Crypto synthetic assets, explained

cointelegraph.com:

Blockchain-based financial instruments called crypto synthetic assets imitate the value and behavior of actual assets or financial instruments.

Crypto synthetic assets, also known as “synthetic assets,” are a class of digital financial instruments created to mimic the value and performance of actual financial assets or assets from the real world, such as stocks, commodities, currencies, or even other cryptocurrencies, without actually owning the underlying assets. 

These artificial assets are produced using complex financial derivatives and smart contracts on blockchain platforms, mainly in decentralized finance (DeFi) ecosystems. The ability to create decentralized smart contracts on blockchain systems like Ethereum, use collateral to secure value, track target asset prices precisely and create flexible leveraged or derivative products are important characteristics of crypto synthetic assets. 

DeFi customers now have access to a wider range of financial markets and assets, which lessens their reliance on conventional intermediaries. Users should take caution, though, as these instruments add complexity and risk, necessitating a thorough knowledge of their underlying workings and effects on investing strategies

Traditional assets are tangible or monetary items like stocks, bonds and commodities exchanged on established financial markets. In contrast, crypto synthetic assets are digital representations built on blockchain technology and intended to resemble the value and performance of these conventional assets. 

The fundamental distinction between traditional and crypto synthetic assets is that traditional assets are physical or paper-based, whereas crypto synthetic assets only exist in digital form on blockchain networks.