How Do Smart Contracts Enable the Creation of Synthetic Assets?

Smart contracts enable synthetic assets by collateralizing a pool of cryptocurrency to track the price of an external asset, like gold or a stock index. The contract uses an oracle to receive the external asset's price and mints a corresponding synthetic token.

This token's value is algorithmically maintained by the contract to mirror the underlying asset's price movement. This process allows users to gain exposure to traditional assets without owning them directly.