Editing Synthetix (section)

= The value of the stable coin =

'''Everything in Synthetix Exchange is fake.''' Fake USD. Fake assets. Fake prices. The sUSD asset needs to ensure that there is always enough SNX collateral to make up the equivalent value in terms of sUSD. However, because SNX is an exchange traded asset- it’s price is always in flux. If one used the price of SNX in USD directly with no further changes it would expose traders to significant risk as the currency fluctuates.

Stable coins are suppose to be the solution. Synthetix must have thought deeply about how to build a good stable coin. It turns out their solution is just to over-collateralise sUSD. So rather than backing it say: 1 to 1 in SNX. They instead calculate a small percentage of their available balance in SNX, price it in USD, and reserve that value as sUSD. The remaining amount is used as collateral in case the price of SNX drops.

[issuance_ratio]

<pre class="solidity">// The raio of collateral
// Expressed in 18 decimals. So 800% cratio is 100/800 = 0.125 (0.125e18)
function issuanceRatio() external view returns (uint) {
	return getIssuanceRatio();
}</pre>
In practice what this amounts to is having to check the price of SNX / USD on a regular exchange to work out profit and loss during liquidation / closing a position; People are just using an additional obfuscated layer (the stable coin) as a medium of exchange for the quote currency.

'''So how good is SNX as a backing asset for the stable coin?'''

Well, the authors of the Synthetix lite paper claim that SNX gets its value from fees made from synthetic exchanges…

But wait a minute… Don’t synthetic assets –also– get their value from SNX? It all sounds a bit circular - intrinsic value-out-of-thin-air to me. There doesn’t seem to be a point with SNX where you can say “synthetic assets have a real value beyond people choosing to use them for speculation.”

[issuable_synths]

<pre class="solidity">function _maxIssuableSynths(address _issuer) internal view returns (uint) {
	// What is the value of their SNX balance in sUSD
	uint destinationValue = exchangeRates().effectiveValue(&quot;SNX&quot;, _collateral(_issuer), sUSD);

	// They're allowed to issue up to issuanceRatio of that value
	return destinationValue.multiplyDecimal(getIssuanceRatio());
}</pre>
The story becomes a little muddled when you introduce the possibility to use Ether as collateral because it starts to undermine the need for SNX (even though you don’t earn trade fees from ether collateral.) After-all, why use such a new and uncertain currency if you can use something far more stable and widely accepted?

At best you could say: “SNX is a token used for exchange rewards in Synthetix whose value derives from peoples’ willingness '''NOT''' to use it as the sole mechanism to back assets and hence serves as a stronger indication that fee rewards should have a backing value.”

It is a lovely self-defeating currency.

<span id="maintaining-the-stable-coin"></span>