If we learn synthetic assets in the context of cryptocurrencies, we should know that they are part of derivatives. What is it?
A derivative is a contract, its value is derived from an underlying asset such as stocks, commodities, currencies, indices, bonds, and interest rates. There are various types of derivatives such as futures, options, and swaps. Different types of derivatives serve different purposes and different investors buy or sell them for different reasons.
What are the reasons why investors trade derivatives? — Leverage, insurance against volatility, speculation on the growth of the underlying asset.
Derivatives are considered risky by many traders. You should have advanced knowledge in the financial area and have serious strategies to use them.
Synthetix and bZx are protocols for synthetic assets that belong to the DeFi derivatives protocols. Synthetix is a protocol for synthetic assets on The Ethereum.
There are synthetic assets that insure the trader’s position from negative factors. Risks hedging — creating new positions in other markets that offset the risks of other assets.
Synths, as we wrote earlier, replace the value of the underlying asset. They also track the value of the underlying assets and make it possible to access these assets without having to have them.
The Variety of synths is currently limited to two types:
Synthetic gold sXAU, a synth that monitors gold prices. These assets track real prices using Chainlink's services — a platform designed to protect against unauthorized access during data exchange. Based on its smart contracts, we receive price information from several reliable sources to eliminate manipulation.
Synthetix supports 4 main asset classes:
Conclusion: Synths — justified risks that require prior studying and understanding.