You Can Now Trade Synthetic Stocks, Including TSLA, 24/7
In a recent announcement, Synthetix, the widely popular derivatives liquidity protocol headquartered in Sydney, Australia, made official its plans to include the stocks of Tesla (TSLA) in its growing list of Synths.
The resolution to incorporate Tesla was unanimously approved by the Synthetix community in a governance-voting event initiated on 2nd February and put in motion on February 10. All eight members of the Synthetix governance board voted to include sTesla into the protocol.
Tesla’s Enlistment in Synthetix: What Does it Imply?
After this inclusion, Synthetic users will become eligible to trade on one of the biggest corporate stocks in the world from a DeFi trading app. During the beginning of 2021, the market capitalization of Tesla crossed 800 billion US dollars, augmenting the company’s position as Wall Street’s fifth-most valuable company.
The year-to-year growth recorded at the same time was also phenomenal. The stock had surged over 700%. Apart from being an intrinsically high-potential stock, the inclusion of Tesla also caused enough excitement among the DeFi investors because of the recent disclosure about its $1.5 billion dollar investment in Bitcoin.
The question that arises now is how the inclusion of TSLA in Synthetix would help DeFi investors leverage the growth that Tesla offers. To comprehend the benefits in their entirety, we will have to delve deeper into how Synthetix works and what synths are.
Synthetic Assets: Merging Traditional Finance with DeFi
Synthetix is a platform that widens the horizon of existing trading capabilities. It creates a bridge between traditional investment instruments, such as equities, and the realm of decentralized platforms and digital assets. Synths are nothing but on-chain synthetic assets that one can trade on a DeFi platform but whose value tracks the value of some other real-world asset popular in the traditional world of finance.
sUSD and sAUD are a couple of such examples of Synths. Apart from equities and currencies, the underlying assets of a Synth can also include commodities, such as gold, and more complex assets such as the equity indices. It’s even possible to short assets through the Synthetix protocol.
SNX: The Key to Trade on Synthetix
If you are a Synthetix user and want to leverage the platform to trade in Synths, all you need to do is gain ownership of its native token SNX. Once you have this token, you can create Synths. It follows the same principles of how a collateralized crypto-loan works.
You lock your SNX holdings into a smart contract and mint Synths against the locked value. To ensure that the synths are fully backed, the platform requires you to lock five-times more worth of SNX into the contract than the value of the Synths you mint.
Now once you have minted your synths, you can leverage the shared collateral pool of the platform to swap it with a counterparty. If you are holding sUSD, you can quickly convert it into sAUD at the current exchange rate. The mechanism allows the users to quickly swap between different commodities and fiat currencies, paying only for gas and the Synthetix Network fee.
Synthetix: The Merits
One of the most enticing benefits of Synthetix is that it diversifies DeFi by bringing in mainstream investment instruments within a DeFi traders’ reach. Resultantly, it increases the trade-volume and volatility that has been a pressing deterrent in front of DeFi platforms for quite some time. Moreover, it does so with almost zero slippage.
Once you get to access products in international markets through a borderless and permissionless decentralized protocol, you do not need to worry anymore about trading censorship. Even if you are, for some reason, vetoed against the trading of Tesla stocks from a traditional exchange, you can still trade on—and benefit from—the price action of the stock, using Synthetix.
What Does the Future Hold for Synthetix?
The system of smart contracts, minting synths, and locking SNX-es may appear complicated to a newly-initiated investor. There are other competitors of Synthetix who are also offering such synthetic assets for trade, including the stocks of Tesla. But, with nearly 3 billion US dollars in total locked value, Synthetix is well ahead of those platforms.
Will the inclusion of Tesla, which is not only a high-growth stock but is also something that remains closely associated with the global crypto economy, expand the lead for Synthetix? Will it make traditional money and stock market investors flow into DeFi, thereby boosting its adoption rate? These are some questions that remain to be answered.
Do you think that the addition of Tesla stock to the Synthetix platform will prove successful in attracting traditional investors to join the DeFi space? Let us know below in the comments.