How Do Synths Work?
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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
- 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.
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