Synthetic assets have proven to be an exciting addition to the cryptocurrency and DeFi industry. Bridging the gap between crypto and real-world assets will provide better liquidity and new use cases.
However, maximizing the potential of synthetics is a very different issue to address, as there is still much room for further improvement.
It is not hard to see why synthetic assets are appealing to many people. Converting an otherwise "useless" real-world asset into a tokenized version of itself that can be traded and sent freely globally has certain benefits. Not only does it create extra liquidity, but it also serves as a way for anyone to enter the cryptocurrency and decentralized finance world. A very appealing concept that will benefit those two industries, as there is always a need for more liquidity and different assets to explore.
Despite the growing number of DeFi projects focusing on synthetic assets, the current landscape remains fairly unappealing. The majority of protocols only support one or a handful of assets natively, limiting the trading appeal of synthetics right away. Moreover, one needs suitable infrastructure to issue a synthetic asset on. Thus, for this industry to be taken more seriously, the "one-chain approach" will not be viable whatsoever.
It is safe to say there is a lot of untapped potential where synthetic assets are concerned. As a result, the need for affordable and accessible market solutions grows ever louder.
Tokenized derivatives can fit the needs of many in modern society, but only if those synthetic assets provide unparalleled access and exposure. Unfortunately, that is not the case today due to the various service providers overlooking these crucial aspects. Therefore, pushing the boundaries of what is possible will remain essential for some time to come.
Addressing the pain points in the synthetics industry will require rethinking the entire business model. Moreover, it is essential to explore the full potential of decentralized infrastructure. Whereas traditional derivatives all rely on centralized technology, empowering the users needs to be the top priority.
Foregoing unequal opportunities, preferential treatment, and geographical barriers are what this industry needs today. It is pertinent to establish a level playing field with equal opportunities for all people worldwide. Exploring the decentralized option can enhance user engagement with synthetic assets.
The Octopus Protocol team establishing an open protocol to create, exchange, settle and manage synthetic assets will lower the entry barriers and create a much smoother overall user experience. If successful, this approach will introduce millions of dollars in liquidity and pave the way for untapped market pairs that would otherwise never exist.
Despite the unlimited possibilities on the table, other service providers seem intent on remaining "niche" products. Although Synthetix - with $1.24 billion in AUM - , UMA - $119.5 million in AUM - , and Mirror Protocol all provide different ways of engaging with derivatives, they also have shortcomings.
Broadening access to real-world assets through tokenization is only the first step, and doing so on the "correct" blockchain is essential. Ethereum, while powerful, has many scaling issues that prevent it from hitting its full potential.
Binance Smart Chain, known for its high throughput, scaling, and lower costs, is of great interest to Octopus Protocol and other forward-thinking service providers.
Tapping the correct infrastructure is only the first of many steps. It is equally essential to offer an affordable solution regarding synthetic assets. Lowering the required deposit for collateral to issue synthetics is a significant competitive advantage. The minting of synthetics should be made appealing first before charging users an arm and a leg.
There are still many opportunities to explore in the world of synthetic assets. Giving everyone a fair chance at minting real-world assets' value on the blockchain will pave the way for financial equality on a much larger scale.
However, before that can happen, the necessary infrastructure needs to be created to provide a seamless, affordable, and accessible solution. The established providers, like UMA, Synthetix, and others, fall short on that front if they stick with their current business model.
It is good to see alternative projects come to market that focuses on addressing these inefficiencies and build a new infrastructure from the ground up. There is plenty of room for competition in the synthetics segment, as the mainstream has yet to make its way to this industry over the coming years.
Gaining a competitive advantage at this time may prove crucial for new entrants. Exploring new industries and pushing the boundaries of innovation will make this industry a lot more appealing than it has been until now.
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