Yam Synths
  • Welcome to Yam Synths!
  • Overview
    • What can I do with Synths?
    • How Do I Use Synths?
      • How to Mint Synths
      • How to Earn Rewards
      • Where Can I Buy Synths?
      • How Do I Short Synths?
      • How Do I Manage Synths?
      • How Do I Settle Synths?
      • How Do I Redeem Synths?
    • How Do Synths Work?
      • How do Liquidations Work?
      • What are Priceless Synthetic Tokens?
      • What is the Data Verification Mechanism (DVM)?
      • What are the different Collateralization Ratios? (GCR vs CR)
    • How Do Rewards Work?
      • UMA Rewards Overview
      • Where are my Rewards?
      • How Much am I Earning?
    • FAQ
  • Synthetic Tokens
    • uPUNKS
      • Use Cases
      • Current Contracts
        • uPUNK-1221
      • Expired Contracts
        • uPUNK-0921
    • uGAS
      • Current Contracts
        • uGAS-1221
      • General uGAS Info
        • Getting started with uGAS
        • Use Cases
      • Expired Contracts
        • uGAS-JUN21
        • uGAS-MAR21
        • uGAS-FEB21
        • uGAS-JAN21
        • uGAS-0921
    • Deprecated Synths
      • uSTONKS
        • Current Contracts
          • uSTONKS-0921
        • General uSTONKS Info
          • Getting started with uSTONKS
        • Expired Contracts
          • uSTONKS-JUN21
          • uSTONKS-APR21
  • Additional Information
    • Yam Team
    • Glossary
    • Audits
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  1. Overview

How Do Synths Work?

Teach me Senpai!

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Last updated 3 years ago

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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

  • 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:

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

Discord
HOW DO LIQUIDATIONS WORK?
WHAT ARE PRICELESS SYNTHETICS?
WHAT IS THE DATA VERIFICATION MECHANISM?
WHAT ARE THE DIFFERENT COLLATERAL RATIOS?