SNX, the native token that powers the Synthetix Decentralized Finance protocol, has surged in value in what is a defiance of the current market trend, as Bitcoin and other cryptocurrencies have sold off to trade at levels not seen since November 2020.
In the last seven days, data from CoinMarketCap reveals that the SNX token is up over 100%, despite Bitcoin falling below $21,000, a price point it recently reclaimed earlier in the week as worrying macro-economic factors become the focus of the market at large. The cryptocurrency market capitalization is still trading below the $1 trillion mark.
Before we look further into why the token is rallying, let’s look at what the Synthetix is all about.
What is Synthetix?
- Synthetix is a decentralized finance (DeFi) protocol that provides on-chain exposure to a wide variety of crypto and non-crypto assets. The protocol is based on the Ethereum (ETH) blockchain and offers users access to highly liquid synthetic assets (synths). The platform aims to broaden the cryptocurrency space by introducing non-blockchain assets, providing access to a more robust financial market.
- Synthetix operates in the DeFi space as a decentralized exchange (DEX) and a platform for synthetic assets. The protocol is designed in a way that exposes users to the underlying assets via synths, without having to hold the underlying asset. The platform allows users to autonomously trade and exchange synths. It also has a staking pool where holders can stake their SNX tokens and are rewarded with a share of the transaction fees on the Synthetix Exchange.
- Synthetix was one of the first DeFi projects to launch on Ethereum, offering users a way to trade tokenized financial instruments that track the price of other assets such as stocks and gold. Alongside a host of the leading cryptocurrencies, Synthetix also supports synthetic gold and Tesla stocks.
- The platform tracks the underlying assets using smart contract price delivery protocols called oracles. This way, Synthetix allows users to trade synths seamlessly, without liquidity/slippage issues. It also eliminates the need for third-party facilitators.
- The SNX tokens are used as collateral for the synthetic assets that are minted. This means that whenever synths are issued, SNX tokens are locked up in a smart contract. Since launch, the protocol has transitioned to the Optimistic Ethereum mainnet to help reduce the gas fees on the network and lower oracle latency.
Why the surge in price?
- SNX is the top gainer of the top 100 cryptocurrencies by market capitalization in the last seven days. The token which was initially not a member of the prestigious list now ranks #78 as of the time of this writing. A major reason for the rally is as a result of strong volumes on the Synthetix platform.
- Synthetix announced that its daily volume crossed over 200 million due to an increase in atomic swaps on Curve Finance and 1inch. It also cited increased volumes from options platforms such as Polynomial and Lyra Finance, as well as Optimism futures growth. This increased activity and volumes resulted in higher demand for SNX, thus contributing to its strong uptrend.
- Another factor to consider is the Synthetix’s active addresses metric. The metric reveals a strong increase in activity on the platform. Active addresses grew from 327 on 17 June to 1074 by 20 June. This is the highest number of active daily addresses that it recorded in the last 30 days. The network growth metric consequently recorded an increase from 60 to 133 during the three-day period.
- There is also a willingness by investors to hold tokens instead of synths as the protocol is now generating revenue of more than $1 million in trading fees, which is five times greater than BTC’s daily performance, indicating that the protocol is valuable to investors looking at value and usage as opposed hype.
- Sharing his thoughts on the development, Synthetix founder Kain Warwick, released a blog post that highlighted the difficulty of DeFi protocols to absorb Bitcoin’s volatility if the price drops even further.
- He stated, “This is critical to understand, Synthetix is an over-collateralised crypto-backed suite of stablecoins, it CAN implode.” However, he attributed Synthetix’s recent success to the responsiveness of the community to difficult circumstances and a willingness to experiment with novel mechanisms to provide stability.
- Finally, on-chain metrics revealed the intentions of shorting the SNX token across numerous exchanges. A Twitter user, napgener, disclosed that 15 million SNX tokens maintain a short position on popular exchanges including Binance, FTX, ByBit and OKX. While only 20 million SNX tokens exist on exchanges, the revelation points to an oncoming price hike, which might see SNX breach a value of $10. The Twitter user also alleged that the Celsius network is offering a 300% Annual Percentage Rate (APR) to users for shorting their SNX holdings.
What you should know
SNX currently has a market capitalization of $391 million.
The platform has seen its trading volume surge the last 24 hours compared to its usual average and seen its volume to market capitalization ratio currently stand at 1.02. This shows that investors are piling in money to buy the token as the token has gone on bid despite the dismal performance last week.
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