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Liquidations Whack Synthetix

In a sign of volatility in the blockchain-derivatives market, liquidations on the Synthetix platform skyrocketed to $19.4M, on June 11, a 30-fold jump from the next highest level on May 13, according to data from The Graph.


As worrisome as that spike might be, the liquidations were right in line with how the system is supposed to work, said Synthetix core contributor, Andrew Trudel. “Someone did not properly manage their staked position and got partially liquidated back to their target range of 500% as a result,” he told The Defiant.

Synthetix allows users to mint Synths, instruments that are blockchain-based derivative contracts. To mint Synths, users must stake SNX, the protocol’s native asset at a 500% ratio to the synthetic assets. If the value of the minter’s debt falls below the 200% then liquidators can pay down the debt with Synethix’s sUSD, US dollar Synth, according to a post released last year. In exchange for the sUSD, liquidators will receive the liquidated user’s SNX.

The Drop

A user whose debt falls below the liquidation has three days to pay down the debt before a portion of their SNX goes up for grabs.

The liquidations were so huge that they spurred a response from another Synthetix core contributor. They also prompted a Synthetix Improvement Proposal, SIP-148, to improve how liquidations function within the system.

The SNX token dropped 14.8% on June 11, presumably because the liquidators sold the newly liquid asset.

The drop had Synthetix Discord user philp44 asking “do we have enough liquidations lined up to go to $7?” SNX’s price hit a 30 day low of $7.96 on the 11th but has rebounded to $9.83 at the time of writing.