Synthetix is a decentralized synthetic asset issuance protocol built on the Ethereum blockchain. It enables users to trade synthetic versions of real-world assets—such as fiat currencies, commodities, and cryptocurrencies—without holding the underlying assets.
One of the most common questions from traders is: what backs the value of these synthetic assets? The Synthetix protocol uses its native token, SNX, as collateral. Users lock SNX into a smart contract to mint synthetic assets, known as Synths. Recently, Ether (ETH) has also been added as a supported collateral asset.
Synthetix differs from most decentralized and centralized exchanges in three major ways:
- It does not use an order book. Instead, traders interact with a decentralized pool of collateral provided by the community.
- Traders do not buy or sell physical or digital assets directly. They trade synthetic assets whose prices are tracked via off-chain oracles provided by Chainlink.
- The platform offers native support for derivatives and investable pools, which are often secondary features on other trading platforms.
Supported Synthetic Assets
Synthetix currently supports four main categories of synthetic assets:
- Fiat currencies such as sUSD and sEUR
- Commodities like synthetic gold (sXAU) and silver (sXAG), priced per ounce
- Cryptocurrencies including sBTC and sETH
- Inverse cryptocurrencies like iBTC and iETH, which gain value when the referenced asset declines in price
Inverse tokens allow users to profit from falling markets. Additionally, users can earn rewards through trading fees and staking incentives.
Earning Rewards with Synthetix
Trading Rewards
Whenever a user trades on the Synthetix exchange, a 0.3% fee is applied. These fees are collected in a reward pool. SNX stakers can claim a proportional share of these fees weekly. If you are minting Synths, you not only avoid stability fees—you also earn a portion of the trading fees.
Holding Rewards (Inflation Rewards)
SNX also has a built-in inflationary reward system. The total supply of SNX is designed to increase from 100 million to 245,312,500 tokens over time, with a decreasing inflation rate each year. Users who maintain their SNX collateral above the target threshold receive these newly minted SNX tokens as "holding rewards."
SNX Tokenomics
The Synthetix Network Token (SNX) was initially launched in March 2018 through an ICO. The initial total supply was 100 million SNX, distributed as follows:
- 60% to investors in the public and EOI sales
- 3% reserved for rewards and marketing campaigns
- 5% allocated for partnership incentives
- 12% to the Synthetix Foundation, vested quarterly over 12 months
- 20% to the team and advisors, vested quarterly over 24 months
How to Use Synthetix: Step-by-Step
Minting sUSD
To begin trading synthetic assets, you first need sUSD. You can obtain sUSD by minting it using SNX as collateral.
- Go to the official Synthetix Staking page.
- Connect your Web3 wallet (such as MetaMask or WalletConnect).
- Choose between "Mint Max" to stake all your SNX or "Mint Custom" to stake a specific amount.
- Confirm the transaction to mint sUSD.
Trading Synthetic Assets
All synthetic asset trading occurs on Kwenta, a platform built on Synthetix.
- Visit the Kwenta website and connect your wallet.
- Use the Dashboard to view your sToken balances.
- The Convert tab lets you trade ETH for sUSD directly.
- Transaction History provides a record of all your trades.
To start trading:
- Navigate to the Exchange section.
- You can convert sUSD into any sToken (e.g., sBTC, sETH), or trade between sTokens directly.
- You can also trade inverse tokens like iBTC or iETH to short Bitcoin or Ethereum.
Shorting Assets
Kwenta also supports shorting through synthetic assets:
- Select the Short option on the Kwenta interface.
- Choose your collateral ratio—options typically include 200%, 165%, or 155%.
- Borrow sBTC or sETH against your collateral.
Note that the liquidation threshold is currently 120%. The lower your collateral ratio, the higher your risk of being liquidated.
Unstaking SNX and Burning sUSD
To unstake your SNX or adjust your collateralization level, return to the Staking dashboard. You have several options for burning sUSD to release staked SNX:
- Burn Max: Burn all sUSD in your wallet to unstake all SNX (may not be fully redeemable if your position is at a loss).
- Burn Custom: Burn a specific amount of sUSD to unstake a portion of your SNX.
- Burn to Target: Automatically burn enough sUSD to return your collateralization rate to the minimum threshold.
- Clear Debt: Use this option to burn all your sUSD and unstake all SNX (requires sufficient sUSD balance).
Conclusion
Synthetix is one of the earliest and most innovative DeFi protocols. It employs a unique economic model that deeply integrates the SNX token into its ecosystem. The platform is governed in a decentralized manner through the SynthetixDAO.
Although its mechanics can be complex, the recent expansion to Layer 2 solutions like Optimism has significantly improved usability and reduced transaction costs. The team continues to evolve the system, building on lessons learned since its initial launch as Havven.
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Frequently Asked Questions
What are synthetic assets?
Synthetic assets are tokenized derivatives that mirror the value of real-world assets without requiring holders to own the underlying asset. They enable price exposure to equities, commodities, or currencies within the DeFi ecosystem.
How do I earn rewards on Synthetix?
You can earn rewards by staking SNX. Rewards come in two forms: trading fees generated by Synthetix exchanges and inflation rewards distributed to stakers who maintain sufficient collateralization levels.
Is Synthetix safe to use?
Synthetix uses audited smart contracts and is one of the most established DeFi protocols. However, all DeFi activities carry risks, including smart contract vulnerabilities, liquidation risks, and market volatility. Always do your own research and consider your risk tolerance.
What is the difference between sETH and iETH?
sETH tracks the price of Ethereum and increases in value if ETH goes up. iETH is an inverse token—it gains value when the price of Ethereum decreases, allowing traders to profit from downward market movements.
Can I trade synthetic stocks on Synthetix?
Previously, Synthetix offered synthetic equities. However, due to regulatory considerations, those offerings have been discontinued. The protocol currently focuses on cryptocurrencies, commodities, and forex synthetics.
What wallets are supported?
Synthetix supports most Web3 wallets, including MetaMask, Ledger, Trezor, and WalletConnect-compatible mobile wallets. Always ensure you are using official links to avoid phishing scams.