Synthetic Derivatives

Active traders tend to be speculative investors and aren’t as prominent among those who take a “buy-and-hold” approach.In this post:Overview of synthetic assetsWhat are they, and how are they used in traditional financial markets?Why are synthetics important to the crypto markets?Synthetics in DeFi and the Role of OraclesSynthetics are used to simulate particular instruments while altering some key characteristics. This allows investors to gain exposure to underlying assets without necessarily having to hold them.In the cryptocurrency space, tokens are a digital synthetic representation of any other asset, including those in the real world, such as stocks, commodities, or fiat currencies. Crypto synthetics can also be used to gain exposure to cryptocurrencies and tokens. A simple example could be some of the “wrapped” assets used in Ethereum’s DeFi applications.Wrapped Bitcoin (WBTC) has succeeded over recent months, which is a testament to the appetite for such assets, having risen from a market cap of around $1.1 billion in September to $4.7 billion at the peak of Bitcoin’s recent rally above $40,000. The recent release of a synthetic version of Monero could help would-be investors get around the exchange clampdown on privacy coins. It offers investors exposure to Monero (XMR) without having to navigate the ongoing delistings, while also providing an opportunity to stake Wrapped Monero (WXMR) in the various Ethereum-based decentralized finance applications.The most common use-case of crypto assets is speculation, this is not necessarily a bad thing. Speculation has been a key driver in the development of traditional financial markets.Some speculators base their investing decisions on social media groups and memes. This was, and still is, the primary driver behind the surge in stock price for companies like GameStop and AMC Theaters. Both companies were mired in financial trouble and, at different points, rumored to file for bankruptcy prior to 2021.At…