What Are Synthetic Assets in Crypto?

The Mirror World

What if you could trade Tesla stock straight from your crypto wallet, or track the price of gold without opening a brokerage account or dealing with paperwork? That idea once sounded like science fiction, but today it reflects a growing shift in how global markets are being rebuilt on-chain.

Many beginners ask, “What are synthetic assets?” The simplest explanation is that they are blockchain-based tokens designed to copy the price of traditional assets, giving you market exposure without going through banks, brokers, or complex financial accounts.

Synthetic assets, often called synths, allow users to follow off-chain prices while staying fully on-chain. You do not own the actual shares, commodities, or currencies. Instead, you hold tokens designed to track the same prices around the clock.

In this guide, we will explain how synthetic assets work in a clear, beginner-friendly way. You will learn why they matter, how they stay pegged to real prices, and how they help support a more open and accessible financial system built for a global audience.

What Are Synthetic Assets in Crypto?

A synthetic asset in crypto is a digital token on the blockchain that copies the price of another asset. That other asset can be almost anything that has a reliable price:

• A stock like Apple or Tesla
• A commodity like gold or oil
• A currency like the euro or the yen
• Even another crypto asset or an index of several coins

A synthetic Tesla token moves with the real share price, giving exposure without brokerage-based ownership. The same idea applies to synthetic dollars, synthetic euros, or synthetic gold.

Real-time TSLA price chart illustrating the underlying price that synthetic Tesla tokens mirror. (Source: CoinMarketCap.)

This gives crypto users a way to get exposure to traditional markets without leaving the blockchain. You can trade synths on decentralised exchanges (DEXs), use them as collateral in DeFi apps, or move them around the world in minutes, much like when you buy crypto online, all while staying inside your digital wallet.

How Synthetic Assets Work: Oracles and Collateral

Behind the scenes, synthetic assets depend on smart contracts. These are simple programs that live on a blockchain and follow fixed rules. Two ingredients matter most when it comes to keeping synths honest and close to the real price.

Oracles

Oracles provide synthetic assets with live price data from the real world. Since blockchains cannot access external information on their own, oracles act as the bridge that brings accurate prices on-chain. When a synthetic asset tracks something like gold or a stock, the oracle updates its value in real time so the token stays aligned with the actual market.

Reliable oracles reduce manipulation, improve stability, and ensure that anyone holding a synthetic token sees a price that reflects real trading activity and broader crypto market prices. Without this data layer, synthetic assets would drift away from their intended value and become unreliable for trading or DeFi use.

Collateral

Synthetic assets are minted by locking collateral into a smart contract. The system requires users to deposit more collateral than the value of the synths they create, which keeps the system secure even when markets move sharply. This overcollateralization protects the peg by ensuring every synthetic token is backed by real value on-chain.

If the collateral value drops too far, the system can liquidate the position to maintain solvency. This approach keeps synthetic assets stable, prevents under-backed tokens from circulating, and gives users confidence that the tokens they trade or hold remain securely supported by actual crypto collateral.

The Leading Models for Synthetic Assets

Different projects design their synthetic asset systems in different ways. Two of the most important models are the pooled collateral model and the isolated collateral model.

The Synthetix Model: Pooled Collateral

Synthetix is one of the earliest and best-known platforms for synthetic assets. On Synthetix, synthetic assets are backed by the Synthetix Network Token (SNX). Users lock SNX as collateral and mint different synths, such as synthetic dollars, synthetic crypto, or synthetic commodities.

All synths in Synthetix share a single global pool of collateral. When you stake SNX and mint synths, you are not only responsible for your own position. You take on a slice of the entire system’s debt. If one type of synth grows in value, the total debt grows, and every SNX staker must keep their collateral ratio at the right level.

The pooled model offers strong flexibility. It allows easy swaps between different synths because trades happen against the pooled collateral, not directly between buyers and sellers. That can reduce slippage and improve liquidity on-chain, especially during crypto swapping between different synths.

The trade-off is that risk is shared. If the system becomes undercollateralized, all SNX stakers feel the impact, so risk management and oracle quality are critical.

The MakerDAO Style: Isolated Collateral

MakerDAO is known for DAI, one of the longest-running decentralised stablecoins. Its design is a good example of isolated collateral. In Maker, each user opens a separate vault, locks collateral such as ETH or other approved assets, and mints DAI against that collateral.

Every vault is its own position. If one user’s collateral drops too far, only that vault is at risk of liquidation. Other users are not directly affected. This structure makes the system more predictable and transparent, because debt and risk are tied to individual loans, not shared across everyone.

The MakerDAO style is usually less capital efficient, since it often demands high collateral ratios to stay safe. However, it is also easier for many users to understand: you lock assets, you borrow against them, and you repay to unlock. This model has inspired other synthetic and stablecoin systems that focus on transparency and isolated risk.

Core Use Cases for Synthetic Assets

Synthetic assets open doors that are hard to reach from inside crypto-only ecosystems. They let you stay on-chain while interacting with off-chain prices.

On-Chain Stocks

Synthetic assets make it possible to gain price exposure to major public companies directly on the blockchain. Instead of using a traditional brokerage, users can hold tokens that mirror the price of stocks like Apple or Tesla.

This allows 24/7 market access with faster settlement and global availability, similar to what users expect from the best crypto exchange platforms. It also gives traders the ability to move in and out of positions using DeFi tools rather than relying on centralised financial platforms.

On-Chain Commodities

Commodities such as gold, silver, and oil can be recreated as synthetic tokens. These tokens follow real market prices, giving users the ability to benefit from commodity movements without needing futures accounts or physical storage.

Synthetic commodities can also be used inside DeFi for lending, collateral, or yield strategies, which expands their usefulness beyond simple holding.

On-Chain Forex

Synthetic versions of major currencies allow users to trade forex pairs directly on decentralised platforms. Instead of relying on banks or international transfer systems, traders can move between synthetic dollars, euros, yen, and other currencies from a single wallet.

Users gain 24/7 access, faster settlement, and the ability to build currency strategies entirely on-chain, especially when using a fiat to crypto on ramp to move funds into the ecosystem. It also makes global forex exposure more accessible to beginners exploring DeFi.

Anything With a Price Feed

Synthetic assets are not limited to mainstream markets. If a reliable price feed exists, almost anything can be recreated as a synthetic token. This includes indexes, volatility measures, or baskets of assets.

This flexibility lets advanced users design new financial products while giving beginners simple ways to gain diversified exposure without leaving the blockchain ecosystem.

If you want one place to explore different synthetic markets without juggling multiple accounts, Digitap gives users a mobile-first way to manage crypto and fiat assets in one place, which makes it easier to explore or incorporate synthetic assets alongside the rest of your portfolio.

Risks, Limits, and What To Watch Out For

Synthetic assets can be powerful tools, but they come with real risks that every user should understand before getting involved. These risks highlight the importance of understanding how each protocol operates. They simply help you make informed decisions in a market where things can move quickly.

One major concern is smart contract risk. Synthetic asset platforms rely on code rather than human oversight, which means a bug or vulnerability can cause funds to be lost or mispriced. Even well-audited systems have occasional issues, so it is important to recognise that no protocol is completely risk-free.

Oracle risk is another factor. Synthetic assets depend on accurate price data from external sources. If an oracle delivers incorrect or delayed information, the synthetic token may drift away from the actual market value. In extreme cases, sudden price mismatches can lead to unexpected liquidations or system stress.

Collateral risk also plays a role. Because synthetic assets are usually backed by overcollateralized positions, a sharp drop in collateral value can put pressure on the system. If the market moves too fast, liquidations may not happen in time, which affects stability and user confidence.

Regulation is still developing in many regions, and rules about tokenised or synthetic versions of real-world assets continue to evolve. Some jurisdictions may restrict access to certain synthetic markets, so it is wise to stay aware of local requirements before trading.

Despite these risks, synthetic assets can still be useful when approached responsibly. Taking small positions, researching each platform, and understanding how collateral and liquidation rules work can help you use these tools more safely within the DeFi ecosystem.

Conclusion: The Bridge Between Two Worlds

Synthetic assets are becoming one of the most important building blocks in connecting traditional markets with the growing world of decentralised finance. They give users the ability to access price movements of stocks, currencies, commodities, and indexes without depending on banks or brokerage platforms.

Anyone asking “what are synthetic assets?” can think of them as on-chain tokens that mirror the value of off-chain assets while remaining fully transferable and programmable.

Their strength comes from collateral systems and reliable price feeds, which help maintain stability even during fast market movements. This design lets users move between global markets at any time, experiment with trading strategies, and manage exposure directly from a crypto wallet. It also opens the door to a more accessible financial environment where individuals can participate regardless of their location or background.

As innovation continues, synthetic assets will keep serving as a bridge between old and new financial systems, a topic widely explored in every major crypto blog. If you want to explore these markets confidently, Digitap gives you a secure way to manage your crypto activity from one place, including platforms that offer synthetic assets.

FAQs

What is a synthetic asset?

A synthetic asset is a blockchain-based token designed to follow the price of another asset, such as a stock, commodity, or currency. It provides on-chain exposure without requiring ownership of the real underlying asset.

How is a synthetic asset different from a normal token?

A normal token has its own independent market value, while a synthetic asset mirrors the price of something else. Its value depends on collateral, oracles, and smart contracts that maintain an accurate link to the underlying asset’s price.

Are synthetic assets safe?

Synthetic assets can be reasonably safe on trusted platforms, but they still involve risks. These include smart contract vulnerabilities, inaccurate price data from oracles, rapid market swings affecting collateral, and evolving regulations in different regions or jurisdictions.

What is Synthetix?

Synthetix is a DeFi protocol that allows users to mint and trade synthetic assets by locking collateral. The platform uses pooled collateral, oracle feeds, and automated debt management to keep synthetic tokens stable and properly backed on-chain.

Can I trade stocks on a DEX using synthetic assets?

Yes, several platforms offer synthetic versions of popular stocks that track real market prices. These tokens can be traded on-chain, although availability depends on your region and the specific rules of each protocol or platform.