The situation in Russia and Ukraine is turbulent, how can crypto investors hold safe-haven traditional assets on the chain?
The tension between Russia and Ukraine has been affecting the pulse of the capital market in recent days. Global risk assets continued to fall, while energy and gold rose rapidly. In the encryption market, the Bitcoin digital gold narrative continues to be tested, and there is no gold-like rally.
For encrypted asset investors, how to conveniently hold richer exposure to traditional assets has become a problem that interferes with investors' profits. Compared with the complex KYC certification of traditional institutions, the synthetic asset protocol provides investors with a more easy-to-use option. If it is not convenient for you to open an account on a traditional commodity exchange, or you want to make full use of the liquidity of encrypted assets, buying synthetic assets that anchor commodity prices on the chain can also provide you with generous returns during this turbulent situation.
How to hold exposure to traditional assets on-chain?
Synthetix
Synthetix is undoubtedly one of the most well-known synthetic asset projects. Synthetix allows users to synthesize a variety of assets through mortgages, including stablecoins that anchor the price of fiat currency, and encrypted derivatives. Similar to the automated market model adopted by Uniswap, synthetic products can be exchanged hassle-free through the Synthetix exchange platform without a counterparty.
In 2020, Synthetix has become a star project in the DeFi market, but the popularity, transaction volume, and locked-up amount of the project have all faced continuous decline.
As early as the end of 2020, Synthetix launched sOIL (crude oil bullish) and iOIL (crude bearish) tokens anchored to Brent crude oil. The token price is provided by the Chainlink oracle. Users can mint and trade it on Synthetix to hold long and short exposures to crude oil on the chain.
But unfortunately, the token was subsequently delisted by Synthetix. Currently, users are unable to trade crude oil exposure from Synthetix.
Querying the Chainlink data stream, we found that searching for "oil" cannot yield any results. At present, Chainlink may no longer provide any price feed services for traditional assets in the crude oil market.
Through Synthetix, the most well-known synthetic asset platform, users cannot hold exposure to traditional assets such as gold and crude oil, but the development of the DeFi world is always continuing, and users still have other platforms to choose from.
Mirror
The Mirror protocol is a synthetic asset protocol built on top of Terra. Just like the name of the protocol "Mirroring", the protocol uses encrypted assets as collateral to mint mAssets whose price is anchored to the price of the off-chain world, which allows natives of the encrypted world to hold exposure to traditional assets more conveniently without permission.
mAssets can be traded on Terraswap while providing farm rewards for liquidity providers. Similar to STO (Equity Token), mAssets allows trading outside of stock market trading hours, providing investors with round-the-clock trading services. If the mAsset price deviates too far from the copied asset price, arbitrage is used to incentivize users to pull the price back.
Mirror provides mAssets, which are mostly synthetic assets anchored to Nasdaq stocks, and also provides mAssets anchored to USO (United States Oil Index Fund), which also provides crypto investors with a way to hold exposure to crude oil assets.
Unlike Synthetix, Mirror does not interface with Chainlink, but uses the protocol's built-in oracles.
Twindex
Twindex is a synthetic asset protocol built on BSC, which is supported by the ChainLink oracle machine to provide price feeds, providing users with 7*24 synthetic asset transactions anchored to traditional assets without permission.
Synthetic assets on Twindex use the Fractional Applied Algorithm (FAA), whose token value is backed by the KUSD stablecoin. In addition, Twindex's synthetic assets can also be used in the DEX for yield farms to generate income for investors.
Similar to Mirror, most of Twindex's synthetic assets are anchored to US stocks, but Twindex also provides users with tXAU tokens anchored to gold prices.
More agreements and CEX
Although the synthetic asset protocol as a track is no longer in the limelight, there are still many protocols that have not yet been launched yet are still under development.
In the Cosmos ecosystem, the synthetic asset project Comdex supports synthetic assets that anchor gold, silver, crude oil and other traditional assets, and the DEX also uses the Cosmos SDK to develop a separate chain for it.
Synthetify is based on the Solana chain. The anchor assets on this project are mainly various encrypted assets. It has not yet been announced whether it will join traditional assets.
Fsynth (formerly Fabric) is another synthetic asset project based on Solana. The unique feature of this project is that it uses three oracles including Pyth, Chainlink and Genesysgo at the same time.
In addition, some CEX trading platforms also provide investors with targets to anchor traditional assets. For example, FTX provides investors with exposure to XAUT (Teda Gold) issued by Tether and exposure to STO (equity token) USO (United States Oil Index Fund).
Such synthetic asset projects in the market are still growing slowly but continuously. Although the leader of the track is no longer sought after by the market, the innovation and development of this track is still going on.
The End of Synthetic Asset Narratives?
Under today's turbulent situation, the demand for crypto investors to invest in safe-haven assets has gradually emerged, but the lack of traditional asset investment tools in the chain world has left investors in trouble. The once-hot synthetic asset project also fell into trouble due to various problems. The silent cancellation of gold and oil assets by the leader Synthetix may indicate that the entire track is in trouble.
The first is the seller’s liquidity problem of the synthetic asset itself. For miners of synthetic assets, there is not enough incentive mechanism to make them have sufficient willingness to mint such assets. Holding a non-interest-bearing asset is not an attractive choice for DeFi players.
In addition, the divergence between mechanism design and market sentiment has further aggravated the liquidity crisis of the seller of synthetic assets. When the market sentiment is sluggish and traditional asset exposure is required for hedging, the use of encrypted assets to cast synthetic assets faces greater liquidation risks because the market faces greater downside risks. When the market sentiment improves and the liquidation risk of minters decreases, buyers will prefer encrypted assets with higher returns and do not need more synthetic assets.
Untimely birth may also be another reason why the track is in trouble. The popularity of the synthetic asset track was earlier than the outbreak of the new public chain, and most protocols were built based on the ETH main network. At the moment when the EVM compatible chain is popular, compared with the gas of the new public chain, the high transaction fee of the ETH main network has also dissuaded a large number of users who do not have strong funds.
Remember another version of the story?
The world on the chain never closes, and its ease of use and liquidity are far better than traditional assets. Through synthetic assets anchoring the prices of traditional assets, the world on the chain will define the prices of traditional assets when the market is closed, further compete with traditional assets for pricing power when the market opens, and finally redefine the prices of traditional assets. In the grand vision of the synthetic asset narrative, the market will eventually turn around, and the encryption world will dominate the pricing power of traditional assets.
Once upon a time, the narrative of synthetic assets was highly sought after. Under the excessive hype in the market some time ago, people's expectations for this track seem to have been excessively overdrawn. This has also led to the continuous inactivity of the development and funding of the track for nearly a year. Although the current demand for this track has not been fully recognized by the market, whether synthetic assets can realize their grand narrative in the future remains to be tested by time.
