Synthetic Assets on the Blockchain: How Crypto is Bringing Real-World Value with Asset Tokenization
Over the blockchain technology’s relatively short history, it showed great promise to disrupt many industries, finance being at the top of the list. From a macro perspective, Bitcoin paved the way for safer and faster value storage, transfer, and investment assets called cryptocurrencies.
As a peer-to-peer distributed digital ledger of time-stamped transactions removing the need for a singular authority and its intermediaries, the possible use cases and applications of blockchain in the financial ecosystem virtually have no limits.
It was only a matter of time before derivative trading got under the influence of blockchain. As a result of blockchain’s unstoppable expansion into the financial ecosystem, a new, unique asset class called synthetic assets emerged.
What are synthetic assets and why are they a big deal?
Synthetic assets are blockchain-based derivatives that behave like traditional derivatives but come with additional advantages. A derivative in traditional finance is an asset that derives its value from an underlying asset, but it is not the asset which it derives its value from. They allow traders to speculate on price changes of real assets without requiring them to own the asset.
Synthetic assets, on the other hand, are simply tokenized derivatives that mimic the value of real-world assets on the blockchain. Tokenization brings real-world assets to the blockchain, adding all the advantages blockchain offers over traditional derivative trading.
Tokenized assets give users exposure to a variety of different assets without needing to hold the underlying asset. This could be anything from fiat currencies to commodities like gold and silver, cryptocurrencies, and even real estate.
By using these unique synthetic assets, investors can hold tokens that track the value of some assets without needing to leave the cryptocurrency ecosystem. Crypto synthetic assets also offer users all the benefits of decentralization, as they are open to all users across borders by using smart contracts, and the data is stored on distributed ledgers, removing many middlemen and allowing cheaper transactions.
Any asset can be tokenized, or in other words, can be minted as a synthetic asset. This tokenization unlocks various benefits traditional derivatives are not capable of offering.
Anyone can mint synthetic assets: Blockchain-based synthetic assets can be minted by anyone using an open-source protocol such as Synthr. Some of the advantages of trading synthetic assets (sAssets) on Synthr are listed below:
Enhanced liquidity: Incentives given to Liquidity Providers ensures a liquid market on Synthr. This is thanks to a well-designed ecosystem where both LPs are provided with rewarding staking options for all synthetic assets on the platform.
Fractional ownership: Fractional shares are getting more common in traditional trading but they are nowhere near as diversified as synthetic assets can be. Tokenization allows users to invest in real-world assets in very small fractions, allowing better portfolio diversification and maneuver capability with their investments.
Leveling the playing field: Decentralization grants open access to a global community of investors, regardless of the political and geographical borders. Before the introduction of synthetic assets, only selected institutional investors could access the global derivatives market. Thanks to this emerging new service, anyone with an internet connection can access these potentially lucrative instruments.
More affordable fees: Unlike the traditional derivatives market and current synthetic asset protocols, Synthr will offer sAssets at oracle price following its launch until mass adoption. Following that, instead of requiring users to put collateral to borrow and short, Synthr will introduce a feature of leverage/LTV, decreasing the collateral, resulting in lower premiums.
A novel market full of possibilities
The tokenized synthetic asset model powered by smart contracts can have significant implications in the traditional finance industry. Synthetic assets offer cryptocurrency holders the option to trade traditional assets as well as their derivatives while remaining in the crypto ecosystem.
By minimizing third-party involvement and empowering a decentralized, distributed architecture, synthetic assets help users gain exposure to a huge variety of real-world assets. Slow transactions, illiquid markets, high transaction fees, security concerns, and other issues traditional equity markets have yet to solve are easily solved via blockchain.
Last but not least, synthetic assets also offer the possibility to earn yield or rewards by staking. Apart from simple market buying/selling and derivatives trading, synthetic assets create possibilities for seemingly infinite markets and combinations for new sources of value.
The centralised derivatives economy is worth 10x the MCap of the World Equity market; it’s not a stretch to hypothesize that decentralised derivatives (such as Synthetic Assets) could do the same for the TVL in DeFI.
Attempts to do so have been made; however, the current nascent synthetics economy is riddled with problems and risks that need to be ironed away for the true potential of Synthetics to be realised.
About Synthr
Born through a collaboration of DeFi experts and traditional investors with real-world trading expertise, Synthr is a synthetic asset protocol with the goal is to enable traders to thrive without the restrictions of traditional finance via the application of DeFi solutions and to transform trading into a truly universal and omi-accessible market.
Synthr combines the best of two worlds: Trad-Fi markets and DeFi. Company shares, real estate, crypto, NFTs, and more…Synthr allows you to trade in anything through tokenization of assets without the burden of complete ownership or working with dubiously non-transparent third parties and brokers.
Pioneering a new way for crypto users to make a profit, such as taking short positions against major off-chain company share prices, short farming options, and staking rewards. Anyone can reap the fruits of being a talented trader, regardless of their country, initial capital, or time zone.
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