Security Token Exchange

In a move counter to the broad crypto market, the SNX token jumped more than 16.5% on Monday as its price surpassed $2.27. Since then, the crypto asset has given up some of its gains as it trades at $2.22 at the time of writing, up 0.6% in the past 24 hours while managing $48.8 million in trading volume. 

The 52nd largest cryptocurrency with a market cap of $718 million is up 9.2% in the past week and 6.4% in the past fortnight. However, the token’s performance in the past 30 days has been negative 12.7%.

SNX is the native token of the decentralized synthetic asset issuance protocol Synthetix, which is up over 53% in 2023 so far but down about 24% over the past year. 

The token reached its peak of $28.53 on Feb. 14, 2021, but has since lost 92.25% of its value. This high came following a $12 million funding round that included Coinbase Ventures, Paradigm Capital, and IOSG Ventures, which purchased SNX tokens directly from the platform’s treasury.

In March this year, Synthetix yet again secured a $20 million investment through a new partnership with market-making and quantitative trading firm DWF Labs. The company acquired $15 million worth of SNX, paid for with USDC. 

DWF Labs was tasked with increasing SNX token liquidity and market-making across both centralized and decentralized exchanges. As part of this deal, Synthetix’s perpetual futures were to be also integrated into DWF Labs’ trading business, following which DWF Labs committed to purchase another $5 million worth of SNX.

Synthetix was founded by Kain Warwick as Havven, a collateral-backed stablecoin issuer, in 2017, which raised around $30 million in 2018 by selling 60 million HAV tokens through an ICO. Havven was rebranded to Synthetix at the end of 2018 to broaden the project’s objectives to the formation of synthetic assets beyond its flagship USD stablecoin to also include fiat, cryptocurrencies, and commodities.

To mint synthetic assets, token holders have to stake their SNX as collateral using Mintr, a dApp for interacting with the Synthetix contracts. Staking also enables users to earn weekly rewards for collateralizing the network. Until March 2019, SNX was deflationary when the community voted to incentivize the minting of synths using an inflation mechanism.

Back in July 2021, Synthetix announced the launch of its layer 2 integration with Optimism, allowing it to offer low fees and an efficient trading experience. 

Click here to learn all about investing in Synthetix (SNX).

What’s Happening with the Synthetix Network?

The Synthetix Network is an asset platform that enables users to create synthetic assets of fiat currencies, commodities, and crypto assets. Synthetic assets called “synths” on a blockchain are tokens that replicate other assets, giving the synth holder the benefit of the asset without having to actually hold it.

Unlike other DEXs, trading synths on Synthetix doesn’t require a counterparty due to the over-collateralization of SNX, which creates a collateral pool that enables the conversion of a synth to another based on the exchange rate and the value of SNX.

When it comes to the total value locked (TVL) in the protocol, it is currently $414.3 mln, a level seen in June 2020. The TVL has fallen drastically since its $2.17 billion ATH in Feb. 2021. 

In the month of August, Synthetix earned $3.92 million in fees, according to DeFi Llama. This was the second-highest number in 2023 after $4.76 million in March 2023, nowhere near the $9.88 million in June 2022. 

As for Synthetix Treasury, it currently holds $67.36 million in value. Based on the data provided by Dune Analytics, Synthetix is recording $15.76 million in volume today, while as per DeFi Llama, derivatives volume reached nearly $5.6 bln in August.

This year, Synthetix launched the latest version of its trading protocol called Synthetix Perps. The decentralized Perps trading protocol offers the backend infrastructure to be integrated by any protocol. The platform offers 50x leverage on 40+ assets. 

Perps V2 hit a major milestone in 2Q23, surpassing $15 billion in total volume since it launched at the end of last year.

Currently, all the eyes are on Synthetix V3 deployment. This version has been two years in the making and is defined as the liquidity layer for Decentralized Finance (DeFi). This upgrade to the Perps v2 will bring multi-collateral, allowing any synth to be used as collateral as well as native cross-margin for users. 

The new development comes following a flourishing Q2 for Synthetix Perps that saw record-setting volumes for the protocol thanks to enhancements in front-end platforms such as Kwenta and Polynomial, improved UX from reduced execution delay, and increased market activity. Furthermore, the cost-reducing Optimism Bedrock upgrade and the OP incentives program, which went live in April and allocated over 5 million OP tokens to promote the use of Perps V2, were also responsible for this growth.

During Q2 of 2023, the platform started implementing the first active features for V3, highlighted by the alpha release of the spot market for snxETH, atomic swaps, and asynchronous orders. This release further enabled new fee innovations that can be applied to any spot market on V3. 

However, despite this, the platform experienced a downward trend in daily active users (DAUs) over the quarter.

When it comes to SNX staker yields, which trended downwards over the last year primarily due to the reduction in inflation rewards, settled between 11%-16% for stakers. In order to claim yield on their stake, stakers must have the required minimum 500% collateral ratio. The double-digit yield, however, could only gain 500 new stakers depositing their SNX in Q2. 

During the most recent community call last week, it was shared that the final Mainnet alpha upgrades for V3 are with auditors for review, and the Perps V3 SIP (Synthetix Improvement Proposal for changes to the protocol) is finally up on the SIP repo in the draft. Moreover, the Perps V3 testnet trading competition will take place on Coinbase’s newly launched L2 Base.

At this time, there is a general consensus to set fees at 30% across the board instead of being a governance decision based on integrator proposals. In regards to this, the project’s core contributor, Kaleb, stated that the variable fee may give integrators the ability to pass some of that fee share back to users, which is not the intended purpose of the fee and may stifle competition while Grants Council member Sunny countered that the threat of reducing fee share would likely keep integrators from doing this.

Click here to learn all about buying Synthetix (SNX). 

A Look at Broad Crypto Market 

Unlike SNX, cryptocurrency prices slid this week. Bitcoin is currently trading at $25,748, while Ether is exchanging hands at $1,632. With that, the total crypto market cap has slumped 0.7% to now stand at $1.080 trillion. 

With crypto prices stuck, institutions are also evenly split on crypto funds this week. According to the latest report from CoinShares, neither bulls nor bears are currently dominating, with a meager $11.2 mln recorded in outflows in the last seven days.

However, trading volumes surged 90% above the year-to-date average, jumping to $2.8 billion over the same period. This increase in activity could be attributed to last week’s turbulence in the market due to a legal roller coaster with Grayscale securing a win over the SEC to convert its trust to an ETF and the agency delaying several spot Bitcoin ETF applications, including that of BlackRock.

In a Sept. 1 interview with CNBC, former commission chair Jay Clayton said major financial institutions backing spot Bitcoin investment vehicles represented a shift in how retail investors could get exposure to crypto. “An approval is inevitable,” he said. “The dichotomy between a futures product and cash product can’t go on forever.”

Some see the ongoing price weakness as a buying opportunity, while others are selling. Despite this, 2023 has remained green, with entities scooping up $165 million worth of digital assets. Investors also pulled out of short Bitcoin products for the 19th consecutive week. 

When it comes to Bitcoin, which had a devastatingly negative August, it saw inflows worth $3.8 million in the last week. Country-wise, Switzerland led the bulls on the week with $14.8 million worth of purchases, while Germany was a negative counterpart, marking $26.9 million in outflows. US and Canada, meanwhile, posted negligible buying, with $1.9 million and $0.4 million respectively.

Unlike BTC, the vast majority of altcoins also saw outflows, with Polygon and Ethereum leading the pack at $8.6 million and $3.2 million, respectively. While big crypto investors pulled cash out of funds, they poured funds into Solana over the past nine weeks, making it “the most loved altcoin amongst investors at present.” The year-to-date inflows of SOL currently stand at $26 million. 

Coming back to the ETFs, Grayscale’s landmark win, according to broker Bernstein, would see the industry’s first spot Bitcoin ETF sometime between mid-October and mid-March, including the approval of all spot ETF applications, including Grayscale. 

“The crypto ETF opportunity won’t stop at just bitcoin (BTC), but will extend into multiple crypto assets,” analysts led by Gautam Chhugani wrote in a report on Monday. The asset management industry will push beyond majors BTC and ETH to other top blockchains and even leading DeFi assets, presenting a massive opportunity to generate healthy fees in a burgeoning asset class, it said.

“The strong showing in the courts (Ripple and Grayscale in 2 months), improved ETF chances, and the progressive institutional interest are positioning crypto for an unprecedented capital-led cycle, unlike the retail-led crypto cycles of the past,” the report added.

For now, the bearish momentum is gaining strength with the approval of a spot ETF potentially deferred until 2024 and the SEC’s regulatory action against top crypto exchanges Binance and Coinbase. This regulatory uncertainty favors the bears amidst the rising interest rates and investor interest waning.

While crypto is down in the dumps, the stock market has been holding well, with the S&P 500 index just 6.3% below its all-time high (ATH) from January 2022, while gold is only 6.5% away from its peak. 

On the macro front, things have been improving. The US inflation, as measured by the Consumer Price Index, has come down to 3.2% in July 2023 from 9.1% in June 2022. The US Federal Reserve’s total assets have also been reduced to $8.12 trillion, down from the recent $8.73 peak in March 2023. However, quantitative tightening is still going on, with rates at a multi-year high of 5.25%-5.50%, although the cooling US economy is giving the central bank room for breathing.

The stablecoin space also paints a bearish picture for crypto, with the overall size of the stablecoin market contracting for a 17th consecutive month, dropping 0.4% to around $125 billion, according to researcher CCData.

The largest stablecoin, Tether’s (USDT) market capitalization fell 1.2% to $82.9 billion in August, declining for the first time in nine months though still 3x larger than its closest competitor. Circle’s USDC stablecoin, which has lost about half its market share in the past year in the wake of turmoil at Silicon Valley Bank, recorded little change in its market cap in August at around $26 billion. 

“Although it is early to say if the market cap of stablecoins has finally hit bottom, there are encouraging signs that hint at some inflow of capital,” said Jacob Joseph, research analyst at CCData.

Concluding Thoughts

The thing is, it’s not looking good for Bitcoin, with the market anticipating a correction to $23,000 and even sub-$20k. The cryptocurrency has already lost all its gains since BlackRock’s ETF initial filing and Grayscale’s much-hyped legal victory that saw a failed attempt to reclaim the $28k support. 

With Bitcoin looking weak, a drop in the price of the largest cryptocurrency would mean a sell-off in altcoins as well, including SNX. In the near term, though, SNX price can see a positive momentum with the launch of V3, but overall, the broad market trend and sentiments remain bearish.