Synthetic assets can inject a lot more liquidity into decentralized finance. Several projects aim to tackle this concept, although that has proven to be somewhat tricky. It is not too late to change the narrative, although doing so will require some significant changes. Q1 2021 hedge fund letters, conferences and more The Current State Of […]
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This story originally appeared on ValueWalk
Synthetic assets can inject a lot more liquidity into decentralized finance. Several projects aim to tackle this concept, although that has proven to be somewhat tricky. It is not too late to change the narrative, although doing so will require some significant changes.
The Current State Of Synthetic Assets
At their core, synthetic assets can help unlock numerous benefits and improvements. By using any real-world asset as collateral to create tokenizing digital assets that are freely tradeable, there is a significant market to tap into. Not only will this improve overall liquidity in the decentralized finance industry, but it can also boost global financial inclusion.
Unfortunately, the current state of synthetic assets leaves much to be desired. Due to support for very limited assets to participate in the synthetic asset market, there is a certain “gatekeeping” to contend with. Anyone not looking to sell or exchange existing assets to obtain the “correct ones” will be left out. An unfortunate development that needs to be rectified as soon as possible.
A second issue is a barrier to entry due to the complexity of synthetic markets today. There is no convenient solution to enter, exit, and provide synthetic asset liquidity without making multiple transactions, each with potentially high fees. Making matters worse is how there are no real “benefits” to synthetic assets unless one wants to engage in yield farming.
Synthetic assets are – in their current form – far from attractive. The existing projects providing exposure to such assets do not cater to the needs of the masses. Existing cryptocurrency enthusiasts show less interest in synthetics because most crypto assets have higher liquidity and volatility to explore.
An Alternative Way to Solve The Problems?
New solutions need to be created to solve all of the issues surrounding synthetic assets today. Moreover, there is a growing demand for the synthesizing of real-world derivatives or those that doesn’t even exist in current financial markets.
For example, XCarnival aims to usher in a new generation of such assets by maximizing liquidity, making them more accessible to the masses by removing entry barriers and other means. Rather than provide a platform doing one thing right, the team has a solution matrix spanning multiple products.
Its XArena service is an example of how to make the integration of synthesized real-world derivatives much smoother. With its range of templates to quickly and efficiently create and public prediction games for others to participate, a new playing field is created. This makes XCarnival very different from other competitors, as the main objective is to make it easy and cheap to build financial products. It is akin to how YouTube transformed the video landscape by providing an efficient, cheap, and accessible solution to everyone.
Another solution is Synthetic that is one of the most popular synthetic assets platforms on the market today. has the highest market cap at $2.4 billion yet suffers from relatively high fees – due to building on the Ethereum blockchain and its scaling issues -,few synthetic products – at this time – and being less user-friendly for people who are not used to interfacing with cryptocurrencies or related services.
Mirror Protocol is another interesting addition to the world of synthetic assets. Asset tokenization is an intriguing concept that can introduce significant volatility to the DeFi industry. With its focus on US equity markets, the project seems to limit its appeal somewhat. While anyone can trade synthetic mirror shares of US companies – only on the Terra blockchain – it may not provide the biggest appeal at this time.
Linear has slightly more benefits than drawbacks compared to Mirror and Synthetix. Its low fees, multi-chain support, and decent user experience put it slightly ahead of these other two competitors, however, it has one similar flaw” there is only support for one native asset, creating extra hurdles to adoption that shouldn’t be present in the first place.
If synthetic assets are to cater to mainstream users, making them accessible will prove essential. New service providers are addressing issues competitors face today, paving the way for broader adoption. That will not automatically enhance the appeal of asset tokenization but will give onlookers more options to explore in this industry.
To boost financial inclusion globally, there needs to be some degree of innovation. Synthetic assets can allow for anyone with real-world assets to create digital liquidity and explore the benefits of decentralized finance. The approach by some service providers makes this option more appealing and accessible.