Synthetic assets are always considered as a switch in conventional economic markets. Presently, the business world is evolving and is more involved in shared systems and token-based applications. Therefore, we’re witnessing that crypto synthetic assets are gaining fame. This article is a definitive guide on what is a synthetic asset. Let’s take a look at it in more detail.
What is a Synthetic Asset?
The phrase “synthetic asset” means a mixture of assets that have the equivalent value as another asset. In conventional financial markets, synthetics mix different derivative products.
What is Synthetic Assets in Finance?
The idea of synthetic assets belongs to an accumulation of assets that have the equivalent value as another asset. Normally, such assets include several derivatives. A derivative is a monetary security with a certain value. It is dependant on or derived from a group of assets or simply an asset.
Now, in the case of Synthetic assets, these derivatives could be anything like options, futures, or swaps. These derivatives try to imitate or copy the underlying asset such as stocks, securities, goods, indices, coins, or interest rates. For example, suppose person ‘A’ may borrow stocks in one currency and give or lend the same in another currency to get the same result as having a forward contract on one of the currencies.
Now as mentioned earlier, the synthetic asset is the mixture of securities or assets in such a manner that they give the same monetary advantage as the purchase of a totally distinct asset would. For instance, trading a put option and purchasing a call option on a stock gives the same monetary result as really holding the underlying assets.
What is Synthetic Assets in Crypto?
Now, in the world of cryptocurrency, Cryptocurrency-based synthetic assets are a mixture of various assets without requiring to keep the underlying asset. For example, this could be anything from currencies like USD or the Euro, to assets like gold and silver, and index funds or other cryptocurrencies.
By using these different assets, users can still carry tokens that follow the price of some assets without requiring to move or migrate from the cryptocurrency world or community. Crypto synthetic assets also give users all the advantages of decentralization. Users worldwide can use them utilizing secured smart-contracts and other tools, and the data is saved on distributed ledgers.
Crypto Synthetic Assets in DeFi
- Synthetix : One such example is Synthetix. It is an Ethereum-based platform that enables users to mint and trade SNX cryptocurrency. This allows users to get access to synthetic stocks that together give them exposure to other non-crypto assets like gold, USD, and stocks. Right now, there is more than $2.11B locked in synthetic derivative contracts. Synthetix (SNX) is one of the topmost Decentralised Finance (DeFi) platforms. Synthetix’s native token SNX is at no. 7 in terms of market capitalization. Cryptocurrency-based currency designs supported by smart contracts can have huge involvements in the conventional finance business. At their core, these designs give cryptocurrency users the benefit to trade conventional assets and their derivatives while living in the crypto world.
- Universal Market Access (UMA): UMA is a decentralized platform for commercial contracts. It uses self-executing smart contracts. In short, UMA allows any two people to build economic contracts on their own terms.
- Abra: Abra is also a decentralized platform. It utilizes cryptocurrencies as security to produce synthetic assets. Abra uses bitcoin and litecoin blockchain-based smart contracts to decrease resistance for anyone engaged in purchasing, trading, and keeping other assets such as altcoins.
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Disclaimer: The authors of this website may have invested in crypto currencies themselves. They are not financial advisors and only express their opinions. Anyone considering investing in crypto currencies should be well informed about these high-risk assets.
Trading with financial products, especially with CFDs involves a high level of risk and is therefore not suitable for security-conscious investors. CFDs are complex instruments and carry a high risk of losing money quickly through leverage. Be aware that most private Investors lose money, if they decide to trade CFDs. Any type of trading and speculation in financial products that can produce an unusually high return is also associated with increased risk to lose money. Note that past gains are no guarantee of positive results in the future.
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