Synthetic assets in crypto are tokens or positions that track the price of something else without holding it, such as a currency, a commodity, a stock index or another crypto asset. This guide compares the main designs, explains the oracle, liquidation and legal risks, and lists the steps to build a synthetic asset protocol.
Every design must solve three problems: backing the exposure with collateral, knowing the price on-chain, and having a plan for the moment when the collateral is worth less than the synthetic tokens it backs.
Synthetic assets compared with tokenized assets
A tokenized asset is a claim on a real asset that a custodian holds. A tokenized stock, for example, is backed by a share in a brokerage account, while a synthetic stock holds no share. It only follows the share price, and other collateral, often crypto, backs it. The DeFi tokenization guide covers the tokenized route.
How synthetic assets in crypto are designed
Overcollateralized debt positions
A user locks collateral worth more than the synthetic token the user mints, for example 150% of its value, and receives a token pegged to a reference price. If the collateral value falls below a threshold, the protocol liquidates the position. MakerDAO's DAI started this way, and the method works with any price feed. MakerDAO rebranded as Sky in 2024, and its newer USDS stablecoin uses the same idea.
Overcollateralized positions are simple to analyze, but a user must lock more value than the synthetic tokens are worth, and the peg holds only while arbitrage stays profitable.
Shared debt pool (the original Synthetix model)
Synthetix made this design popular: stakers of the SNX token together backed every synthetic in circulation, called Synths. Each staker owned a share of the total system debt, the value of all Synths in circulation, so when traders profited on one synthetic, every staker's debt rose. Traders could swap one Synth for another at the oracle price, which even a large trade did not move.
The design had two costs: stakers carried an exposure that was unhedged and hard to understand, and the system depended on fast oracles. Some traders saw a price move before the oracle updated and traded at the old price, which took value from stakers.
Synthetix has since moved away from spot synthetics. Its stablecoin sUSD traded below its peg for months at a time, and in February 2026 Synthetix reported a price below $0.70. Synthetix stopped minting sUSD against SNX and published a plan to rebuild the peg. The protocol shut down its spot Synths on Optimism in early 2026, with treasury redemptions open until 31 December 2026. Synthetix now runs a perpetual futures exchange on Ethereum mainnet, which it launched in December 2025.
Perpetual futures
Many teams now offer synthetic exposure as perpetual futures (perps) instead of tokens. A funding rate passes payments between longs and shorts, which keeps the contract price near an index price. With perps, no token has to hold a peg, but they need a margin engine and a liquidation engine, and regulators watch them much more closely than spot tokens.
Delta-neutral synthetic dollars
A newer design backs a dollar-like token with spot crypto plus an equal short perpetual position on exchanges. The token earns funding payments and staking yield. Ethena's USDe is the largest example, with about $4.7 billion in circulation on 19 October 2026, according to DefiLlama.
The design depends on exchanges and custodians outside the chain and on positive funding rates, so when funding stays negative for a long time, the backing shrinks.
Optimistic oracle synthetics
UMA uses an optimistic oracle: someone proposes a price, anyone can dispute it during a set window, and token holders vote to settle each dispute. The method works for assets without a reliable price feed, but settlement takes longer.
The designs compared
| Design | Capital efficiency | Who carries the risk | Critical dependency | Example |
|---|---|---|---|---|
| Overcollateralized vaults | Low | Each minter | Liquidation incentives and the oracle | DAI and USDS (Sky) |
| Shared debt pool | Medium | All stakers together | A fast oracle and staker incentives | Synthetix Synths (retired) |
| Perpetual futures | High, through leverage | Counterparties, and a reserve fund that covers losses from failed liquidations | The liquidation engine and the funding design | Synthetix Perps, GMX |
| Delta-neutral dollar | High | Token holders | Exchanges, custodians and funding rates | Ethena USDe |
| Optimistic oracle | Depends on the collateral rules | Minters, and users who dispute wrong prices | Active disputers and honest voters | UMA |
Oracles for synthetic assets
A synthetic asset is only as reliable as its price feed. Use decentralized oracle networks for liquid assets, combine several sources and check every price for staleness and for large jumps.
Stocks trade only during market hours, so a stock synthetic needs a rule for nights, weekends and holidays. A protocol can freeze minting, raise collateral requirements, or allow trading at the last price and accept the risk.
Mirror Protocol on Terra offered synthetic US stocks called mAssets and collapsed with the Terra ecosystem in May 2022. Its case shows that a synthetic asset fails when its collateral or its chain fails.
How to build a synthetic asset protocol
- Choose the exposure and the user. Hedgers, traders and yield seekers want different products.
- Choose the collateral model. Stress-test the model against a 40% to 60% fall in collateral value within one day, since crypto markets have produced such falls.
- Design oracles and circuit breakers. Set a maximum price change per update, staleness limits and pause rules.
- Build liquidation. Decide who can liquidate, the bonus, partial or full liquidation, and how the system absorbs bad debt.
- Write the contracts in Solidity with invariant tests, then audit them. The DeFi smart contract development guide describes the process.
- Launch with mint caps and raise them as liquidity grows and monitoring proves reliable.
The collateral and liquidation rules overlap with decentralized stablecoin design and with DeFi lending, which explain those mechanics in more depth.
Legal status of synthetic assets
Major jurisdictions, including the US and the EU, usually treat synthetic exposure to stocks or commodities as a derivative, a security-based swap or a security. In the SEC's case against Terraform Labs, a US federal court ruled in December 2023 that Mirror's mAssets did not meet the legal definition of a security-based swap, but found that Terraform sold LUNA and Mirror's MIR token as unregistered securities. Offering such products to retail users without authorization carries serious legal risk. Blocking users from certain countries on the website does not solve the problem on its own.
Synthetic exposure from one crypto asset to another has a less clear legal status, but regulators still examine crypto-to-crypto synthetics closely when they offer leverage.
Frequently asked questions
What are synthetic assets in crypto?
Synthetic assets are tokens or contracts that follow the price of another asset, such as a currency, stock or commodity, without holding that asset. Collateral, usually crypto, backs the position, and an oracle supplies the price.
Is a synthetic asset the same as a tokenized asset?
No. A tokenized asset is a claim on a real asset that a custodian holds. A synthetic asset only tracks the price, and collateral of a different kind backs it.
Why do synthetic assets lose their peg?
Synthetic assets lose their peg when collateral falls faster than liquidations can keep up, when oracles lag, or when more holders want to exit than arbitrage can absorb.
What happened to Synthetix?
Synthetix retired its spot Synths on Optimism in early 2026 and stopped minting sUSD against SNX. The protocol now focuses on a perpetual futures exchange on Ethereum mainnet, which it launched in December 2025.
Can synthetic assets track real-world stocks legally?
In most jurisdictions, only within a regulated framework. Plan a stock synthetic as a regulated derivative product from the start.