The introduction of derivatives opened up new horizons for investors, but it wasn’t enough to satisfy the growing demand by retail investors from all around the globe. It was only a matter of time before blockchain developers explored the derivatives market and made it more accessible, more secure, and more profitable for the average retail investor.
Synthetic assets can be described as on-chain derivatives and this novel instrument's potential has been recognized by leading global investment banks. Bloomberg has reported that Goldman Sachs has started trading a type of derivative tied to ETH as Wall Street investors look for ways to explore the world’s second-largest cryptocurrency. In fact, the global equity market is worth $100Trillion and the market cap of TradFi derivatives is $1000Trillion(10x).
A market to discover: Synthetic Assets
Synthetic assets are a new asset class made possible by blockchain technology. Synthetics (or synths) are essentially tokenized derivatives. Tokenization is a process that brings real-world assets on-chain by mimicking their price movements.
This allows traders that normally wouldn’t be able to access such assets due to geographical or political barriers to gain exposure to a wide variety of real-world assets such as stocks, commodities, and real estate. Crypto-based assets such as cryptocurrencies and NFTs can also be tokenized for unlocking new profit-generating opportunities.
Additionally, tokenization allows fractional ownership for users to expose themselves to any asset imaginable. In traditional stock trading, an investor can buy a minimum of one whole share. Using synthetic assets, anyone can invest in smaller portions of company stocks.
Synthetic assets also offer the possibility to earn yield or rewards by staking. Apart from simple market buying/selling and derivatives trading, synthetic assets create possibilities for seemingly infinite markets and combinations for new sources of value.
Synthr takes the spotlight
Synthr is a synthetic asset protocol founded to create a seamless, transparent, easy-to-trace, and responsible ecosystem that welcomes traders from all around the world, regardless of where they are based or how much capital they can put up.
Synthr’s ecosystem consists of multiple mechanisms working in harmony to create the ultimate synth trading protocol; enabled by its multi-module platform, Synthr allows users to mint (or borrow) synthetic assets by putting up a stablecoin as collateral, use their borrowed syAsset to make a profit, and reclaim their locked stablecoin while keeping their profit.
Powered by an auto yield optimizer, the SynthVaults module will also allow opportunities in yield farming on synthetic assets to increase capital efficiency.
An essential component of the Synth ecosystem, their proprietary synthetic stabilization mechanism ensures the balance of yields between long and short farms for peg protection.
Another interesting feature of the platform seems to be theirP2P liquidation queue – users bid to buy liquidated collateral at a discounted price, removing the need for technical knowledge and preventing bot-enabled front-running campaigns that have previously been rampant.
The issues of the current synthetic asset market
Synthetic assets are already disrupting the concept of trading, but there are some major pain points yet to be ironed out by the major players in the current synthetic asset market, such as Synthetix, Mirror Protocol, Duet Finance, and Deus Finance.
To begin with, a similar death spiral risk similar to the Terra Luna disaster is present in other synth protocols as well since their entire mechanism relies on highly volatile crypto assets.
High collateral requirements are another issue remaining in the current synth market.
Also, current synth platforms often fail to achieve consistency in premiums as oracle price deviation ranges from 1% to 25%, indicating a very high difference in the prices.
Complicated user interfaces cause new users to give up on synths, contradicting the goal of the synths.
And finally, the security problem is too big to overlook. Although most synth platforms are audited, there have been numerous cases of hacker attacks in the past.
Synthr claims to have developed a holistic platform mechanism that will deal with these very real problems and risks to truly enable retail users to take advantage of this high-potential economic market.
Asset tokenization on the blockchain has the potential to break down the financial and geographic barriers that hold back traditional asset classes from global accessibility. While there have been attempts to perfect synthetic asset trading, this new market still lacks an all-around platform that ironed out its wrinkles. Long-awaited Synthr will be launched in the coming months and welcome investors & traders from all around the world.
For more information about Synthr, check out their website and socials:
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