now that's a bit of a word salad so let me explain it with an example as a Brit I not try and shoehorn football into almost any analogy and I'm going to do so here football players are multi-million dollar assets who are often transferred from one club to another let's take Nima for example and his 222 million euro move from Barcelona to Paris on German the thing in football is that no two players are the same they have different levels of skill and attributes which determine their real-world value I'm an avid Sun daily player myself and certainly do have a few tricks up my sleeve when it comes to bombing it down the wing and taking a tumble inside the box however I can assure you that my signature is not worth the same amount as Neymar's now let's take the computer game football manager this game translates the skills and attributes of different players and creates a virtual representation of each player within the game in short football manager is all about simulating real-world players and allowing the gamer to flex their football managerial skills within a simulated environment here's the game developers simulation of Neymar in football manager we can think about this version of the player as a synthetic Neymar in a nutshell what the creators of football manager are aiming for is to tie the attributes and performance of real-life football players with the stats and performance of the player within the game by doing so they're creating a synthetic representation of the realplayer now it may sound crazy but football manager is so good at translating the attributes and skills of real-world players into a synthetic version that real-life football teams are actually using the game's data to help them splash real money on players now let's take it back to crypto normal aetherium would be like the real-world version of Neymar however s eath on synthetics is the simulated or synthetic version of aetherium this is like our synthetic version of Neymar in football manager the thing to note is that synthetics are a simulated representation of a real-world asset in football manager this is represented in every game update so let's say that for some reason Neymar plays poorly for a bit this poor real-life performance would then be reflected in the next database update by reduced attribute stats in a nutshell synthetic assets track the performance of the real asset.
the same is true of crypto ethics like s BTC s eath and SB n beyond Synthetix these synthetics are not the real asset and simply track the real-world performance of the real asset so now that you know about Synthetix assets I'll move on to explaining what synthetics with an X at the end is in short synthetics is a trading platform for synthetic assets built on top of the ethereum blockchain another important thing to note is that the platform is currently only partially decentralized however there are plans in the future to make synthetics truly decentralized more on that later chain-link fans so what synthetic assets can you trade on the platform.
well there are a number of different asset categories to choose from these include fiat currencies like USD the euro yen Aussie dollar British Pound crypto currencies like Bitcoin ethereum and B&B commodities like gold and silver and stocks are coming soon which will allow users to trade synthetic versions of stocks like Tesla Netflix and Apple now if we zoom into the different asset examples on the Synthetix website you'll notice that there is s BTC and I VT C so what you need to know is that anything with an S before the ticker symbol mimics the price of the asset so if you bought s BTC when Bitcoin was 10k and the price went to 20k you would have doubled your money effectively you're going long on the asset however synthetics has assets prefixed with an eye for example I BTC this is an inverse synthetic asset which means you can profit from an inverse moon by effectively shorting it both types of assets are known as synths oh yeah another cool thing about Synthetix is that anything with a price data feed can technically be traded on the Synthetix exchange in theory it's possible to enable decentralized Synthetix trading for every single stock commodity and cryptocurrency in the world that's the sort of potential we're talking about here however it doesn't stop there in traditional finance.
there's something known as an exchange-traded fund or ETF yes Bitcoin ETF hopefuls we are having to bring up these sorts of products again now put simply many ETFs commonly hold a basket of different assets focused on a particular sector or region of the world and trade freely on a stock exchange if you hop over to Hargreaves Lansdown the biggest investment supermarket platform in the UK you'll see a huge range of different ETFs by sector what these financial products enable you to do is buy a basket of stocks or commodities so for example the iShares PLC core footsie 100 ETF allows me to buy exposure to the whole footsie 100 index which means exposure to the 100 biggest stock market listed companies registered in the UK you'll also notice here that the single ETF has a whopping eight point four billion pounds in it the point is that ETFs are bloody popular due to the fact that with just a few clay I can get exposure to a big basket of different stocks like these it makes things super easy for investors to diversify their holdings the really exciting thing is that synthetics could launch a crypto top ten Synthetix basket holding the top 10 biggest cryptocurrencies.
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which would mimic the performance of these assets a pretty easy way to get exposure to the top Kryptos right essentially the platform could create baskets of Synthetix assets for nearly anything and slice and dice them in an almost infinite number of ways given how much value is locked up in a traditional ETF that could potentially be a massive market indeed now I quickly want to address the elephant in the room why would someone want to hold a Synthetix asset and not the real thing in short it's for trading purposes Synthetix assets on the platform are likely for you if you want an easy way to get price exposure without dealing with any centralized entities so you're interested in Synthetix the next thing you'll be wondering is how do I use the Synthetix exchange the key thing to know here is that unlike other exchanges you're not trading with another person we'll explain this in a bit more detail in a minute once you're on the Synthetix website and click the take me there button under the exchange header you'll then be told to connect your wallet to the exchange data supported wallets include meta mask treasure and ledger once connected you'll then be prompted to buy s USD with aetherium which is a Synthetix stable coin.
pegged to $1 the thing to know here is that to start trading on synthetics you'll need to start with some s USD alternatively you can buy synthetic TSA's s USD token from a decentralized exchange like Koo coin move it to a meta mask treasure or ledger wallet and once you connect that wallet to the synthetics exchanged app you'll be ready to trade you can then click the asset button to activate a drop-down showing you all the different assets on the exchange so let's pretend we have s USD and we say we want to trade one thousand dollars s USD for s eath synthetic ethereum what happens when you execute the trade is that your s USD is burned and s eath is minted so with the Synthetix exchange you're not trading with other people like in regular exchange instead the Synthetix exchange is essentially a Synthetix token minting and burning system now you're probably wondering how the prices of synthetic assets are determined when trading in short it's all determined by price data feeds which are also known as Oracle's earlier I said that Synthetix was only partially decentralized and the reason why is because these price feeds are completely centralized and controlled by the synthetic steam that being said the project does have plans to decentralize these in the future you can see this price data feed in the bottom left hand corner of the trading screen alrighty you're probably sitting there and thinking that the Synthetix exchange.
sounds pretty cool however let's be blunt about it what on earth is the benefit of all this well in a nutshell there are three main benefits one it's partly decentralized and that means there is no kyc and it's non-custodial meaning you control the keys to your crypto assets to seeing that you're not trading with other people and synthetic assets are bought and sold through the minting slash burning of synthetic tokens this means you don't have to worry about liquidity the reason why is that new tokens can always be minted and three tokens supply is not a problem either in theory an infinite number of synthetic tokens can be created this being said in reality there is a cap and that's based on the amount of collateral that is backing up the synthetic system I've been in proper here and thrown around the word collateral without explaining it pardon me in short collateral is just something that's pledged as security for repayment of a loan here collateral simply refers to the crypto that underpins the value of all issued synthetic assets more on that later now you're probably wanting to get an idea of how big the synthetics ecosystem actually is you can pop on over to the synthetics dashboard or check out defy pals calm you'll then discover that the current synthetics ecosystem is the second largest in defy right now and has a whopping 156 million dollars worth of value locked up in it not too shabby at all let's now move on to talking about the s and X token you can see on the synthetics dashboard that over 80% of all SN x tokens are locked as collateral and that the value of these tokens is around 160 million dollars.
the key thing here is that the total synthetic in supply is valued at only twenty two and a half million dollars this means that the value of all the synthetic tokens issued is over collateralized by around seven hundred and seventy five percent another interesting fact that I have to share with you is that the synthetics project incentivizes snx holders to hold a collateral is a ssin ratio of over seven hundred and fifty percent this is done through a pretty clever mechanism where SN x token holders can only earn staking rewards if the collateral ratio is over this number the staking rewards are basically a distribution of the fees generated on the synthetics exchange now you're probably thinking that a seven hundred and fifty percent collateralization ratio is bloody high and it is so why the insane number well in short it's this high due to the system being untested and the fact that SN X is a volatile asset if you've been listening to all this and been thinking that it all sounds very similar to maker and die then you're absolutely correct however the difference is that synthetics currently has no liquidation mechanism that's why synthetics has been so conservative when it comes to the collateral of since and why the collateralize a ssin ratio is so hi so now you should have a pretty good grasp of the synthetics project as it currently sits but what does the future look like for the project straight up I have to say that the current version of the synthetics exchange is just a prototype it's by no means a finished product and is certainly a work in progress however the ultimate goal of synthetics is to become a massive decentralized trading platform where users can trade synthetic assets for anything on the planet shout out to the Defiant on sub stack who highlights four key things in the pipeline for synthetics.
the first is the introduction of non snx collateral options that would be a big deal as SN X tokens are currently the only form of collateral if assets like Bitcoin could be used as collateral this would certainly make the whole ecosystem much more stable the second thing in the pipeline is the creation of a liquidation mechanism to stabilize under collateralized positions third synthetics acknowledges that it's price feeds also known as Oracle's are centralized and that this opens up the exchange to a single point of failure however the project is solving that problem via integration with chain link yes another thing for chain link fans to get excited about this would mean that centralized price feeds would be converted into decentralized ones the really cool thing is that the work has already begun here and the first version of the synthetics chain link integration is already complete for aetherium providing accurate and decentralized price feeds for this asset oh and by the way I actually completed a separate review on chain link not so long ago you can watch it right over here if you want more info anyways kane warwick founder of synthetics went on the record to say that the partnership is one of the most significant milestones in the project's history so far.
he also goes on to say given our reliance on regular price feeds for our derivatives trading mechanism finding a robust decentralized oracle solution has always been at the top of our priority chain-linked delivers the solution deployed by an excellent team and supported by an invaluable community even better synthetics is 4x and commodity price feeds have also been chosen for the initial deployment this covers the fiat currency pair trading and US dollar gold and silver trading pairs finally the synthetics exchange desperately needs better trading tools things that we take for granted on crypto exchanges like leveraged trading and stop losses simply do not exist in the current synthetics to exchange these will almost certainly be needed if the project is going to successfully eat into the market share of the likes of bit Mex and buy bit congratulations on hanging on in there to the end I know I've gone through a lot and the truth is that synthetics is a very complicated project.
so if you now feel like you get it then you can give yourself a pat on the back however I'd like to finally share my closing thoughts on the project with you I've been super excited about the potential of synthetics since researching the project for my recent dphi overview video if you've not watched it you can see what you missed right here it blows my mind that with synthetics it's possible to enable trading for pretty much anything that has a tradable price and being able to access price exposure to these assets with crypto I also think that being able to buy inverse synthetic assets and being able to benefit from downward price movements in a similar way than by bit could open up the opportunity to a host of new people what I am exceptionally interested in is the ability to buy a basket of assets in just a few clicks imagine how much simpler it would be to buy a defy index rather than having to head over to numerous exchanges and process a dozen or so trades also I'm aware that literally trillions of dollars in assets are parked in similar products in the traditional finance markets if synthetics could gain even a few percent of that market I have no doubt that would mean huge things for both synthetics and defy in general however one of the main concerns with synthetics is that it's only really accessible to crypto veterans after all how many newcomers to the space know how to set up a hardware wallet or are able to use meta masks access to synthetics is of course possible but it does have quite a high knowledge barrier and I sometimes wonder if many people truly see the value of non-custodial finance for example there are millions of people who use investment supermarkets like Hargreaves Lansdown and appear happy to trust that they actually own the assets reported in their account breakdown it must also be stressed that the current version of synthetics is only a prototype there are limited tradable assets available right now and the exchange is missing many features we take for granted in the centralized exchange world the team certainly has a lot of work to do to make the platform.
the decentralized investment supermarket that they envision however with all that said I'm still incredibly optimistic about the future of the project and particularly excited about the planned integration with chain link which aims to make the whole exchange truly decentralized I'm certainly going to be monitoring synthetics as progress very closely over the coming months so chaps what are your thoughts on synthetics are you going to be adding the project to your watch list do you get the project now I'd love to hear your thoughts in the comment section below I really hope you enjoyed this article and follow us if you loved it also as always thank you for reading I'm going to be back at you with another crypto review very soon thanks.
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