Thread by @CBarraford

Synthetic assets are now available @THORChain. Why is this a big deal? Follow the 🧵

#DEFI $RUNE #SYNTHETICS #ActiveTheSynths

Let's start by defining what a synthetic asset is, and what makes it different than a wrapped asset.
A wrapped asset is collateralized by the asset its wrapping, while a synthetic is collateralized by one more assets (synthesizing an asset from multiple).

Because wrapped assets have no correlation to the security of the network, they can and often exceed the value of the network securing it. THORChain's synthetics are collateralized by the pools, so 50% the asset, and 50% $RUNE.

Because the synth is half backed by $RUNE, it can always ensure economic security of the synthetics, and that the network security is always greater than the value of the synthetics, even if they go 1000x up in value.

Why would someone want a synthetic asset?
1) Synthetics can be used to change the pool depths, and therefore correct the pool price to match market demands, ie arbitrage. This is super important because it means the pools can be arbs faster, cheaper, and more efficiently.

2) Trading with synthetics on THORChain has half the swap fees, making swaps cheaper, cheap gas fees, and faster for traders. You can do near instant trades at a high volume.

What does this mean for the LPs?
For anyone that mints a synth, they add capital to the pool, but DON'T take ownership of the pool. Instead any yield they would have gained is passed off to LPs. This effectively means that LPs gain the yield of a higher amount than they deposited

For a more detailed analysis of the effects synths has to LPs, read this article by @larry0x
medium.com/qi-capital/wha…

I hope trade volume increases on the network once arb bots flip from using L1 trades to synthetics to correct pool prices, which will be exciting to see!

Stay tuned, THORChain has more insane features coming. #THORFi