You might hear people always talk about synthetic assets in the crypto space, and chances are you don’t really know what these synthetic assets actually mean. With this article, you would have a basic knowledge of synthetic assets. That being said, let’s talk about it………
Decentralized Finance, or DeFi for short, is upending the way we think about money. While many DeFi concepts and businesses, like as exchanges, lending, and exchanging, may sound familiar, the openness of blockchain allows us to venture into uncharted territory.
Look no further than synthetic assets for a major indicator of how much of a new financial paradigm DeFi represents. Synthetic assets, often known as synths, are cryptocurrency derivatives based on the blockchain that behave and feel like traditional derivatives but are beyond conventional.
In DeFi, what are synthetic assets?
Synthetic assets, whilst seeming perplexing, aren’t all that tough to comprehend. The first thing to realize about synthetic assets is that they are derivatives.
Any asset that derives its value from an underlying asset or index is referred to as a derivative.
Assume the value of a derivative is linked to the value of another asset through a contract. In that circumstance, trading products such as futures and perpetuals can be used to trade the movement of that value.
What distinguishes synthetic assets from traditional derivatives such as futures?
Synthetic assets tokenize the relationship between an underlying asset and a derivative product, rather than using contracts to establish the chain. As a result, synthetic assets can provide exposure to any asset in the world, all while remaining within the crypto ecosystem.
Simply said, a synthetic asset is a tokenized derivative that duplicates the value of another asset.
Crypto synthetic assets have several advantages over traditional derivatives:
Traditional derivatives were originally revolutionary in terms of their capacity to extract additional value from assets like stocks. Crypto synthetic assets, on the other hand, are bringing liquidity access to a whole new level.
Here are a few of the benefits of synthetic assets over standard derivatives:
1 No-friction trading: Trade equities, synthetic silver/gold, and other assets without needing to hold the actual asset.
2 They can be issued by anyone: Anyone can create blockchain-based synthetic assets via open-source protocols.
3 Borderless transfers: Synthetic assets, such as ERC-20 tokens, are blockchain assets that may be sent and received between normal cryptocurrency wallets.
4 Global liquidity: Synthetics can be exchanged on any crypto market in the globe, even decentralized exchanges that are unstoppable.
Synthetic assets, in general, provide significantly greater liquidity across global exchanges, swap protocols, and wallets than traditional derivatives ever could.
Tokenizing and trading anything is now possible because to synthetic assets. The immense power of crypto synthetic assets becomes clearer as you examine them more closely.
Consider the possibility that anything — all assets inclusive — may be expressed as a synthetic asset token and so added to the blockchain.
Synthetic assets open up vast pools of global liquidity by allowing anything to be tokenized and brought onto the blockchain. They create almost an unlimited market and combination for new sources of wealth, in addition to simple market buying/selling and derivatives trading.
Over to Total Return Swap!
A total return swap is a contract between two parties in which one pays the other a stipulated payment in exchange for the total return on an underlying asset. Users can take speculative positions on assets without really owning them.
Tokenized total return swaps are what synthetics are. cAssets on Comdex are synthetics of underlying assets like gold, silver, crude oil, and other commodities. On their minted debt, minters pay interest. Before closing the debt positions, they can trade these cAssets for gains on cSwap.
cAssets on Comdex are created by creating CDPs that support a variety of collateral assets. Every cAsset is backed by a diversified collateral set that is overcollateralized. They’re a good way for investors to hedge or leverage up. The Comdex system’s key cAsset is $USCX. $USCX has a completely diversified collateral basis, as it is compatible with a wide range of collateral assets. This enables it remain resilient to price shocks in its collateral assets.
So far, I believe we have an understanding of what crypto synthetics are, as well as how they relate to Comdex. Kindly stay updated with with Comdex below: