Recent market movements have prompted a closer look at the valuation of Synthetix and its native token, SNX. After experiencing a significant drop from its peak of $1.52 to around $0.43—a decline of approximately 72%—the project continues to maintain a dedicated community and notable early adoption traction.
Current Market Performance and Trading Volume
Synthetix has achieved a cumulative trading volume of $1.5 billion since its Mainnet release in December 2018. This volume has generated around $8.5 million in fees, implying an average trading fee of 0.57% and an average daily trading volume of roughly $3.3 million.
However, a deeper analysis reveals that this volume was not consistently distributed over time. Instead, several large spikes occurred, largely due to front-running activities exploiting on-chain oracle price feeds. Since mid-February 2020, this vulnerability has been addressed, resulting in a more organic—though reduced—trading volume.
Post-fix, the average daily trading volume sits at approximately $600,000. While this is a solid figure considering the project’s early stage and broader market conditions, it is notably lower than the highs seen in late 2019.
Furthermore, trading activity is highly concentrated. Just a few wallets—primarily a single one—account for the majority of volume. Excluding these outliers, the adjusted daily trading volume averages around $300,000.
Staking and Token Supply Dynamics
The amount of SNX tokens locked in the protocol has continued to rise steadily, even during recent market downturns. Currently, around 141 million SNX are staked, against a circulating supply of approximately 174 million. This implies a staking ratio of 81%—significantly above the average for crypto projects.
A high staking ratio suggests strong holder confidence but may also reduce market liquidity, potentially leading to sharper price movements.
Upcoming Developments and Future Outlook
Synthetix has outlined an ambitious roadmap for 2020, aiming to boost adoption and increase exchange volume. Key upcoming features include:
- New synthetic assets beyond cryptocurrencies
- Introduction of traditional asset classes
- Advanced order types
- Leveraged and derivative products
These additions are expected to enhance utility, attract new users, and stimulate trading activity.
How SNX Holders Earn Value
SNX investors can earn returns through two primary mechanisms:
- Trading Fees: A portion of the exchange fees generated on the platform is distributed to stakers.
- Staking Rewards: Participants who stake SNX receive token incentives, especially during the early high-inflation phase.
Valuation Methodology: Price-to-Earnings (P/E) Ratio
To estimate the fair value of SNX, we use a traditional price-to-earnings (P/E) ratio model. This approach helps determine how much an investor might pay for each dollar of earnings generated by the asset.
Core Assumptions:
- Base Volume: $300,000 in daily trading volume
- Annual Growth: 300% year-over-year growth in trading volume
- Trading Fee: Gradually declining from 0.57% to 0.3% as adoption increases
- Staking Ratio: Expected to decrease over time as token rewards taper
- Staking Eligibility: Only wallets with a collateralization ratio of ~800% qualify—we assume 80% participation
Valuation Breakdown:
Using a P/E ratio of 30 and considering only trading fees, the base token value comes out to approximately $0.06.
We then incorporate staking rewards, which are distributed in SNX tokens, to reflect the full yield potential for investors. Combining both revenue streams, we arrive at a final fair value estimate.
Based on these assumptions, the fair value of 1 SNX is approximately $0.57.
At the current market price of around $0.57, SNX appears to be fairly valued.
Frequently Asked Questions
What is Synthetix?
Synthetix is a decentralized finance (DeFi) protocol that enables the creation and trading of synthetic assets, which mirror the value of real-world assets like currencies, commodities, and stocks.
How do you earn with SNX?
You can earn through staking rewards (inflation-based token incentives) and a share of trading fees generated on the Synthetix exchange.
Why did trading volume drop in early 2020?
Volume declined after the team resolved a front-running vulnerability that had previously inflated trading activity. The current volume better reflects organic user demand.
What is the staking ratio?
The staking ratio refers to the percentage of circulating SNX tokens locked in the protocol. A high ratio suggests strong holder commitment but may reduce market liquidity.
Is SNX a good investment?
Investment suitability depends on individual risk tolerance and belief in the Synthetix roadmap. The token currently trades near our estimated fair value, but future performance hinges on adoption and product execution.
Where can I learn more about synthetic assets?
For a deeper understanding of how synthetic assets work and their role in DeFi, you can 👉 explore advanced DeFi strategies.
Final Thoughts
It’s important to note that this valuation is based on a number of assumptions regarding adoption, fee structure, and staker behavior. As the Synthetix ecosystem evolves, these variables may change, affecting the token’s value.
We plan to update our valuation periodically based on protocol developments and real-world performance. Synthetix has set a high bar for 2020—achieving these goals could significantly influence its future valuation.