Synthetic Crypto Assets

What are Synthetic Assets??

Synthetic crypto assets are financial instruments in ERC-20 smart contracts known as 'Synths', which are comparable to derivatives in traditional finance..

A derivative is defined as a financial contract that derives its value from the underlying asset, index, or interest rate. The synths use a smart contract-based protocol to track the value of real-world assets and allow assets to be traded without actually owning them. These assets range from indices, inverses, cryptocurrencies, and real-world assets like precious metals or fiat..

Synthesizers are distinct from tokenized products, for example the gold-backed PAX GOLD (PAXG) token. Owning PAXG means that the company has underlying gold in its name. Owning synths implies that you have exposure to the price of gold. However, you do not actually own the underlying asset..

Synths can be created for any asset.For example, a synthesizer designed to mimic the value of the US dollar is called sUSD. sBTC in another synthesizer that replicates the price of a Bitcoin..

Synthesizers provide exposure to a wide range of assets that are not always accessible to the average crypto investor, such as gold and silver. It allows asset className holders to interact with other assets to which they would not otherwise have access..

This implies that an owner of oil holdings could, for example, exchange their position in oil for a position in Bitcoin. Or a Bitcoin holder can exchange his asset for silver..

Synthetic Assets vs. Traditional Derivatives

Synthetics asset and conventional derivatives vary primarily in tokenizing the relationship between an underlying asset and the derivative product rather than using contracts to establish the chain..

Simply put, a tokenized derivative that mimics the value of another asset is a synthetic asset. Therefore, synthetic assets can give exposure to all assets in the world from within the crypto ecosystem..

Traditional derivatives were revolutionary in their ability to unlock additional value from assets like stocks. Synthetic assets open up countless pools of global liquidity by allowing anything to be tokenized and added to the blockchain..

Synths are unique in that it is an 'action' represented in the form of tokens, and the value of that action is determined by the judgment of an index from an oracle..

1) It allows you to move freely between shares, gold or silver-based derivatives, and other assets without owning the underlying asset..

2) Synthetic assets can be sent and received using standard cryptocurrency wallets..

3) Synthetics can be traded on all cryptocurrency exchanges in the world..