In 2020, we are seeing a global change and innovation towards digitalisation in all sectors of the economy. One of the key technologies that have now become a word-of-mouth called Decentralised Finance or DeFi, aims to replicate and innovate on the current financial services industry in all continents and spheres throughout the world. 

Smart contracts that replicate derivatives products are vastly found in traditional marketplaces takes the movement of change to a bigger scale.

It is due to it not entirely representing the current reality assets associated in the real world.

Given examples, we have loans, trades, insurances and savings to locate; where the banking industry becomes the central entity that keeps everything safe and sound.

Nonetheless, we could now utilise DeFi dapps that will allow us to create stablecoins whose cryptocurrency values are similar to the US Dollar, to earning interests from the crypto investments and lending out money to exchanging assets that automaticas and advances the strategies of investment. 

Stimulation of Finance

Altering key characteristics in financial instruments describes synthetics as whole. Nonetheless, the functionality of a financial instrument is blended with different financial institutions.

In overall, they are made to offer customisation of suiting the needs of investors and customers.

Four Areas of Scaling Up

There are numerous statements addressing the method that Synthetics is utilising to assist DeFi as a whole.

Not many are aware of the areas that shall be the central point before deciding to get into the industry. 

Liquidity has always been a huge issue in the space of Decentralised Finance where players, specifically the market makers engage with a massive number of crypto assets of various kinds.

Withstanding, the financial tools that are available within the space are limited for an in depth risk management work.

Even Synthetics can level up DeFi by protecting hedging positions and profits.

Smart Contracts

The pillars of the Decentralized Finance space are usually associated with smart contracts. In the late centuries, a cryptographer by the name Nick Szabo came up with the idea of being able to record contracts in the form of computer coding.

With such implementation, the contract would be activated automatically when conditions are met.

The whole concept was to remove the authority of trusted third-parties organizations such as banks to verify everything.

Having said that, it is not an easy process because moving assets across multiple blockchain requires direct access to assets across all platforms. 

Challenges Are Endless

In a different perspective of how assets are being governed and identified, we also have fiat currencies to gold which differs the way they are being stored and valued in the traditional way of currencies.

We are seeing stablecoins like Tether taking a huge role of fiat currencies being collateralised.

Synthetic assets buyers can liaise with fiat exchange without having the same centralized agency; thus lessening the exposure to the risks in the central market.

Participation Adds Value

As money talks and technology utilizes the concept, we are looking in the whole inclusion aspect for investors throughout the area.

If we were to compare to traditional finance, large and experienced investors are available for synthetics.

Even so, blockchain technology platforms with limited FinTech tools are smart-contracted, managed only by smaller investors. Synthetics in the Decentralized Finance  (DeFi) space mean bringing these large investors to the DeFi space.

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About the author

Nurul Zamrè

Senior Content Writer

Nurul Zamrè is an ardent writer for the past 15 years of her living tenure on science & technology, agriculture, health, communities, management and more. She is also a News Anchor at RTM, a general manager of AHVN, a model, VO artist, emcee, gymnast, ballerina and a lover of everything chocolates.