LeoGlossary: Synthetic Assets
These typically allow a trader to take a position without laying out the capital for the position. Synthetics tend to be focused upon large traders since they are tailored to specific needs.
Crypto Synthetic Assets closely resemble derivatives in the traditional markets. They represent another asset yet use the DeFi blockchain networks to establish the relationship with each other. This is done using tokens.
Advantages to Crypto Synthetic Assets:
- can be purchased using cryptocurrency, increasing liquidity.
- Tokenization makes assets tradeable.
- Zero barriers to entry since anyone can get involved in DeFi with a wallet and some coins or tokens.
The Difference Between Derivatives And Synthetic Assets
A derivative gains its value based upon an underlying asset. Often this is predicated upon the move of said asset.
For example, a put increases in value as the underlying asset, stock, declines. Here the trader is making a wager on the direction of the move.
With synthetic assets, especially in the cryptocurrency world, we can view it as derivatives that derive value from other assets and derivatives. It is the mix that puts it on a different level.
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