Synthetic assets are decentralized finance (DeFi) analogues of derivatives in the traditional finance world. This post breaks down the key concepts from our systematization of knowledge paper.

What Are Synthetic Assets?#

Financial arrangements which derive value from and are directly pegged to fluctuations in the value of an underlying asset.

Why They Matter#

Synthetic assets occupy a unique niche, serving to facilitate currency exchange, giving traders a means to speculate on the value of crypto assets without directly holding them.

Risks and Considerations#

The academic literature on this topic is highly disparate and struggles to keep up with rapid changes in the space.