Synthetic crypto assets: how digital equivalents of stocks, gold and currencies work

During the DeFi boom, the idea emerged of using synthetic crypto assets to allow users to trade traditional assets via blockchain protocols.

What are synthetic assets and how do they work?

Synthetic crypto assets are financial instruments that track the price of another underlying asset. Synthetic assets allow traders to execute trades without directly owning the underlying asset itself.

Synthetic crypto assets merely replicate the price and dynamics of certain real-world assets, such as:

• Securities (stocks and bonds);
• Fiat currencies (US dollar, euro);
• Commodities (oil, gold, grain);
• Stock and other indices (S&P500, Nasdaq);
• Other digital assets.

To track the price of the underlying asset, synthetic crypto assets use oracles — specialized services and protocols that provide up-to-date market data to smart contracts for executing trading settlements.

Like ordinary tokens, synthetic crypto assets are issued through smart contracts that define the settlement rules within a decentralized network.

Synthetic assets are a category of derivative financial instruments, or derivatives. These include:

• Futures and perpetual contracts allow users to buy or sell an asset at a predetermined price in the future.
• Options — contracts granting the right, but not the obligation, to buy or sell an asset in the future;
• Swaps — instruments for exchanging cash flows;
• CFDs (contracts for difference), which simply track the price of a particular asset.

One of the most common forms of synthetic assets has become futures and perpetual contracts.

What is the difference between tokenized and synthetic crypto assets?

Tokenized assets are backed by real assets. This means that when stocks or treasury bonds are issued on a blockchain, the company must hold an equivalent amount of those stocks or bonds in reserve.

Unlike tokenized assets, synthetic crypto assets mimic the prices of real-world assets but are collateralized in digital assets or supported by other mechanisms. For example, the Synthetix platform uses its native token, SNX, as collateral to issue sAssets.

Pros and cons of synthetic crypto assets

The main advantage of synthetic crypto assets is that they provide access to the derivatives market* without the need for a traditional broker or exchange. Instead, trading occurs directly on the blockchain via autonomous smart contracts. The built-in logic of smart contracts replaces the accounting and exchange clearing* mechanisms used in traditional financial markets.

* Derivatives market — a segment of the financial market where derivative financial instruments are traded, with contracts executed in the future under predetermined conditions.

* Exchange clearing — a system for recording, verifying, and settling trades between financial market participants after a transaction has been concluded. Clearing determines the obligations of each party — who must transfer what assets and in what quantity — and ensures timely settlement.

Synthetic assets simplify access to financial markets. For example, thanks to synthetic assets, an investor can gain exposure to gold or stocks without physically purchasing them or paying associated storage and custody fees.

One of the key advantages of synthetic crypto assets is 24/7 trading without the limitations of traditional stock exchanges. Unlike conventional financial markets, blockchain protocols operate around the clock without weekends or centralized intermediaries.

In addition, synthetic crypto assets create broad opportunities not only for trading but also for risk hedging*, diversification, and arbitrage — profiting from price differences across different markets.

* Risk hedging — a risk management strategy aimed at reducing potential financial losses caused by changes in asset prices, currency exchange rates, interest rates, or other market factors. To achieve this, an investor or trader opens an opposite or compensating position in a related asset or derivative instrument.

However, synthetic crypto assets also have disadvantages. One of the main risks is associated with smart contracts, which may contain vulnerabilities allowing hackers to steal assets from decentralized protocols, potentially leading to the collapse and closure of a crypto project.

There are also systemic risks related to price oracles. If oracles fail or provide inaccurate data, traders and investors in synthetic assets may incur losses.

Additionally, there is the risk that synthetic assets may lose their peg to the underlying asset's price. This is especially true when synthetic assets are backed by highly volatile collateral, as is the case with Synthetix.

Due to their connection with traditional finance, the synthetic asset sector may also face strict regulation, creating additional risks for investors.

Examples of synthetic assets

Ethena USDe (USDe)

One of the largest synthetic assets on the market and among the top five stablecoins in the cryptocurrency industry.

A key feature of USDe is that it is considered an uncollateralized synthetic crypto asset. Instead of direct collateral backing, the Ethena protocol uses a delta-neutral hedging strategy.

As of May 2026, the market capitalization of Ethena USDe exceeds $4.3 billion, but since its launch in 2023, it has declined by nearly one-quarter. One reason for USDe's popularity is the ability to earn yield simply by holding the stablecoin, which distinguishes it from many other synthetic crypto assets.

In addition, USDe is decentralized, unlike USDT and USDC, making it more attractive to certain investors.

sUSD (sUSD)

sUSD is one of the first synthetic crypto assets, launched by Synthetix — a pioneer in this sector. Although sUSD was among the earliest synthetic assets, the stablecoin never achieved widespread adoption.

As of May 2026, the market capitalization of sUSD stands at only $20.8 million, which is 200 times smaller than Ethena USDe.

Compared to its 2021 peak of $313 million, sUSD's market capitalization has collapsed by more than 15 times. This decline is linked not only to reduced interest in synthetic assets but also to the instability of the sUSD exchange rate, which repeatedly lost parity with the US dollar.

In October 2025, sUSD permanently lost its peg to the US dollar, further worsening the negative trend. As of May 2026, sUSD trades at $0.63, which is 37% below the value of the US dollar.

sXAU

Another synthetic asset issued by Synthetix, designed to track the price of gold. The synthetic crypto asset sXAU is not backed by physical gold; it simply provides exposure to gold prices without the need for a broker.

sXAU also performed poorly, like many other synthetic assets issued by Synthetix. The situation with sXAU and sUSD clearly demonstrates the risks associated with synthetic crypto assets.

Synthetix also issued other synthetic assets, including:

• sETH;
• sAPPL;
• iBTC, which tracks the value of short Bitcoin positions;
• sCEX, which tracks an index of centralized exchange tokens such as BNB, LEO, Huobi Token (HT), OKB, and others.

These synthetic crypto assets also failed to gain significant traction. Nevertheless, despite these setbacks, the synthetic asset sector remains popular and continues to evolve.