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Launch A DeFi Protocol For Building Synthetic Assets

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Decentralized Finance (DeFi) is a relatively new phenomenon in the finance industry that has changed everything we have known about money so far. DeFi, a permissionless alternative to all our traditional financial services, is gaining popularity with its new concepts.  Synthetic assets is one such concept that is serving the needs of a wider range of users.

What is a Synthetic asset?

‘Synthetic asset’ is a combination of crypto and traditional derivative assets. In other words, these are tokenized derivatives. In traditional finance, stocks or bonds that a trader does not own but wants to buy or sell are called derivatives. If traders want to profit from the price fluctuations of a stock that they don’t own, they do it through a derivative. Synthetic asset takes this process a step further by adding the record for the derivative on the blockchain and creating a cryptocurrency token for it.

The use of synthetic assets permits a company to develop the use of multiple financial models rather than a single investment crypto asset. For instance, instead of buying a stock, an investment company can  buy a call option and sell a put option on the same stock. 

By creating a cryptocurrency token for a derivative, synthetic assets create a relationship between the underlying asset and the purchaser. Investors can bank on the variation of tokens without having to own them in their wallets. This feature of derivatives is the key reason for its increasing popularity in the crypto world.Similarly synthetic assets have gained popularity among DeFi enthusiasts as they  provide all necessary tools to traditional traders in the crypto world.

Using these assets, a trader can tokenize and trade anything after adding a derivative to the existing asset.

Increased security and traceability are some of the major  reasons for choosing synthetic assets as a preferred method of investing. All trade takes place on blockchain and all transactions are recorded on the distributed ledger thus providing anonymity and security to traders.

New synthetic asset-based exchanges are rising on various blockchains which  allow users to trade with maximum flexibility and lower gas fees. The biggest and most famous synthetic asset exchange is Synthetix. It is created specifically for trading tokenized derivatives. Synthetix is a leader of the niche market. Cream Finance and MakerDAO are two popular derivative protocols like Synthetix.

What is Synthetix?

Synthetix is the pillar for derivative trading in DeFi that allows users to get on-chain exposure to a wide range of assets including  real-world currencies, stocks and commodities. They are backed by Synthetix Network Tokens (SNX), locked into a smart contract as collateral.

Synths monitor the prices of different assets and allow crypto-native users to trade P2C on Synthetix Exchange without liquidity limitations. This project was launched as a decentralized stablecoin protocol -Havven (HAV).

SNX token and its functions:

SNX is required to create synthetic assets, synths. Users can purchase these tokens from crypto exchanges and place them in a suitable wallet. New synths are minted once these tokens are staked.

Synth tokens:

Synth tokens are the assets that replicate the prices of real assets. Stakers create a debt when new synths are minted and they should pay the same amount to synths before withdrawing their locked SNX tokens. These tokens do not exactly match the represented assets.

Synths’ value is volatile and changes in investments like stocks where the price changes constantly. Users have to pay different synths amount to get their masked SNX tokens compared to the initially received amount.

One big advantage of synth is that users can trade different synth types as long as they have the same market value.  A Bitcoin synth can be exchanged for a Tesla share synth if they have the same value.

Mintr:

Mintr is the primary dApp within the Synthetix Network providing a UI for minting aynths and participating in the ecosystem at large. The users can connect to Mintr via Web3 wallets like MetaMask, Ledger, Trezor and Coinbase Wallet. Once connected, users can carry out any of the above mentioned actions if they have a sufficient amount of SNX in their wallets.

Collateral:

It is an asset pledged by a borrower to a lender as a security for a loan. To protect the platform from extreme market price fluctuations, a higher collateralization rate is charged. The rate of collateralization is about 750% in synthetic systems.

How does  SNX stacking work?

  • First, a user needs to buy SNX on any exchange and connect to a Web3-Wallet (e.g., MetaMask)
  • Go to Mintr, Synthetix’s proprietary portal interface, to raise and manage synths
  • Connect your wallet to Mintr
  • Click on ‘Mint’ and select the desired type of synth to mint
  • Remember the 750% collateralization rate
  • Enter the number of synths you would like to mint
  • Click on ‘mint now’
  • Confirm the transaction in the Web3 wallet
  • After this process, the SNX tokens will be clocked automatically
  • Users can now enjoy rewards obtained from trading fees. Users can also participate in the inflationary behaviour of the SNX tokens

Why synthetics and DeFi?

Synthetics are beneficial for several reasons in the DeFi space.

  • Synthetics allow real-world assets to be exchanged on a blockchain with confidence
  • One of the primary challenges with the present DeFi is  lack of liquidity. By hedging bets and protecting earnings, synthetics could help markets scale their operations
  • Another concern is the technological limits of smart contract systems. Traders do not require direct ownership of an asset when using synthetic exchange
  • Since  trading is done directly from wallet to wallet on DEXes like Synthetix, there are no withdrawal costs. However,  gas fees are supposed to be paid.

Why Brugu For Crypto Synthetic Assets Development?

Brugu offers world-class DeFi development services globally and focuses on providing high-performing DeFi solutions, especially  in DeFi protocols for synthetic assets.

  • Brugu, a leading Decentralized Finance (DeFi) Development Company, has 6+ years of experience in cryptocurrency & blockchain technology 
  • Brugu has successfully delivered  high-performing DeFi protocol development solutions in synthetic assets to to enterprises & start-ups globally.
  • Our blockchain engineers are guaranteed to deliver quality DeFi protocols that will help your users to build and trade their synthetic assets.
  • Our customizable and white label solutions can guarantee your synthetic assets in the DeFi protocol receive the best visibility among crypto investors and traders.

DeFi Yield Farming Development,

DeFi Liquidity Mining,

DeFi Lending/ Borrowing Platform Development,

DeFi dApp Development,

DeFi Wallet Development,

DeFi Token Development,

DeFi Smart Contract Development,

Decentralized Exchange Development,

DeFi Crypto Payment Gateway Development,

DeFi Exchange Development,

DeFi Lottery System Development,

DeFi Synthetic Assets Development,

DeFi Insurance Platform Development

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