Synthetix is a synthetic asset protocol that allows for the issuance of synthetic assets on the Ethereum blockchain. It allows users to mint, hold, and trade a wide range of derivatives – including commodities like gold and silver, fiat currencies like USD, and even stocks. They can also do this for certain cryptocurrencies as well, the most popular being Bitcoin.
Synthetix is able to generate these new assets using a process called collateralization. It is collateralized by SNX, ETH, and LUSD, enabling the issuance of synthetic assets, called Synths. To generate Synths: the user must acquire SNX and deposit it on the Synthetix platform. In return, Synthetix creates a new synth token of the user’s choice. The value of SNX locked would then need to remain at or above 750% of the value of the synth created, which is determined by community governance (and may be subject to change).
Synthetic assets give you a way to get exposure to an asset without having to own it. Plus Synths track and provide returns on the underlying asset without requiring one to directly hold the asset. You can therefore use synthetic assets in DeFi and deposited them to decentralized exchanges like Uniswap, Sushi, or Curve, and you can provide liquidity and earn trading fees just like with other ERC-20 tokens.