How does Kwenta work?

Kwenta is a decentralized exchange (DEX) on which Synths can be traded (which can also be traded across a variety of DeFi protocols). In contrast to other DEXs, the exchange does not have an order book and instead applies peer-to-contract trading that implies all trades are executed against a smart contract. In other words, Kwenta is a dApp that leverages the Synthetix protocol, which means no creating an account, no deposits or withdrawals, and no surrendering custody of your funds.

What is Synthetix and How does it Work?

Synthetic assets, or Synths, are assets voted into existence by the community and can come in the form of fiat currencies, cryptocurrencies, stocks, commodities and anything else with a price.

Synthetix is an Ethereum-based protocol for the issuance of synthetic assets. Analogous to derivatives in legacy finance, synthetic assets are financial instruments in the form of ERC-20 smart contracts known as “Synths” that track and provide the returns of another asset without requiring you to hold that asset. You can trade Synths — which range from cryptocurrencies, indexes, inverses, and real-world assets like gold — on Kwenta, Synthetix’s decentralized exchange (DEX). Synthetix’s native token, the Synthetix Network Token (SNX), is used to provide collateral against Synths that are issued.

Synths apply decentralized oracles, which are smart contract-based price discovery protocols, to track the prices of the assets represented, allowing you to hold and exchange Synths as if you are actually the owner of the underlying assets. In this way, Synths provide exposure to assets normally inaccessible to the average crypto investor, for example valuable metals such as gold and silver and allows you to trade them quickly and efficiently. Synths are different from tokenized commodities, such as Paxos’ PAX Gold (PAXG), which is backed by gold bars. Owning PAXG means that you own the underlying gold and that Paxos holds it for you, whereas owning Synthetix’s sXAU means that you do not own the underlying asset – you merely have exposure to the price of gold. Since Synths are issued on Ethereum, they can be deposited on other DeFi platforms such as Curve and Uniswap and be applied to provide liquidity and earn interest. Synthetics and derivatives are crucial for building mature markets (i.e., markets that have reached equilibrium) by making price discovery easy and assisting to secure it against resilience.

Does Kwenta have a token?

The Kwenta society, these days, is targeting Q1 of 2022 for the launch of its native protocol token, KWENTA. The token will launch alongside the release of Synthetic Perpetual Futures and a redesigned product.

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