What Is the Primary Difference between a “Synthetic” Asset and a “Wrapped” Asset in Terms of Backing?

A wrapped asset is directly backed 1:1 by the underlying native asset, which is locked in a vault or with a custodian. Its value is secured by the physical or tokenized presence of the original asset.

A synthetic asset, however, is not directly backed by the underlying asset itself but is created through over-collateralization with a different asset (e.g. crypto collateral to mint a synthetic USD). Its value is maintained by economic incentives, liquidation mechanisms, and oracles, not a direct 1:1 reserve.