5 Things that Make Synthetic Assets Influential in the Crypto World, Here’s an Example!

Jakarta, Pintu News – The term “synthetic” often appears in the world of traditional finance and crypto. Synthetic refers to financial instruments that are engineered to mimic the characteristics of other instruments, but with altered features such as cash flow, duration, and risk. Here’s a full explanation and application!

1. Synthetic Definition: “Mimicking” Without Owning

Synthetics are instruments that are created to simulate other assets, but can change some important aspects, such as time horizon, cash flow patterns, or risk exposure. Typically, synthetics are used to create positions (long/short) without actually owning or trading the underlying asset.

For example, in the world of crypto or the stock market, synthetics allow traders to take market positions without having to buy physical assets-simply with derivative instruments such as options.

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2. Synthetic Position: Full No-Capital Strategy

Traders can use synthetic positions to mimic long or short positions with less capital. For example, to mimic a long position in stocks, you can buy a call option and sell a put option with the same strike price.

If the stock price rises, the call option gives you the right to buy at a low price. If it goes down, a put option forces you to buy at the strike price. The end result is similar to buying the stock outright, but without having to spend the full amount upfront.

3. Synthetic Product: Custom for Large Investors

Synthetic products are generally tailor-made for institutional investors with specific needs. For example, synthetic convertible bonds, which combine bonds and stock options, are created when the issuer has never issued a genuine convertible bond.

This product offers a combination of capital protection (fixed income) and growth potential (equity), and can be modified according to the risk profile or additional incentives for investors.

4. Types of Synthetic Assets and Examples in the Market

Synthetic assets can be derivatives, derivative products, or a combination of several financial instruments. Examples include synthetic CDOs (collateralized debt obligations), whose value is derived from credit default swap (CDS) contracts, or synthetic derivatives in the crypto market that mimic the price movements of certain assets.

Synthetic products allow for innovation, but can hide complex risks that are sometimes invisible until systemic problems arise (such as the 2007-2009 financial crisis).

5. Risks and Considerations of Using Synthetic

The advantages of synthetics are strategic flexibility and capital savings, but the risks are also high. Synthetic products are often complex, require in-depth understanding before use, and have the potential for hidden contractual obligations.

It is important to understand the product structure and risks before making an investment decision using synthetics, whether in traditional or crypto markets.

Conclusion

Synthetic in finance is an innovative solution that allows investors to mimic the exposure and strategy of assets without actually owning them. However, understanding and risk management are crucial for synthetic to be a tool, not a trap, in an investment portfolio.

Also Read: 7 Facts How Ethereum Changed the World of Crypto & Cryptocurrency Over 10 Years!

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*Disclaimer

This content aims to enrich readers’ information. Pintu collects this information from various relevant sources and is not influenced by outside parties. Note that an asset’s past performance does not determine its projected future performance. Crypto trading activities are subject to high risk and volatility, always do your own research and use cold hard cash before investing. All activities of buying andselling Bitcoin and other crypto asset investments are the responsibility of the reader.

Reference

• Investopedia. Synthetic: Definition in Finance, Types of Assets. Accessed July 31, 2025.