are they used for?
A Brief History of Synthetic Assets
Like many other elements of the cryptocurrency markets, synthetics came from the traditional financial sector. Synthetics are used to simulate certain instruments while modifying some important characteristics. This allows investors to gain exposure to underlying assets without necessarily holding them.
In the cryptocurrency space, tokens are a digital synthetic representation of any other asset, including those in the real world, such as stocks, commodities or fiat currencies. Crypto plastics can also be used to gain exposure to cryptocurrencies and tokens. A simple example could be some of the “packed” assets used in Ethereum’s DeFi applications.
Wrapped Bitcoin (WBTC) has succeeded in recent months, demonstrating the hunger for such assets, which has risen from a market cap of about $ 1.1 billion in September to $ 4.7 billion at the peak of Bitcoin’s recent rally above $ 40,000. The recent release of a synthetic version of Monero could help potential investors to buy the exchange suppression on privacy coins. It provides investors with exposure to Monero (XMR) without having to navigate the ongoing deletions, while also offering the option to deploy Wrapped Monero (WXMR) in the various Ethereum-based decentralized financial applications.
Synthetix – Advantage for the first mover
Synthetix benefits from being the first to hit the market with a decentralized exchange that also allows users to store synthetic assets, known as Synths, using cryptocurrencies as collateral. The platform uses SNX as its own token. Holders can use SNX as collateral to store Synths and earn some of the fees paid by Synthetix DEX users. Hence, the SNX token provides real utility as it incentivizes users to create Synths on the platform and create more value for the token itself.
Over the past three months, Synthetix has seen significant growth from about $ 500 million at the end of October to more than $ 2.3 billion at the time of writing. according to to DeFi Pulse.
While there are Synths that allow traders to speculate on the price of non-crypto assets, such as oil, it is clear that the vast majority of users use Synthetix to access synthetic USD and crypto assets, with sUSD, sEther and sBitcoin is the most popular on the platform. They account for more than 75% of the total market capitalization of all synths, according to to the Synthetix statistics page.
The sUSD Synth alone is about 50% of Synth’s total market cap, indicating that DeFi users are still hungry for stable currencies to trade. However, SUSD is also the most liquid Synth, which can be traded on centralized exchanges, including Binance and KuCoin, as well as on decentralized exchanges Curve and Balancer.
The most popular is the sUSD / sETH pair on the Synthetix Exchange, which currently has about $ 10 million in daily volume. Despite this, the number of traders using the platform is quite low, averaging around 130 in the last 30 days. This indicates that the liquidity is highly concentrated.
Candidates for Synthetix
Given the rapid growth of decentralized financing, it seems likely that other companies will enter the space. There are currently two major contenders in use.
Universal Market Access is an open source protocol that allows users to set up invaluable financial contracts on Ethereum, based on templates, and set prices according to an oracle. Simply put, this means that developers can set up ERC-20 tokens to trade a synthetic version of any asset.
Currently, more than $ 63 million is locked up in UMA in nine projects. Of these, PerlinX allows users to generate their own synthetic assets. Like Synthetix, PerlinX uses a native token called PERL, which is deployed as collateral against the generated synthetic assets. The platform launched in the third quarter of 2020 and is currently locked down at $ 250,000, although it peaked at over $ 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, so, like Synthetix, it’s up to the application owners to decide which ones to get onto the platform. This likely limits the platform’s usability, so PerlinX could become a bigger rival to Synthetix once users are able to stock up on their own resources.
Another project, Mirror Protocol, has recently launched on the Terra platform, one of the most used blockchains thanks to the Chai payment app, which the company claims has a base of 2 million users in South Korea. Mirror appears to be in a developed state, with many “mAsset” plastics already. They track stocks, indices and commodities.
Currently Mirror Protocol has about $ 93 million locked, so it still has a long way to go before being a true rival to Synthetix. However, liquidity has risen sharply since its launch in December. It’s also clear from the types of assets available that Mirror attracts those looking to speculate in the broader financial markets, while Synthetix is a staple for the Ethereum DeFi crowd.
A clear outlook
Due to the popularity of Synthetix and the fact that there are other new entrants to the market that will launch in 2021, it seems likely that synthetic crypto assets will be fixed in the DeFi landscape and the market will continue to grow.
With the potential for disruption to traditional financial markets, it is reasonable to expect that there will be increased competition for digital plastics that reflect all types of real world assets. This is one corner of the DeFi space well worth checking out when the year is over.