Synthetix Network Price Analysis – A strong uptick in on-chain metrics

Synthetix is a protocol for issuing and trading synthetic assets on Ethereum (ETH). Each synthetic asset is an ERC20 token that tracks the price of an external asset; for example each sUSD token tracks the price of the US dollar. The platform currently supports synthetic fiat currencies, cryptocurrencies, and commodities.

Synthetic assets (Synths) are collateralized by the ERC-20 compliant Synthetix Network Token (SNX). This pooled collateral model enables users to perform conversions between Synths directly with a smart contract, avoiding the need for counterparties. This mechanism attempts to solve the liquidity and slippage issues experienced by Decentralized Exchanges (DEX’s) and the wider Decentralized Finance (DeFi) markets.

Initially known as Havven (HAV), the Synthetix project was founded by Kain Warwick and launched in September 2017 after a private seed round of US$513,000. A complimentary foundation was also launched in 2017. An ICO occurred in February 2018, raising US$30 million and selling 60 million HAV tokens.

SNX currently has a market cap of US$2.28 billion, placing it 23rd on BraveNewCoin’s market cap table, with US$158 million in trading volume over the past 24 hours. The ICO currently holds an ROI of 3,116%.

Synths are minted when SNX holders stake their SNX as collateral using Mintr, a decentralized application for interacting with the Synthetix contracts. Synths are currently backed by a 500% collateralization ratio, although this may be raised or lowered in the future. SNX stakers incur debt when they mint Synths, and to exit the system (i.e. unlock their SNX) they must pay back this debt by burning Synths. Synthetix is currently trialing Ether as an alternative form of collateral.

SNX stakers can connect to the staking platform with various software and hardware wallets, including MetaMask, Ledger, and Trezor, thus making the process non-custodial. SNX holders are incentivized to stake their tokens as they are paid a pro-rata portion of the fees generated through activity on the Synthetix.Exchange, based on their contribution to the network. Trading on Synthetix.Exchange does not require the trader to hold SNX.

The other incentive for SNX holders to stake or mint is SNX staking rewards, which come from the protocol’s inflationary monetary policy. These SNX tokens are distributed to qualifying SNX stakers weekly on a pro-rata basis.

Currently, 114 million SNX are locked in the SNX platform, with a notional value of US$1.83 billion. In total, roughly 245 million tokens will enter the circulating supply, with a perpetual 2.5% annual inflation beginning on September 7, 2023. Staking rewards are paid out weekly, with an adjusted inflation reward of 1.35%, via the remaining 73 million tokens in a staking rewards escrow contract.

Source: staking.synthetix.io

In July 2019, a commercial API price feed used by the SNX platform began to intermittently report an erroneous price for the Korean Won pair, despite several redundancies and backups. This resulted in several trades with profits of 1000x, providing traders with more than US$1 billion in profit in less than an hour. Trading was immediately halted, and the affected parties agreed to unwind the trades in exchange for a bug bounty.

SNX is also live on the ETH Layer 2 (L2) mainnet, with multiple migration phases planned over the next few months. The staking platform currently reports 3.08 million SNX being staked at 16.87% APY. According to an SNX blog post, SNX community governance is expected to divert part of the weekly SNX inflationary supply (currently allocated to L1 staking rewards) to L2 rewards.

Source: DefiPulse

Source: DefiPulse

On-chain SNX token stats reveal a significant increase in both transactions per day and average transaction sizes over the past few weeks. Transactions per day hit an all-time high of 5,500 on January 18th with average transaction sizes reaching US$47,000 on January 15th. Both metrics may be a function of the L2 staking contract opening around the same time.

Source: CoinMetrics

The weekly Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (red line) has decreased to 75 since the beginning of the year. A clear downtrend in NVT suggests a coin is undervalued based on its economic activity and utility, which should be seen as a bullish price indicator. Weekly active addresses have increased 4x since mid-December of last year, hitting an all-time high of 3,779 on January 18th.

Source: CoinMetrics

On the development side, the SNX GitHub account has 55 repos. There have been 312 commits on the main repo over the past year. Most coins use the developer community of Github where files are saved in folders called "repositories," or "repos," and changes to these files are recorded with "commits," which save a record of what changes were made, when, and by who. Although commits represent quantity and not necessarily quality, a higher number of commits can signify higher dev activity and interest.

Source: GitHub – Synthetixio/synthetix

Technical Analysis

Roadmaps for future market movements can be found on high timeframes using Exponential Moving Averages, Volume Profile Visible Range, Pivot Points, Ichimoku Cloud, and divergences. Further background information on the technical analysis discussed below can be found here.

SNX has limited trading history and needs to be analyzed on lower timeframes, as opposed to the daily chart. On the twelve-hour chart, the 50-period and 200-period EMA have been bullishly crossed since mid-November, resulting in a 230% price rally thus far. Both EMAs should be seen as support, with the 50-period EMA at US$13.50 and 200-period EMA at US$8.50. Price last touched the 200-period EMA in mid-December.

Yearly pivot supports also stand at US$14.50, US$5.70, and US$2.10, with strong VPVR support at US$3.36. Overhead resistance sits at the psychological resistance of US$20, US$25, and US$30 based on yearly pivots. Additionally, a growing bearish divergence has formed over the past few weeks with higher highs in price and lower highs in RSI, suggestive of waning bullish momentum.

Turning to the Ichimoku Cloud, four metrics are used to indicate if a trend exists; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, and the Lagging Span. The best entry always occurs when most of the signals flip from bearish to bullish, or vice versa.

On the twelve-hour chart, Cloud metrics with doubled settings (20/60/120/30) for more accurate signals, are bullish; the spot price is above the Cloud, the Cloud is bullish, the TK cross is bullish, and the Lagging Span is above the Cloud and above the current spot price. The trend will remain bullish so long as the spot price remains above the Cloud, currently at US$10.50. Kijun support also sits at US$12.50.

On the SNX/BTC pair, twelve-hour trend metrics are also bullish as price sits above both the 200-period EMA and Cloud, with Kijun support at 40,000 sats. Overhead yearly pivot resistance sits at 60,000 sats and 92,000 sats. Strong support, based on yearly pivots, Cloud, 200-period EMA, and VPVR sits at 35,000 sats. Additionally, no bullish or bearish divergences are present to suggest waning bullish momentum.

Conclusion

Similar to MakerDAO and dai, SNX and synths have quickly become an integral part of the DeFi ecosystem. A vibrant staking platform and three separate DAOs managing protocol updates, treasury, and platform parameters ensure continued upgrades and maintenance for the next few years. On-chain stats for SNX show a strong uptick in activity over the past few months, coinciding with a rise in token price to all-time high.

Technicals for both the SNX/USD and SNX/BTC pairs show a bullish trend with prices over the 200-day EMA and daily Cloud. Upside resistance sits at US$20, US$25, and US$30 and 60,000 sats and 92,000 sats for the SNX/USD and SNX/BTC pairs, respectively. Both pairs show strong support, based on the twelve-hour Cloud, at US$12.50 and 40,000 sats, respectively.