Introduction:
Blockchain technology is reshaping the world of finance and one new Financial building block enabled by this technology are synthetic assets.
What is synthetic assets:
Similar to derivatives in traditional Finance which derive their value from their underlying assets synthetic assets or synths are tokenized representations of other cryptocurrencies or real world assets you could think of them as tokenized derivatives synthetic assets are created on via Smart contracts whether through centralized issuance over collateralization or other mechanisms like locking burning and minting this allows essentially any asset you could think of to potentially be tokenized and traded on chain.
Stablecoins:
Some of the most notable synthetic assets are stable coins like usdt by tether or maker Dow’s die as they are onchain representations of realworld Fiat currencies this allows users to have exposure to currencies like the US Dollar on the blockchain which could be easily traded for other crypto assets.
Wrappedassets:
Another form of synthetic asset is wrapped assets if you’ve used dii protocols on ethereum you’re probably familiar with wrapped crypto such as wrapped Bitcoin these are cryptocurrencies which are synthetically represented outside of their native blockchain enabling them to be stored and used in protocols on other chains.
Tokenized commodities:
Next we have tokenized commodities for example Pax G issued by paxos is a token that tracks the price of gold and is backed by physical gold besides gold other projects have brought on Commodities like Uranium on the blockchain too.
Stocks:
Stocks have been tokenized as well certain D5 protocols have made it possible for users to Mint and trade tokens that track the price of underlying stocks on top of that the blockchain infrastructure these days is more than capable of handling the essential functions of equity shares such as dividends mergers and Acquisitions as well as shareholder voting however the lack of regulatory Clarity and increased scrutiny by Regulatory Agencies such as the SEC has impacted its adoption.
Financial derivatives:
One other type of synthetic assets are Financial derivatives through the use of smart contracts users have the opportunity to trade Futures and options contracts directly on the blockchain often times these derivative products also offer users leverage allowing them to multiply their buying power in the market of course this can amplify both gains and losses.
Real estate:
Then there’s also real estate and no we’re not talking about real estate in the metaverse but real houses built with real bricks the first house ever to be tokenized as an nft is a studio apartment in keev back in 2017 now this might sound silly but the features that nfts and smart contracts provide could be beneficial to operations surrounding real estate. For example selling your house is much quicker through a blockchain transaction where you can have immediate transfer of ownership loan or rent payments could be automated through smart contracts and ownership of properties can even be fractionalized like shares synthetic assets broaden the possibilities for what can be traded and owned on chain this enables New Primitives and Innovations like yield bearing tokens tokenization of emerging asset classes like carbon credits and more. However while synthetics do offer investors lowcost access to a wide variety of markets it is important to consider their risks such as smart contract vulnerabilities or regulatory uncertainty.
Outro:
it’ll be interesting to see how adoption and regulation for synthetic assets plays out in the coming years so what else do you think will be tokenized and learn more about real world Assets on this page.
Disclaimer:
This is not financial advice, I am simply talking about my experience with cryptocurrency. If you want to invest in cryptocurrency please do your own research and invest at your own risk. We recommend that as a consumer, you exercise your due diligence and research any and all strategies recommended to you before adopting them in your own business. We and other encompassed entities are not responsible for any damages that result from an effort to implement the information provided in this or any other video, article, social media post, and related publications.