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Crypto Terms:  Letter S
Jun 19, 2023 |
updated Apr 02, 2024

What is Synthetic Asset?

Synthetic Asset Meaning:
Synthetic Asset - a hybrid of a digital currency and a traditional derivative.
2 minutes

Let's find out Synthetic Asset meaning, definition in crypto, what is Synthetic Asset, and all other detailed facts.

Synthetic assets (also known as synths) are hybrids of digital currencies and traditional derivatives. To put it simply, they are tokenized derivatives. 

Traditional derivatives are stock or bond representations that a trader does not own but wishes to buy or sell. In other words, a trader can use a derivative to profit from the price changes of a stock he/she doesn't own. Derivatives are gaining popularity in the cryptocurrency market because they allow investors to speculate on the price movements of numerous tokens without having to hold any of them.

Synthetic assets push this a step further by putting the derivative's record on the blockchain and, in effect, generating a cryptocurrency token for it. Synths are gaining popularity among DeFi fans because they introduce a tool used by regular traders to the world of crypto.

Since traders use derivatives to attach values to already existent assets, and then construct tokens to represent these derivatives, synthetic assets allow them to tokenize or trade basically anything.

The security and traceability of synthetic assets are one of the key reasons why they are becoming a preferred technique of investing. Unlike traditional trading, which takes place on centralized exchanges, all synthetic asset trades take place on the blockchain. Since all transactions are recorded in the distributed ledger, this ensures traders' anonymity and security if they desire to remain anonymous.

With the growing interest in synthetic assets, new synthetic asset exchanges are emerging to provide traders with maximum flexibility and lower gas prices. Synthetix is probably the most popular synthetic asset exchange because it is one of the first exchanges in the world to focus solely on trading tokenized derivatives. Other popular synthetic asset exchanges include MakerDAO and Cream Finance.