Synthetix is a derivatives trading protocol on the Ethereum blockchain where holders of the Synthetix Network Token (SNX) are shareholders of the network and receive fees from every trade. In order to receive fees, SNX holders must stake (“lock up”) their SNX tokens, which cannot be transferred or sold. The project is in its infancy, but if successful, large trading volumes will increase staking demand due to high fees, which will have a side effect of creating token scarcity on the open market.
In addition to collecting trading fees, stakers are currently incentivized with additional SNX tokens while the protocol is being developed. All SNX rewards from staking are placed in escrow for a year and cannot be sold immediately. The extra SNX rewards for stakers decline over time as trading fees are expected to increase in the near future once the protocol is ready for marketing and mass adoption (more on this later).
This article explains the Synthetix derivatives trading protocol in detail. Let’s begin with an overview of derivative contracts and how they work.
What is a Derivative?
In traditional finance, the 3 main categories of financial instruments are debt (bonds, mortgages), equity (stocks), and derivatives. A relatively unknown term outside of the financial sphere, a derivative is a contract between two…