How Do Synths Work?

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What’s a Synth?

Synthetic tokens are collateral-backed tokens whose value fluctuates depending on the tokens’ reference index. They are created by depositing collateral into a smart contract and minting tokens backed by that collateral. Alongside the many trading use-cases provided by these innovative assets, users can also earn rewards for providing liquidity.‌

Some examples of synthetic tokens include:

  • Synthetic real-world assets (eg: gold or Tesla stock prices)

  • Synthetic cross-chain crypto-assets

  • Tracking tokens for various non-tradable indices

Some of the most creative ideas for synthetic tokens fall in the last category. Check out the discussion on Discord for more project ideas like:

  • Tokens that track the future usage of DeFi projects (e.g. assets locked in Uniswap)

  • Tokens that track the number of downloads of a Chrome extension (e.g. Metamask)

  • Tokens that track the success of trade ideas on r/WallStreetBets

By changing the price identifier of a priceless synthetic token, you can create synthetic tokens that behave like tokenized versions of other derivatives like options.

Dive in below to explore:

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