What Are Synthetic Assets and How Are They Created Using Smart Contracts?
Synthetic assets are tokenized derivatives that mimic the value of another asset, such as a stock, commodity, or currency, without requiring the holder to own the underlying asset. They are created using smart contracts on a blockchain.
A user typically locks up collateral (e.g. cryptocurrency) in a smart contract, which then mints a synthetic token that tracks the price of a real-world asset. Oracles provide the price data for the underlying asset, and the smart contract ensures the synthetic asset maintains its peg through collateralization mechanisms.
Glossar
Synthetic Assets
Construction ⎊ Synthetic assets represent on-chain financial instruments whose value is derived from an underlying reference asset, without requiring direct ownership of that asset; this decoupling is achieved through the use of smart contracts and collateralization mechanisms, enabling exposure to a diverse range of markets including equities, commodities, and other cryptocurrencies.
Smart Contracts
Function ⎊ Smart contracts are self-executing agreements with the terms of the agreement directly written into lines of code, residing on a decentralized ledger.
Tokenized Derivatives
Structure ⎊ Tokenized derivatives represent the fractionalization of derivative contracts into digital tokens, facilitating granular access and enhanced liquidity within cryptocurrency markets.