Why The World’s Largest Exchanges Will Have To Compete With Synthetix
This article was originally published on August 10, 2020.
In Q4 2019, Bering Waters Ventures made an early bet on Synthetix Network and outlined the thesis that the synthetic derivatives platform would rise to become one of the most important players in the burgeoning DeFi market.
Synthetix and the broader DeFi market have since exploded in popularity, allowing users to leverage up to double-digit percentage yields on their fiat stablecoins at the click of a few buttons, an easy sell compared to the minute returns offered by banks in a near-zero-interest environment.
By December 2019 Synthetix had asserted itself as a market leader with over $175 million locked as collateral, second only to the MakerDAO stablecoin protocol, but the significance of the platform’s capabilities was yet to be widely understood or appreciated.
Synthetix and the market crisis
Needless to say, the market outlook has changed dramatically since this time, when stocks were at an all-time-high and mainstream media gave little coverage of the notion that a global recession could be looming on the horizon, ignoring the shadowy multi-trillion-dollar Repo operations that had for months had been undertaken by the Federal Reserve.
In March this year, the market was sent into a flurry of activity after traders began pricing in the devastation of the global COVID-19 pandemic, fleeing stocks and foreign currency to take haven in risk-off assets like the US dollar, gold, and silver.
Demand for these risk-off assets has far outstripped supply, not simply due to scarcity and counterparty risk, but a more basic issue of access: there are many logistical challenges an individual or institution must overcome to gain exposure. For many, these challenges are surmountable but cause critical delays in highly volatile markets, and for retail traders without sufficient income or access, they may be impossible to overcome.
Positioned for success
Our investment thesis has always been that Synthetix would be uniquely placed to succeed in such an environment, by allowing anyone to gain exposure to foreign currencies, cryptocurrencies, commodities, and soon, after bounty and staking exercises are completed, indices and stocks — all at the few clicks of a button, with zero counterparty risk.
Expectedly, days after the fallout from the COVID-19 crisis began to rock markets in March, Synthetix began to prove this thesis and undergo discernable growth in the amount of collateral deposits. Over the next few months, the total value locked surged some 500% to its present level of $500 million.
Over the course of the recent DeFi boom, Synthetix has been working closely with Curve to expand the use cases for its synthetic tokens by pooling sUSD with other stable coins like USDC and DAI, and sBTC with wBTC and renBTC. Synthetic token holders now can easily trade against other ERC20 tokens with minimal slippage. At the moment, Synthetix pools have been among the most popular pools in Curve.fi, and are continuing to grow in deposit volume along with total value locked (TVL) in Synthetix.
As Synthetix continues to bolster its range of assets and add leveraged derivatives, we believe that the wider financial sector will start to recognize the value of a trustless and infinitely liquid derivatives marketplace with zero counterparty risk, likely pushing the platform’s trading volumes to surpass centralized incumbents. In particular, we anticipate that the addition of synthetic stock derivatives will usher in a new era of growth for Synthetix, as the platform opens up highly sought-after large-cap US stocks like TSLA and AMZN to the broader public.
About Bering Waters Ventures
Founded in 2019, Bering Waters Ventures focuses on research-heavy innovations in the blockchain and cryptocurrency space. It identifies and supports companies and entrepreneurs of all types and sizes, from undervalued projects to leaders in its sector. Its mission is to provide value to projects through its services and solutions offered across three companies and to leverage its extensive network of global investors in the areas of funding, market strategy, and development support. Bering Waters Ventures is one of three businesses that form Bering Waters Group.
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