It would be an understatement to suggest that blockchain technologies have revolutionized financial services. DeFi protocols have opened access to a range of financial instruments previously unavailable to the general public. These include lending and borrowing tools, margin trading, and liquidity mining. But among the most potentially impactful DeFi innovations are crypto synthetics or “synths.”
Blockchain-based synthetics are derivatives — they are tokenized assets that derive their value from an underlying asset or index. Put simply, the price of the digital synthetic tracks the price of the underlying asset that it represents. This means that when buying a synthetic, one buys a token that is pegged to and that captures the value of an underlying asset — which can be a stock, FOREX, a commodity, financial index etc. To investors, synthetics offer instant, unlimited, and permissionless exposure to almost any asset without imposing the requirement of direct ownership.
Perhaps the most common use of synthetics on blockchain systems is for stablecoins. Numerous exchanges and protocols have established synthetic stablecoins that are either backed by a cryptocurrency or algorithmically determined. These synthetic stablecoins reduce friction and offer the benefits of being programmable.
Another common use of synthetics is to create what are called “wrapped” tokens. In the Ethereum ecosystem, for instance, this entails using a provider to lock an amount of BTC in exchange for wrapped BTC (wBTC) which, as an ERC-20 compatible token, may be used to access Dapps and DeFi protocols across the network. This system allows BTC holders to simultaneously preserve their BTC investments and access Ethereum-based resources, as the issued wBTC can be redeemed for the locked BTC at any time.
For tokenized assets like synthetics, Kairon Labs’ market making services work to improve liquidity depth in order books. Importantly, through arbitrage between pairs and exchanges, our secure API integrations work to support price and stability by lowering spreads between the bid and ask. Furthermore, Kairon Labs prides itself as being a DeFi native quantitative trading firm. Through the expertise Kairon Labs has in DeFi it can offer it’s clientele valuable treasury management services leveraging all the advantages web3 native protocols can offer. Contact us to learn more.
Originally published at https://blog.kaironlabs.com on April 23, 2021.