a few basic synthetix questions
I am trying to understand synthetix, but am having trouble grasping some basic concepts. Can anyone help?
What is the mechanism by which sUSD is pegged to $1? If it goes above $1, SNX holders are incentivized to mint more sUSD and then sell for immediate profit. So that makes sense to me. But what if the peg goes below $1? As far as I can tell, it is not possible for someone to simply buy sUSD on the open market and then redeem it for $1 of collateral (which seems like the natural way to correct a below $1 price).
I understand that SNX holders get trading fees from trades on synthetix.exchange. Is there anything stopping people from trading their synths on other exchanges to avoid these fees?
What happens if I mint sUSD but my SNX collateral subsequently becomes severely under-collateralized? I would expect there to be some provision by which my collateral is automatically sold. Maybe I missed it, but I didn't see discussion of this.
Posted Jun 2, 2019, 1:17 PM UTC
since synths are ERC20, they could be traded on other exchanges, but the liquidity would be so terrible that it wouldn't make sense.
"they can mint sUSD and then sell for immediate profit" is not entirely true, because they WILL need to eventually pay it back when they want to redeem their locked collateral. those that offload sUSD at a discount will eventually have to pay for that decision later.
there is no current provision to automatically sell undercollateralized positions, but it is being actively discussed in the discord with a few designs proposed. as of now, the current model penalizes the undercollateralized user in 2 ways - his locked SNX is permanently frozen, and he receives zero fees and rewards from his lock up, and those fees and rewards go to the other "good" actors in the network.
Thank you for the detailed reply.