Memo to: The Archimedes Community
Memo to: The Archimedes Community
Re: Synthetix breakdown: Is sUSD the world’s most interesting stablecoin?
In our inaugural Archimedis Memo, we will break down Synthetix. Synthetix is a pillar of the DeFi space, with over $400 mil (US) locked and an almost $1bn market cap. Over the past few years, it’s one of the fastest growing projects in all of crypto. If you go to their website, Synthetix is described as, ‘…a new financial primitive enabling the creation of synthetic assets, offering unique derivatives and exposure to real-world assets on the blockchain.’
If you’re asking what the heck that means, fear not! We will unpack it for you. As a bonus, you’ll get pro tips that can help you maximize your Synthetix ROI.
Essentially, Synthetix has devised a very slick way to blend real world assets (ex: gold, foreign currency) with crypto assets in a very broad and diverse (for DeFi) exchange. The coin of the realm, sUSD, is their decentralized stablecoin (making it censorship resistant) that is backed by SNX, Eth, and LUSD. With sUSD, you can trade synthetic versions of real world and crypto assets or ‘synths’.
The beauty of Synthetix is that they’ve devised a debt structure that gives traders the ability to move in and out of synthetic assets without (or at least very minimal) slippage. F#$ing cool! You get price exposure to everything from Bitcoin, Eth, gold, foreign currencies, etc. with basically no friction. Let the trading floodgates begin! Right? Not quite…
The problem with Synthetix is getting your hands on that sweet sweet sUSD. SNX requires a 400% collateralization rate…meaning for every $1 of sUSD, you must lock the equivalent of $4 worth of SNX (not great).
Because those affable Aussies are real blokes (don’t cancel me), they give you a very interesting incentive for staking SNX. They periodically increase the money supply (eek that dirty word inflation!!!) of sUSD. In addition to the transaction fees you’re paid out as a liquidity provider, you are also rewarded additional sUSD everytime they increase the money supply…noice!
So here is the challenge, you want to trade on Synthetix so you need that sweet sweet sUSD. However, the 400% collateralization rate really eats into your investment capital. Also, you would rather not have to worry about the downside risk if the value of SNX drops. Enter the sUSD Curve pool …
You know who is really really good at providing liquidity? Curve! sUSD is so interesting because it’s a stablecoin with its own unique demand (but more on that in a second). The sUSD liquidity pool on Curve is the gift that keeps on giving to traders and stakers (and bloggers wink wink). Rather than converting into SNX and staking, you can get sUSD by staking other stablecoins (DAI, USDT, and USDC) in the sUSD curve pool…god I love DeFi! The coolness does not end there!
In times of high market volatility, demand for sUSD goes bananas! People are rushing to get in and out of positions and they need sUSD to do it. That means anyone staking on the sUSD curve pool stands to earn high trading fees during these rushes.
With all of this value being created, it is clear why Synthetix has become one of the biggest projects in DeFI. You have the option to acquire and stake SNX for sUSD or you can acquire sUSD directly from the Curve pool. Because of this, staking on the sUSD Curve pool is highly lucrative, which creates a virtuous circle where trading volume leads to more liquidity.
As big believers in the future of DeFi, we at Archimedes love what is going on down under (ok cancel me). As we continue to develop our platform, we will be looking at ways we can find and partner with such protocols to maximize value for everyone with our liquidity bootstrapping strategies and our leverage engine on stablecoins such as sUSD.
To learn more about Archimedes, you can check out our website here. Since we have not launched yet, we recommend joining our mailing list so you can get the latest and greatest updates!
August 26th, 2022
Originally published at https://medium.com on September 12, 2022.