I'm Back with some more THORchain hype!
Synthetic Assets are now live!
But what is a synthetic asset?
I am glad that you asked... A Synthetic Asset (synth) is an asset on THORChain that holds a 1:1 value as the native asset, but has some advantages.
Synths vs. Native Assets
Synthetic Assets are pegged 1:1 with their native counterparts.
They are backed by their THORChain LP (50% asset, 50% Rune)
They are assets that only deal with THORChain (rune gas = 0.02 Rune / transaction)
Since they are 50% asset and 50% Rune, the slippage is cut in half when minting a synth.
ThorChain is fast. You can mint synthetic BTC in seconds as opposed to waiting for native BTC.
Synthetic ETH would cost 0.02 Rune to mint... and would mint in seconds.
Synths are burned when they are traded into another asset.
Deeper Dive
Minting a synth is simple. Take the asset you want to trade and then open the synth menu and pick the coin you want to mint a synth of.
In this case, we are taking RUNE and trading for synthetic BTC. The advantage of minting a synthetic BTC is that we get the exposure to BTC, pay 80% less gas and have the synth within seconds (as opposed to paying BTC network fees and waiting for confirmation). Minting synths is done on THORChain and does not need any communication with the Bitcoin network.
The same would hold true with Ethereum. You can mint synthetic ETH on ThorChain for $0.23 gas as opposed to $12 currently. The synth would mint faster in this case as well.
What happens to mint a synth
Taking the example above. We take RUNE and mint synthetic BTC. The RUNE goes into the RUNE/BTC pool (buys a 50/50 position in the background) and mints synthetic BTC. This synth is 100% backed by the RUNE/BTC pool (50% BTC / 50% Rune). Now, you hold sBTC, native to THORChain, 100% backed and worth 1 BTC.
Using a synthetic asset
Synths act like regular assets on THORChain, they are 1:1 copies of the original token. They are cheap to make and fast to mint. If you want exposure to ETH, minting a synth is far cheaper than buying into ETH on chain. When you are done with your synth, simply trade it away and it will "burn," by simply removing the LP position that was created when the synth was minted.
LP'ing 100% on RUNE vs Synths
I wrote an article last month which went through LP'ing on ThorChain on the RUNE side only. You can enter any LP position with 100% RUNE and only pay the RUNE fee. You can get exposure to BTC or ETH for simply RUNE gas fees and also get exposure to the APR's of the LP's. (BTC is at 22% and ETH is at 24% currently).
Synths work kind of the same way, but you don't need to use RUNE to mint them (you can use any asset on THORChain) and you don't need to be 50/50 paired with RUNE.
##WHY?
This is a good question. One that I have not fully wrapped my head around yet. I get that being able to mint BTC in an instant for 23 cents is pretty cool and will come in handy for the savvy trader. ETH gas fees are an issue and minting synthetic ETH will certainly come in handy.
I also read that these synthetic assets will be able to be sent and used in the COSMOS IBC ecosystem. I am not too sure what this means but I am pretty sure that @jk6276 might be able to fill me in on this.
Conclusion
Synthetic assets are live on THORChain. You can mint them for 50% less slippage, for 0.02 RUNE gas and in 5 seconds. This is a big advantage if you do a lot of trading. Synths are 100% backed assets and all of the heavy lifting is done in the background. All you need to do is swap for a synthetic asset. These assets are 1:1 backed and redeemed (burned) as easily as they are minted. Synths will most likely increase usage, increase profits for users (or minimize losses :P) and make the THORChain experience even better.
Currently synths are limited to 5% of the asset to be synthesized pool depth. That number can be increased to 16.5% over time. Synths can be used on COSMOS IBC ecosystem.
This is just another development on THORChain's roadmap. There is much more to come.
I got most of the info from this article. There are deeper dives linked to synths too if you are interested.
Thanks for reading.