5 February 2020

Synthetix Is Enabling Access to the World’s Equities in DeFi

Graham Tonkin

In 2017, the world got excited about crypto assets because of Ethereum’s token boom. More recently, however, it’s gone quiet, and much of the hype followed downward price trends. Those who are actually building the ecosystem, like the team at Synthetix, have been working diligently to create applications with industry-changing potential.

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The year 2020 may prove to be the year of Decentralized Finance (DeFi). Many exciting projects are re-creating financial products common to the world of traditional finance, in the open and permissionless blockchain space. 

Synthetic assets enable exposure to the price action of an asset without actually holding the underlying asset. Synthetix is a company creating synthetic assets for DeFi, allowing exposure to fiat currencies, commodities (gold and silver), and cryptocurrencies. With large aspirations, Synthetix is working to create synthetic assets for many more things, including traditional equities. 

Synthetic equities in DeFi is a massive opportunity and demands the world’s attention. Once traditional equities become accessible in DeFi, anyone with internet access will be able to gain exposure to financial products currently only available to the privileged few with access to markets like the Nasdaq or NYSE. Projects like Synthetix excite me because of the original reason I got into the crypto space: financial inclusion. 

While much of the world is fascinated by price speculation and volatility, the world of DeFi is picking up steam and giving us the first clear glimpse of how the future of finance might look. While still in its infancy, the growth of DeFi has been relentless over the last 18 months, as the offering of permissionless products increases. 

DeFi products are built for interoperability, creating an ecosystem many compare to Lego blocks, where each piece is useful in itself, but the combination of parts creates something even more significant. MakerDao’s crypto-collateralized stablecoin, Dai, is the current underpinning to DeFi. By removing much of the volatility risk of holding a virtual token, projects can build useful financial products (saving, lending, insurance, etc.) in DeFi, with each subsequent product adding an additional Lego for other developers to leverage. 

While the user experience is still too immature to convince an un(der)banked person to enter the crypto ecosystem, I believe that viable DeFi products will emerge in this decade that will have considerable consequences to macroeconomic policy and financial inclusion. While central banks around the world will implement virtual currencies to compete with the performance characteristics of cryptocurrencies, the projects building DeFi, like Synthetix, are helping remove the monopoly national currencies have on citizens because of geographic location. 

Fiat currencies aren’t for safeguarding one’s wealth; they are for spending and investing. We’ve seen the consequences of inflation over time, and most now understand that modern monetary policy isn’t catastrophic to people who have investment products that outpace inflation. For the billion or more people who can only hold cash in their pockets, mobile wallets, or bank accounts, a new and exciting industry is slowly emerging, one Lego block at a time. People once confined to a single currency with high inflation due to geographic location will soon be able to ask themselves, “What if I can download a wallet to my phone that allows me to hold USD, physical gold, or a Vanguard investment fund?”

Rapidly rising smartphone penetration will enable those with high inflation to access products from Synthetix

When that happens, it will be interesting to see which digital financial asset people will want to hold. If you live in Ghana, you soon be able to hold a digital Ghanaian Cedi, understanding its physical fiat counterpart nearly reached 20% inflation in 2016. With 30% of Ghana’s population accessing the internet regularly, it’s easy to assume most already have a relationship with a Facebook (WhatsApp) property and will encounter Libra’s stable coin soon. Now that currencies are competing for usability, I look forward to people empowered by the ability to choose how their wealth is stored regardless of where their feet stand.  

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