What are Synthetic Assets?

Centaur Editor
3 min readDec 1, 2020

Today, most decentralised finance (DeFi) products try to imitate traditional finance products which is causing the gap between traditional finance and DeFi to narrow. As the gap between the two narrows, a new product known as a “Synthetic Asset” is emerging.

In today’s topic, we explore what Synthetic Assets are and why they are important in the world of decentralised finance.

What are Synthetic Assets?

In traditional finance, Synthetic Assets (or just Synthetics) refer to a financial instrument that simulates other instruments while altering a few key characteristics that are tailored towards an investor’s needs. Stocks, bonds, commodities, currencies etc are some of the financial instruments that can be converted into synthetics.

Synthetics in Cryptocurrency

Much like how traditional synthetics simulate other financial instruments, cryptocurrency synthetics also simulate other assets which could either be real-world assets such as currencies, stocks or a different cryptocurrency. The assets are simulated with the help of tokenisation and smart contracts.

By using cryptocurrency synthetics, investors can work with real-world assets without leaving the cryptocurrency ecosystem. Moreover, cryptocurrency synthetics bring all the benefits of decentralisation for every asset.

Tether (USDT) is a great example of a synthetic cryptocurrency as its value comes from the US Dollar. Tether’s value is pegged 1:1 with the US dollar. With Tether a user can send and receive USD anywhere in the world.

Another area where cryptocurrency synthetics shine is in the area of interoperability. Blockchains, in general, aren’t interoperable, which means they cannot communicate and exchange information with other blockchains. This limits the application use case of blockchains.

Cryptocurrency synthetics solve the problem of interoperability by pegging the cryptocurrency from one blockchain to a token on another blockchain. This ensures that an investor is free to use the synthetic token on the other blockchain safely.

WBTC, which is a synthetic Bitcoin on Ethereum is one such synthetic cryptocurrency. Users can safely convert their Bitcoin (WBTC) for WBTC, as BTC and WBTC are pegged in the 1:1 ratio.

Synthetic Cryptocurrencies and Centaur

Centaur’s goal is to be the bridge between the centralised and the decentralised financial worlds. The rise of Synthetic assets will present new opportunities for Centaur to further their mission.

Centaur recently partnered with OpenDefi, a DeFi project that is creating synthetic cryptocurrency pegged to real-world assets such as Stocks, Real Estate, Gold etc. With this partnership, OpenDefi users will be able to add their tokenised real-world assets to the Centaur liquidity pool.

In the future, Centaur aims to bring more such partnerships and work closely with projects working on synthetic assets and DeFi assets.

What is Centaur?

Centaur is a revolutionary project in the DeFi space that aims to serve as a bridge between the decentralised finance sector and the traditional financial system. While leveraging crucial features of the blockchain, this project is also utilising the fail-safe elements of centralised systems. Centaur is offering semi-decentralised lending, asset management, and digital payments to the public.

For more information, please take at a look at our:

· Official Website

· Telegram Discussion Group

· Telegram Announcement Channel

· Twitter

·Whitepaper

· Testnet Block Explorer

· Liquidity Pool (Ethereum Ropsten)

Signing off,

Centaur

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Centaur Editor

The official editor account for Centaur — The first step towards a fully decentralized financial system.