Now DeFi is a topic that we cannot avoid when talking about the world of encryption, and it is also a track that cannot be avoided.
Today, most decentralized finance (DeFi) applications look like copies of traditional financial products. You can exchange one token for another, borrow or lend tokens in the currency market, and even trade on the exchange using margin and leverage.
More traditional investors enter the cryptocurrency field, and investors in the traditional financial world enjoy many financial tools. They can use different combinations of these tools to deploy various strategies. However, due to the rapid development of DeFi and the lack of some basic products and services, the construction of the “decentralized financial market (DeFi market)” is imperfect, and the lack of structured financial tools cannot meet the needs of investors.
DeFi also needs durable and stable assets and liquidity. At present, the basic assets supporting liquidity mining can be roughly divided into three categories: transaction costs, loan interest rate spreads, and guaranteed governance tokens. When basic asset income is not enough to maintain credit prosperity, there will be risks similar to the traditional “financial crisis”.
The entry barrier is too high, the operation is complicated, and DeFi is not friendly to traditional investors. If the popularity of crypto transactions is still limited to crypto enthusiasts and people familiar with the DeFi environment, then decentralized finance is a project that can never be implemented.
Open value exposure
Mirror opened the US stock market of 36.3 trillion of the world’s most attractive asset class by releasing synthetic assets. Tokenize tangible assets and bring them to the blockchain. It also allows us to see the possibility of synthetic assets to solve the DeFi bottleneck problem.
At present, there is no doubt that SNX based on Ethereum is the most popular synthetic asset, which can trade synthetic assets such as gold, silver, and oil. Other public chains are also actively developing synthetic assets, such as the Coinversation synthetic asset project on the star public chain Polkadot, which is actively solving some of the problems in Defi.
Imagine that anyone in the world has bought a token that can track the S&P 500 index and can use the token as collateral for other DeFi projects such as Compound, Aave or MakerDAO. The model can be extended to commodities such as gold or grains, stocks such as TESLA or indexes such as SPY, debt instruments such as bonds, and anything else.
Encrypted synthetic assets allow investors to access other types of assets without actually holding them. These other types of assets can be traditional financial instruments, such as currencies or commodities or index funds. They can also be other types of digital assets.
The missing link in the DeFi world
Synthetic assets are not only opening up the price exposure of real-world assets, but also a missing link in the world of DeFi. Investors in the traditional financial world enjoy many financial tools, and they can use different combinations of these tools to deploy various strategies. The synthetic assets in the DeFi environment help expand the availability of financial instruments and investment strategies. This led to better risk management and increased trading volume, which increased liquidity.
The popularity of crypto transactions is still limited to crypto enthusiasts and people familiar with the DeFi environment. Synthetic assets can help overcome this limitation. Now, those who have traditional legal currency to invest or those who want to participate in traditional markets can invest without leaving the blockchain environment. This feature helps expand the user base of cryptocurrencies in general.
Synthetic assets have the opportunity to become the next hot spot in the Defi world. Synthetic assets will also help DeFi eat traditional finance. The development of synthetic assets also means that the DeFi space can use existing tracks to enter the capital market. Synthetic assets do not need to rebuild these rails (such as the purpose of security tokens), but allow the use of tokenized versions of existing asset rails.
Source: Password Geek