Synthetic asset

A synthetic asset gives price exposure without ownership. A protocol locks collateral, often well above the value of what is issued, and uses price oracles to mint tokens whose value follows a reference asset: a synthetic dollar, synthetic gold or a token tracking a share index. Holders can trade or use the token in DeFi, while the protocol keeps it close to the reference through collateral requirements, arbitrage and liquidations.

Synthetix, early Mirror Protocol and many perp-based designs brought synthetics to DeFi, extending blockchains beyond native crypto. The idea lives on in synthetic dollars, perpetual-backed tokens and some tokenized stock products that hold derivatives rather than shares.

The token's value is only as good as its collateral and its oracle. If the oracle lags or is manipulated, holders can be liquidated or arbitraged; if collateral crashes, the synthetic can lose its link to the reference. Holders get no rights over the real asset, such as dividends or votes, and regulators may treat synthetics of securities as securities themselves.