Crypto Basics

The World of Synthetic Assets

June 12, 2022
3 min read
The World of Synthetic Assets


The next piece in our Blockchain Basics series will focus on synthetic assets. Most current cryptocurrency products are quite similar to their traditional finance counterparts.

But, the key differentiator is that Web3 technology alternatives often do it better and make these products more accessible, which is the case for Synthetic assets, commonly referred to as Synths.


Let's dive into the world of synthetic assets understand what they are and how they're used within the DeFi ecosystem.


What are Synthetic Assets?


Synthetic assets are a type of derivative; a derivative is an asset that derives its value from an underlying asset or index. To put it plainly, it allows you to trade an asset without actually owning the physical thing; the derivative just tracks the underlying asset's price.


A synthetic asset is a token that is a digital representation of a derivative. Derivatives are financial contracts that allow traders to customize their exposure to an underlying asset, like Gold, for example, without having to pay the entire value of an asset.


A synthetic asset is just a tokenized version of a similar trade position; synthetic assets can be minted for any asset in the world, even those that weren't available as traditional derivatives before, such as Real Estate.  


Using Synthetic assets, Parcl allows traders from across the globe to invest directly into the >$300 Trillion Real Estate market. Parcl, therefore, allows traders to hedge price fluctuations within the residential real estate market straightforwardly.


Synthetic Assets Vs. Traditional Derivatives


When derivatives were first introduced, they were revolutionary and allowed traders to take advantage of additional value from assets such as equities. However, Web3 crypto synthetics open up an even greater floodgate of liquidity. You can now trade any asset you want as a synthetic asset.

Traditonal Vs Modern

Now, with Parcl and thanks to synthetic technology, we can offer investors broad or highly granular exposure to the residential real estate market. You'll be able to trade real estate like stocks or crypto.


Benefits of Synthetic Assets


Borderless & Permissionless


Blockchain technology allows synthetic assets to be traded wherever and by whoever. This ease of accessibility introduces a global audience to what might have been restricted to individuals within a certain state or country.


Frictionless Movement


Easily switch between different asset classes without having to own the underlying asset. Simply switch Gold for Silver or Manhattan for Miami.


New Tradeable Asset Classes


To gain exposure to the Real Estate market, an investor would need to own the physical asset in most cases. Other options include fractional ownership or REITs. But, they don't offer as much control, choice, or profitability as Parcl has to offer through the use of synthetic assets.


Parcl allows you to trade real estate like Manhattan like you'd trade stocks or cryptocurrency. This new method of real estate investing opens up the market to those previously priced out by the huge capital requirements in order to own property.


Where Can I Trade Synthetic Assets?


Synthetic asset trading is a great way to gain exposure to any asset class. But where are the most popular exchanges for synthetic trading?

Parcl

Parcl is a Solana-based real estate trading protocol that allows users to invest in real estate with ease, lower risk, and no minimum investment requirements.


Synthetix

An Ethereum based synthetic asset trading platform that provides exposure to traditional stocks, commodities, and popular cryptocurrencies.

Synthetify

A Solana-based synthetic asset exchange, users synthetic assets with fees of just $0.001.


Synthetic Meme Markets


Any asset in the world can be made into a synthetic asset. With this in mind, you could quickly see trading markets springing up that have never existed before. An example is the personal token market or pop culture markets.

Can you imagine trading the value of someone's career? Or make a trade based on how many times a meme is used on the internet? These types of tokens are called memetic assets.


Specific Example

World governments could profit from climate change in a completely new way.


How does this work? If you create a synthetic asset linked to the number of greenhouse gases produced each year, citizens could buy these tokens as an emotional hedge or act of financial climate activism against the lack of progress.


But, if the government takes measures to limit their greenhouse gas emissions, they'll be the ones to profit, giving them an incentive to clean up their act.

Conclusion

Synthetic assets are the upgrade that traditional derivatives need. Derivatives provide customized exposure to a range of assets, but synthetic assets open up the possibility to trade quite literally anything you can think of. Synthetic assets are vital to our mission to open up real estate investing to as many people as possible.


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