Synthetic assets and there Significance in DeFi?

• They provide traders the ability to tokenize any asset
• Investors like them because they provide better flexibility

What are Synthetic assets?

Synthetic assets are also known as tokenized derivatives.The reason being, derivatives are a stock or bonds that a trader wants to buy or sell but does not own. They just want to make some money from the fluctuation in the price of the stock. The same is the case with Synthetic assets. They are known as derivatives of the crypto world. Another advantage is that all the derivatives are recorded on the blockchain creating a crypto token.

Synthetic assets provide leverage for traders to tokenize and trade anything. All they need to do is use a derivative to tie the value of an asset that already exists in the crypto market. The next step involves creating a token for the derivative. After this step, they can trade anything they want.

Trading in Synthetic assets has gained traction nowadays because of its various advantages likesecurity and traceability. Now only these synthetic assets can be traded directly on blockchains instead of using a decentralized exchange. This provides traders not only anonymity but also security.

the trend toward synthetic trading is rising. Therefore, many DeFi solutions are entering the market. This has resulted in many defi platforms offering cheaper gas fees.

Synthetix

Talking about famous Synthetic asset exchange markets, the market leader in this field is “Synthetix”

Synthetix is nothing but an Ethereum-based protocol that issues synthetic assets. Synthetix Native Token(SNX) is used to prived the collateral against the synths that are issued.

Since the Synths are issued on Ethereum, you can earn interest by depositing them on DeFi platforms such as Curve and Uniswap.

To begin trading on Synthetix all you need to do is

1. Purchase ETH on an exchange.
2. Use Kwenta to exchange ETH for USD
3. Then exchange for other Synths, just as BTC

Synthetix is the leader in its niche but you can  try  other platforms too. You can look for Cream Finance and MakerDAO that  are alternatives to Synthetic.

The Significance of Synthetic in decentralized finance

Synthetic assets exchanges do not hold assets on behalf of their users. The exchange can create as many tokens as they want. These assets are more cost-effective because there are very less fees associated with using these platforms.

Flexibility

These assets allow investors to explore a wide range of assets. This includes commodities, currencies, and bonds.  This does not require direct purchasing of the above-mentioned assets.

Better risk management

These assets will have no impact on the market risks, such as, commodity price fluctuations. This will not only enable the investors to reduce the risk significantly but will also diversify their portfolio.

Low transaction cost

synthetic assets are created throughfinancial contracts. Therefore, they can be traded at asignificantly lower cost as compared to the traditional assets. This is important for investors whose main goal is to reduce transaction costs.