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0/ A lot of people have been asking about @synthetix_io $SNX price performance lately.

Some thoughts on its token demand + supply imbalance:
1/ @synthetix_io first caught my eye when it started climbing the ranks (quickly) on @defipulse in $ value locked up.

More than 80% of $SNX holders stake their tokens to mint synthetic assets, mostly synthetic USD and ETH. That’s a pretty impressive % of actual token usage.
2/ How it works: users mint synthetic assets against a pool of SNX collateral, and trade by converting it to other synthetic assets.

eg If 50% of pool is used to back sBTC and the other 50% sUSD, BTC price increases, sBTC holders’ gains are socialized between sUSD minters.
3/ Originally, I had my reservations due to the capital inefficiency, risk of using $SNX as collateral, and risk of liquidity provision.

Much of this is addressed in future iterations - this thread is primarily on $SNX’s token economics and how it led to a 16x growth since May.
4/ A few decisions - whether intentional or incidental - that helped the team tie usage of its platform to price growth:

- High c-ratio + single collateral
- High inflation rewards
- Vested staking rewards
- Speculative use case
- Thin float on exchanges
5/ Synthetix imposes a 750% colleralization ratio (which will come down).

When c-ratio falls under, the fees + rewards that users are entitled to will not be claimable and thrown back in a pool biweekly. This creates buy pressure for SNX when system is undercollateralized.
6/ While ETH functions better as a collateral (more liquid/ stable), using $SNX and compensating for risk with a high c-ratio ties the initial usage of the platform to the price of $SNX.

This creates strong social signals and incentives for Synthetix exchange users to hold $SNX.
7/ Part of the challenge that projects like Kyber face is a high initial float which depresses price far beyond value on a relative (comps) and absolute (DCF) basis in early days.

$SNX recognizes this and incentivizes staking with a high reward (+ tx fees) to limit float.
8/ This is similar to if “staking” ETH in @MakerDAO also entitled you to dividends in ETH (of course, $SNX is more illiquid).

Rewards are locked up for 12 mts + vested, which means the high inflation does not lead to immediate selling pressure in early days of price discovery.
9/ Combined with the lowest hanging fruit use case (speculation) in crypto, these design elements have led to continual upward price pressure throughout H2 2019, making it one of the better trades this year.
10/ The outstanding questions are - can volumes pick up enough for tx fees to incentivize staking when rewards inevitably comes down and this year’s rewards unlock?

What are the hidden risks for minters?

Can SNX accrue value when other collateral types are introduced?
11/ $SNX is an interesting case of token price generating interest in usage of the platform, which in turn benefits token price.

While not suitable for every project, its approach is more thoughtful than a a tenuous, tagged-on use case for tokens used primarily for fundraising.
12/ Disclosure: exposure to $SNX

cc @Rewkang @Arthur_0x @SpartanBlack_1 @spencernoon
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