If you are in the crypto world for a long time, you might have heard of Synthetic Crypto. But what is Synthetic Crypto and how does Synthetix work? In this article we will discuss Synthetic Crypto.
What is Synthetic Crypto?
Synthetic assets are blockchain-based tokenized derivatives of underlying assets. Also known as synths, synthetic assets can be described as a combination of traditional derivative assets and cryptocurrencies.
What Is Synthetix?
Synthetix is an Ethereum-based synthetic asset issuance protocol. Similar to derivatives in traditional finance, synthetic assets are financial instruments in the form of ERC-20 smart contracts called "Synths" that track and provide returns on another asset without requiring you to hold that asset. You can trade Synths on Synthetix's decentralized exchange (DEX) Kwenta - ranging from cryptocurrencies, indices, inverses, and real-world assets such as gold. Synthetix's native token, the Synthetix Network Token (SNX), is used to provide collateral for issued Synths.
How does it work?
Synths uses a decentralized oracle (a smart contract-based price discovery protocol) to track the price of the asset represented, allowing you to hold and exchange Synths as if you actually own the underlying asset. In this way, Synths provides exposure to assets typically unavailable to the average crypto investor, such as gold and silver, and allows you to trade them quickly and efficiently. Synthesizers are distinct from tokenized commodities, such as Paxos' PAX Gold (PAXG), which is backed by bullion. Owning PAXG means you own the underlying gold, Paxos holds it for you, and owning Synthetix's sXAU means you don't own the underlying asset - you're just touching the gold price.
Synthesizers are different. They track asset prices through sophisticated smart contract mechanisms. Owning sXAU does not mean you own any underlying gold. It just means that you have exposure to the gold price.
So I hope now you will know What is Synthetic Crypto & How does Synthetix work. Synthetix is a synthetic asset protocol on Ethereum. Synths track the price of the underlying asset without the user actually having to own the asset itself.
