Synthetic Assets are a form of crypto-assets which derive their value from some other asset in the ecosystem, which may be on or off the blockchain. They are a type of derivative.
Derivatives, in traditional terms, are contracts which grant their owners special rights to buy or sell certain specific assets at predetermined prices. Derivatives are a way of taking on or off-loading risk in a more sophisticated and leveraged way than would be possible with just directly owning the asset.
Synthetic assets, then, take the form of tokens which are digital representations of their derivatives. They carry the existing advantages of cryptocurrencies such as permissionless creation and global liquidity, while overcoming a key problem in traditional derivatives: central party risk. This means that there is no central party with privileged control over the creation and liquidation of the derivatives.
Synthetic assets are also extremely promising because of their ability to tokenize any real world asset on the blockchain. We have already seen examples of synthetic assets tracking the value of large publicly traded companies and other commonly traded commodities such as gold. The same technology could extend to cover many other forms of cultural artefacts (e.g. memes, music, paintings) and legal privileges (e.g. short-term house rentals).
