Decentralised finance (DeFi) seems to be back for shaping the next era of global financial system. With talks seemingly ongoing for mainstream usage of cryptocurrencies, the prospect of synthetic assets has also come into the picture. From what it’s understood, synthetic assets refer to the amalgamation of traditional derivatives and cryptocurrencies. “I believe synthetic assets are tokenized derivatives designed to replicate the value of another asset. Synthetic assets are considered to revolutionise liquidity access,” Alankar Saxena, co-founder and CTO, Mudrex, a crypto-investing platform, told FE Blockchain.
Market experts suggest that synthetic assets enable smart contract-backed portfolio diversification. According to Vegavid Technology, a digital transformation company, synthetic assets provide access to traditional finance such as bonds, stocks, commodities, currencies, among others. The company also mentioned that synthetic assets help gain access to new asset classes at lesser costs, along with enhancing income streams through fractional ownership. Benefits associated with synthetic asset-oriented investments include accessibility, yield creation, transparency, automation, market flexibility, among others. However, drawbacks around synthetic assets are regulatory concerns, market manipulation, illiquidity, and tracking problems.
“I think synthetic assets provide access to new markets that were inaccessible, offering investors the chance to explore new asset classes and investment strategies. These assets are decentralised and trustless, which can provide security and transparency to investments,” Sumit Ghosh, co-founder and CEO, Chingari, a Web3.0 video application, highlighted.
CoinGecko, a cryptocurrency data aggregator, stated that as of August 2, 2023 (12.02 pm, Indian Standard Time), market capitalisation of top synthetic issuer coins stood at $1.03 billion, with a 24h trading volume of around $76 million. Furthermore, the platform added that Synthetix (SNX) Network is the top issuer of synthetic coins, with a $2.44 coin value and an approximately $783 million worth market capitalisation. In the past 24 hours, synthetic coin issuers which clocked maximum gains are STP, UMA, and Cryptex Finance.
In the second half of 2023, SNX’s price has been predicted to reach $3.57 with the lowest probable value expected to be $2.86, as mentioned by BTCC, a cryptocurrency exchange. For 2024, SNX will cross the $5.96 value. In the context of 2024, starting price of SNX is expected to be roughly $4.76 and shouldn’t fall below $5.24. By 2030, SNX’s average price should be close to $20. Moreover, future predictions indicate that growth in synthetic assets will ensure financial markets’ growth, but will bring up regulatory needs. Data from Nasdaq, a stock exchange, showed that synthetic asset-backed tokenisation can create new investment avenues, with stablecoins vouched to play a role in this.
“As the cryptocurrency market becomes regulated, there should be a demand for synthetic assets that provide exposure to cryptocurrencies without the risk of volatility. Synthetic assets are considered a new asset class with benefits that could become an investment vehicle in years to come,” Minal Thukral, EVP – growth and strategy, CoinDCX, a crypto investment application, concluded.