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THORChain synths vs. Wrapped tokens vs. Other synths
THORChain Synthetics are something new that has never been seen on the market. You could've come across Wrapped tokens or Other synthetics, but THORChain Synthetics are different.
Check the main differences between them.
Wrapped tokens They are 100% backed by the underlying asset and they’re used for enabling interaction with protocols on different chains. They usually require someone who wraps and holds the assets, like DAO, or a smart contract.
THORChain synthetics They are 100% backed by 50% $RUNE and 50% underlying asset. THORChain itself holds the underlying assets and creates synthetics in an exchange. They can be used for providing liquidity into Vaults (synthetic pools) for a compounding yield.
Due to THORchain synthetics being backed by Liquidity pools that contain $RUNE and the underlying asset, the collateralization ratio is only 100%. The users are not borrowing anything, which means they can't get liquidated.
Synths can be also used for interaction with any Cosmos chains that have implemented the IBC.
Other synthetic assets They are usually derivatives of non-crypto assets, like stocks or commodities. They have to be overcollateralized by 150-700% to have a guarantee that the protocol can always get paid back in case of a price change of collateral asset or synthetic. The risk of getting positions liquidated is minimized with the over-collateralization but it’s never zero.
Why THORChain synthetics and not Wrapped tokens? The reason for using synthetic assets instead of wrapped tokens is because THORchain doesn’t use smart contracts and issuing a token is not possible. You can trade wrapped tokens on THORchain but you can’t interact with THORfi with them. Synthetics on the other hand are directly integrated into THORchain’s blockchain which makes them usable in the THORchain ecosystem. Synthetics provide an option to provide liquidity while mitigating the impermanent loss. You are exposed only to the price of Synthetic which makes it similar to single asset liquidity providing.
Last modified 3mo ago
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