What is Synthetix?
One of the fastest-growing applications of crypto is DeFi — decentralized finance — which describes a variety of innovative approaches to many aspects of finance, include borrowing and lending, insurance, and in the case of Synthetix, synthetic asset and derivatives trading.
Synthetix produces derivative tokens called synths which track the value of a stock, currency or commodity. Holding synths exposes the holder to the underlying asset without needing to purchase the asset directly. However, these synths aren’t the same as an actual asset in that they cannot be redeemed for the underlying asset, and collateral value such as voting rights are not carried through to a synth holder.
Synthetix uses smart contracts to carry out trades. Smart contracts are effectively self-fulfilling contracts that remove the need for a third party, or ‘trustless’. The Synthetix protocol is designed with pooled collateral to provide liquidity and zero slippage on trades of derivative tokens. Synthetix has partnered with Chainlink, a decentralized oracle network, so its smart contracts source decentralized price feeds that avoid the reliance on any single party to provide pricing information.
The platform’s collateral is provided by the minting and staking of Synthetix’s own token, the Synthetix Network Token (SNX). Whenever a new synth is created, SNX is minted and locked up in a smart contract.
What is SNX?
SNX is an ERC-20 token created by the Synthetix protocol that serves multiple purposes. In addition to serving as collateral on the protocol, by staking SNX, a holder will receive a portion of trading fees from the network as an incentive to contribute to the liquidity pools.
A significant amount of SNX needs to be staked in order to release a new synth into circulation, ensuring tradable derivative tokens are over-collateralized. In theory, this drives up the price of SNX; the token becomes rarer and its fundamental value increases because locking it up adds a new synthetic token into circulation.
Synthetix also applies rebalancing methods to stabilize the price of SNX. If SNX price rises, the system releases SNX tokens that weren’t tied up guaranteeing synths. These tokens are then sold on the open market. Doing this increases the supply, driving the price of SNX down.
Before trading any crypto assets it is important to understand the risks. This overview is a starting point for you to perform your own research prior to investing in a crypto asset.
No securities regulatory authority or regulator in Canada has evaluated or endorsed the Crypto Contracts or any of the crypto assets made available through the platform.
Wealthsimple has performed an assessment of whether SNX can be supported by Wealthsimple’s platform, including whether SNX is a security and/or a derivative and is being offered in compliance with securities and derivatives laws.
We evaluated Synthetix based on publicly available information, including (but not limited to):
- The creation, governance, usage and design of Synthetix, including the source code, security and roadmap for growth in the developer community and, if applicable, the background of the developer(s) that first created Synthetix;
- The supply, demand, maturity, utility and liquidity of SNX;
- Material technical risks associated with Synthetix, including any code defects, security breaches and other threats concerning Synthetix and its supporting blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them;
- Legal and regulatory risks associated with Synthetix, including any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of SNX; and
- Statements made by regulators or securities regulatory authorities in Canada and other jurisdictions regarding whether SNX, or generally about whether the type of crypto asset, is a security and/or a derivative.
Wealthsimple monitors ongoing developments related to crypto assets available on its platform for significant changes that may affect Wealthsimple’s original assessment of those assets, including Wealthsimple’s assessment of the application of securities and derivatives laws. Any significant changes relating to SNX may result in changes to this Crypto Asset Statement and/or Wealthsimple’s ability to support SNX.
Like all other crypto assets, there are some general risks to investing in SNX. These include short history risk, volatility risk, liquidity risk, demand risk, forking risk, cryptography risk, regulatory risk, concentration risk, electronic trading risk and cyber security risk. Please review the Wealthsimple Crypto Product Risk Disclosure for additional discussion of general risks associated with the crypto assets made available through the platform.
We emphasize that this Crypto Asset Statement is not exhaustive of all risks associated with trading SNX. Investors should perform their own assessment to determine the appropriate level of risk for their personal circumstances.
Wealthsimple is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Wealthsimple Investments Inc. dated December 18, 2023 (the Decision).
The statutory rights of action for damages and rescission in section 130.1 of the Securities Act (Ontario), and, if applicable, similar statutory rights under securities legislation of other jurisdictions of Canada, do not apply in respect of this Crypto Asset Statement to the extent a Crypto Contract is distributed under the prospectus relief in the Decision.
Last updated: January 1, 2024