A quick explainer on SynthetiX

Synthetix is a token trading platform built on Ethereum. It allows to creation of real world assets, like stocks and shares to be bought and traded using crypto. Synthetix started …

Synthetix

What is Synthetix V3? Let me explain.

At its core, the entire Synthetix V3 system is a Collateralized Debt Position (CDP) protocol. Similar to MakerDAO/Liquity, you take your collateral (SNX, ETH/wsteth/other LSDs/etc), deposit it into a contract, and then generate a stablecoin. In Synthetix's case, the system-generated stablecoin is sUSD.

The differentiator for Synthetix is that you can instead delegate your entire CDP, collateral and all, to a larger basket of collateral called a Pool.

Pools can be considered a collective CDP, with baskets of collateral used to generate sUSD and allocate liquidity to derivative markets for traders to utilize. Pool owners are the deciders of how liquidity is allocated. Because of this, even though anyone can create and manage a pool, most stakers will likely direct their collateral to more ‘trusted’ pools. For example, the Spartan Council Pool, whose owners are directly elected by SNX token holders.

Pools then use this collateral and allocate it to derivative Markets. Markets are arguably the most important piece of the entire protocol, as they're the logic that turns LP liquidity into onchain financial instruments. Well-designed markets hope to generate delta-neutral fees for LPs - which, in this case, means that the fees earned by liquidity providers are unaffected by perps trader profit and losses, ensuring stable returns regardless of volatility. A recent example of a 'well-designed market' is Synthetix Perps, which has returned $24m+ in fees to Synthetix Stakers. Synthetix Perps has built-in risk management designs like price-impact and dynamic funding rates, which work together to keep the market delta neutral.