What is the logic behind SNX leading the DeFi rebound?
Original title: "The Case for SNX to go back to ATHs"
Original author: Secret Salsa
Original compilation: 0x9F, 0x214, BlockBeats
Introduction
Like any other OG DeFi project, Synthetix has After the plunge, many were liquidated because they did not manage their sUSD debt positions carefully. In fact, as the SNX price collapses, margin calls need to be responded to by increasing SNX collateral or repaying sUSD debt to ensure the collateral ratio is appropriate.
Synthetix debt model has always been a double-edged sword: in a bull market, degens use sUSD debt to buy other Token or buy more SNX, with high leverage on their SNX collateral positions.
As the SNX Token price increases, bringing them additional sUSD fees and more SNX inflation rewards, which pushes SNX up. But when the market turns bearish, debt kills all speculators. They gambled away their debts and were unable to repay them, leading to a cascading liquidation of SNX.
No surprises, SNX went from its all-time high ($28.53) to its current price ($2.93 ), a drop of 90%. However, it gained 88% in the last month.
What happened?
You can say anything about Synthetix, but it is undeniable that they have the most hardcore project team and one of the most active DAOs in the entire DeFi ecosystem.
Although the sUSD debt model has some shortcomings, it also has great advantages, such as Atomic Swaps, which allow whales to benefit from better prices by using Synthetix's synthetic assets (sUSD, sETH, sBTC, etc.).
Atomic swap has been applied, and, thanks to Curve liquidity pool and 1inch and other DEX aggregators , they bring huge sUSD returns to SNX stakers on a weekly basis.
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In addition, Synthetix has begun to spin off other projects based on the theory of sUSD's unlimited liquidity, large traders can trade on Synthetix, and No slippage or spread losses like they do in traditional financial markets.
The most promising prospect for SNX stakers from a fee perspective is Kwenta. It has launched futures trading on Optimism L2, and trading volumes have picked up. Plus, it brings additional benefits to SNX stakers.
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Thus, from a fundamental point of view, these two factors are more than enough to justify the recent surge in prices.
But the question is is there enough momentum for SNX once the market stabilizes? Back to an all-time high? Because Synthetix's architecture is extremely complex and decentralized, and it is only built on Ethereum and Optimism L2.
Reasons for SNX to return to ATH
Protocol Layer
Synthetix has been in a constant state of transformation over the past few years, as the project team was never resting on its laurels: whether it was responding to crisis situations (leading early), or implementing new features or ideas, such as atomic swaps.
Synthetix started as a DEX for synthetic asset trading, or simply a dApps built on top of Ethereum.
With v3 planned for 2023, the project will be considered a protocol layer, Other projects will build dApps on it and use its liquidity. The more it is used and integrated with other DeFi legos, the more fees it generates. As such, it creates pooled fees for SNX stakers.
From an integration perspective, Synthetix is also the most advanced project on Optimism L2. As Optimism grows, Synthetix grows too. As new projects launch on Optimism, they use Synthetix to enhance their liquidity or activity, creating synergies in various ways, and increasing usage of the Synthetix protocol. Therefore, more costs are incurred.
Once Synthetix v3 is live it will allow rapid deployment on other L2 and possibly other L1 , such as Polygon or Avalanche (if the DAO deems it worthwhile).
Universal cross-chain bridge
Once Synthetix is deployed to other L1 and L2, it can be used as a general cross-chain bridge or synthetic transmitter (Synth teleporters), transfer Token and Stablecoin across chains in the most efficient way: Compared with traditional cross-chain bridges that rely on liquidity pools to achieve entry and exit, Synthetix delivery is faster, safer, and cheaper.
Kain at SIP-204 describes it like this:
"Most Token cross-chain bridges rely on a network as the "native" network of each Token. This means that when a token is bridged, the target network will receive the "wrapped" version of the token, while the original token is still stored in the cross-chain bridge contract of the source network. This is not ideal, as cross-chain bridges need to be secured at all times to preserve the value of assets on the target network. Most of these cross-chain bridges rely on multi-signatures for security, putting all assets on the target network at risk. "
Synthetic transmitters are not cross-chain bridges, they are another type of protocol, through Burn and mint assets to achieve cross-chain transfer.
“This ensures that the total supply of each synthetic asset remains Two versions of the same asset are secure. In terms of cross-chain messaging, there are generally two approaches: one is to rely on the cross-chain interoperability protocol provided by Chainlink; the other is to use signatures generated by transmitters on each network information that authorizes the transmitter of the other party to mint assets previously destroyed by the source transmitter."
The cross-chain bridge market has a huge prospect. The current TVL is 8.7 billion US dollars, and it can reach 24 billion US dollars at the peak. With the launch of various tools, Synthetix will soon capture a certain share of this market.
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Strong transaction protocol
Whether it is spot or leveraged decentralized trading, it has been popular for quite a while. There is a huge competition between chains and protocols to attract traders.
By far the most popular trading venue is probably dYdX, which is currently Runs on L2 based on StarkNet.
dYdX is the hub of decentralized exchanges, or until recently it was. A good product is important, but not everything. Having good token economics is also crucial.
If this is not the case, there will be friction between users and holders. dYdX is a perfect case of "great product + terrible token economics". The relative success of dYdX can be attributed to the fact that the protocol provides generous trading incentives for traders at the expense of DYDX Token holders and VCs with a large number of unlocked Tokens.
Contrary to dYdX, Synthetix's product and token economics are attractive. It rewards SNX stakers with weekly dividends. At present, APY has remained above 100% for several consecutive weeks.
Most importantly, Synthetix is a protocol that not only piggybacks on Kwenta, but since there is no Slippage, unlimited liquidity, and fully customizable products, many other teams are willing to launch derivative products on Synthetix.
Again, SNX stakers get more fees.
Two short boards
sUSD Debt
As we all know, for To participate in SNX staking, you need to stake your SNX and mint sUSD (this is your debt to the Synthetix platform). Once you become a SNX staker, you are in Synthetix's global debt pool.
In fact, for SNX stakers, they are any synthetic Trader's counterparty to a position in an asset (sETH, sBTC, etc.). This means that your debt position will fluctuate, increasing if the trader makes money and decreasing if the trader loses money.
The original idea of Synthetix was that traders tend to lose money on average, so Synthetix will achieve profit.
So when your debt amount changes as traders open and close positions , you are fully exposed to market volatility.
However, it is now possible to fully hedge your debt position on Optimism L2, This is thanks to dHedge and their spin-off Toros. Toros allows you to buy dSNX with the sUSD you mint, so you are not exposed to market volatility and your debt doesn't build up over time.
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Effectively, if you stake some SNX and mint 1000 sUSD, you now have a $1000 liability that varies with transaction activity. If you want your debt to stay at $1000, you can buy dSNX with your $1000 and Toros will hedge the debt pool on your behalf. The Toros dSNX pool on the Optimism Network can be accessed here.
As many users do not fully understand the concept or meaning of sUSD debt in our opinion, So sUSD debt management has been the main drawback of using Synthetix.
Now, you can hedge your debt, Synthetix for those who don't want to manage their positions 24/7 It is easier for users to use.
sUSD Liquidity on Optimism
Do Kwon has a famous saying "Your size is not size", especially in Optimism.
The sUSD on Optimism is not very liquid, so no whale can execute trades on Kwenta .
However, this is about to change as Synthetix has launched a sUSD cross-swap between Ethereum and Optimism Chain Bridge, so now you can buy large amounts of sUSD on Ethereum and bridge it to Optimism to start trading. The only downside is that once you want to bridge back to Ethereum from Optimism, you have to wait 7 days. The synthetic teleporter will not be available for a while.
How to bridge sUSD, click to view tutorial.
Risk
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The main risks are already known:
Supervision: If Mr. Gensler (Chairman of the US SEC) is in charge of supervising DeFi all over the world and focuses on Synthetix.
Hacks/Vulnerabilities: Synthetix is a complex protocol, so A hacker might find a loophole. This obviously won't be easy, as Synthetix has been investing heavily in security and so far hasn't really been hacked (except perhaps for front-end malfunctions, which are issues with the system itself).
Conclusion
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Synthetix has put their all into advancing the protocol over the years and it's still amazing to see their dedication. Additionally, the protocol has strong fundamentals, good token economics (will change with the introduction of veSNX) and an ambitious roadmap.
The roadmap is very ambitious, The planned launch of Synthetix v3 in 2023 will inevitably result in more fees for SNX stakers. Given Synthetix's progress on all fronts, and their strategy of incurring fees to SNX stakers, it's hard to be bearish on Synthetix. Because this is clearly a winning strategy - more fees mean more dividends for SNX stakers.
We cannot predict the future, so we cannot know whether the current bear market is over or Will last a year or more. But we believe Synthetix-related transaction volumes on all dApps will skyrocket later this year and into 2023 (even more once v3 goes live).
If this is the case, SNX will return to ATH sooner or later.
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