How Do Synthetic Assets Offered by DAOs Mimic Traditional Derivatives?

Synthetic assets offered by Decentralized Autonomous Organizations (DAOs) mimic traditional derivatives by creating on-chain tokens whose value is algorithmically pegged to the price of an external asset, such as a stock, commodity, or fiat currency. For example, a synthetic stock token is essentially a contract for difference (CFD) that mirrors the price movement of the underlying equity.

This allows users to gain leveraged exposure and hedging capabilities without actually holding the underlying asset, directly mimicking the function of traditional futures, options, or swaps contracts.