Welcome to the world of Synthetix world, here is another way of trading for the traders who are waiting. Have you ever thought about a platform where you can trade without any kind of barriers, sounds good to be serious right? Well, this is real and the Synthetix platform makes it true, it is a decentralized platform where every user is invited to come and perform trading without any kind of barriers. In today's article, we will delve into the fascinating realm of decentralized finance and explore "What is Synthetix and How Does it Work?'' So, to know more about this fascinating technology stay with us and read the article given below.
What is Synthetix?
Synthetix (SNX) is a protocol that is designed to enable the issuance of synthetic assets on the Ethereum (ETH) blockchain network. Synthetix is an innovative platform that works in a decentralized network and is built to allow users to create and trade synthetic assets, these assets are tokenized representations of real-world assets such as Synthetic USD (sUSD), Synthetic Gold (sXAU), Synthetic Oil (sOIL), and Synthetic Apple (sAAPL)
Why do platforms use Systems of collateralized debt position (CDPs)? It is used by SNX to issue the synthetic assets as users can lock up SNX tokens as collateral and then mint synthetic assets in the form of Synths, which can be traded on DEXs(decentralized exchanges) such as Uniswap, Sushiswap, PancakeSwap, or Synthetix own built-in exchange Kwenta.
When someone erects SNX as collateral for the creation of Synths, it would be minted at a 1:1 ratio with the collateral deposit which means the value of Synths they can create is equal to the value of SNX they erect or put up and the Synths value will always be backed by the weight of SNX.
Why do platforms use Oracle Systems? It is used to ensure whether the Synths (digital assets) have the same worth as the real-world asset they represent, to ensure this specialized system used by the SNX platform called oracle. Furthermore, this system helps to perform helpful buying, selling and investing in terms to keep track of the Synths value in line with the real-world assets.
How Does it Work?
Synthetix (SNX) platform is responsible for the issuance of synthetic assets on the blockchain network and this is done by using the various ways given below:
- Synthetic Assets: SNX is a decentralized finance (DeFi) platform that facilitates its users for the trading of synthetic assets such as gold, stocks, or cryptocurrencies.
- Collateralization: Users must collateralize their trades with SNX to create the synthetic assets. SNX is the native token of synthetix platform which allows the users to perform trading of synthetic assets without owning them.
- Decentralized Exchange (Kwenta): Kwenta is a decentralized exchange (DEX) of Synthetix platform. It allows the users to trade synthetic assets with each other, as the exchange is developed and deployed on the Ethereum blockchain so all the settlement would be done on the Ethereum blockchain network.
- Governance: Synthetix is also known as a community-driven platform which means it is governed by its community of users and they have a proper right to vote even on a single change in the network or they can propose a solution or participate accordingly.
Users can create and exchange synthetic assets, which are tokenized representations of actual assets, using the innovative platform Synthetix, which operates in a decentralized network. SNX would be created at a 1:1 ratio with the collateral payment when it is put up as security for the production of Synths. The most crucial component is that all Synthetix platform work is performed primarily using two platforms (Oracle Systems and Systems of Collateralized Debt Position (CDPs)). Both platforms have unique tasks to complete to carry out Synthetix workings while trading synthetic commodities.