All about Bitcoin Synths - the next big thing in Crypto
Bitcoin Synths (Synthetic Assets) let you profit from Bitcoin without actually holding any Bitcoin! No hassles of handling keys & wallets. No risk of exchanges going bust.
A Bitcoin Synth (Synthetic Asset) is a financial instrument that mirrors the value or price of Bitcoin.
Bitcoin Synths let you profit from Bitcoin without actually holding any Bitcoin!
No hassles of handling keys & wallets.
No risk of exchanges going bust.
Bitcoin Synths are the next big thing in crypto because they are bridging the
best of Bitcoin’s liquidity with DeFi’s innovation.
Financially speaking, Synths are tokenized derivatives that track the price of Bitcoin.
You can also think of Synths as digital "wrappers" pegged to Bitcoin's price. They allow you to gain BTC price exposure on other blockchains and DeFi protocols, without the hassles of custody or bridging actual Bitcoin.
Bitcoin Synths are the next big thing in crypto because they are bridging the best of Bitcoin’s liquidity with DeFi’s innovation.
Technologically speaking, Synths are smart contracts on blockchains like Ethereum, HYFI, and Solana.
1. What's great about Bitcoin Synths?
Bitcoin Synths enable BTC’s liquidity to flow into DeFi ecosystems.
Bitcoin Synths can be traded or used as collateral in lending protocols without the complexities of wrapped tokens, specialized bridges, or multi-signature custodians.
Unlike traditional stock exchanges, synths run on the blockchain offering 24x7 trading.
Synths don't need storage, insurance, and other costs associated with tangible / tokenized assets.
Synths offer leveraged investing which amplifies profits (and losses)!
Synths make it easy to hedge your real-world investments.
You can deposit Synthetic Bitcoin into Automated Market Maker (AMM) pools to earn fees from trades.
You can borrow stablecoins or other tokens by using your Synthetic Bitcoin holdings as collateral, which gives you liquidity without selling your Bitcoin exposure.
Transactions and settlements occur on a faster chain (e.g., HYFI), circumventing Bitcoin’s block times.
Financial Institutions & Funds are looking at Bitcoin Synths for more flexible hedging strategies.
As DeFi grows, assets that bring large amounts of capital (like Bitcoin) onto various DeFi platforms are in demand. Synthetic Bitcoin is a straightforward way to boost total value locked (TVL) across protocols.
Note: Risks associated with Synthetic Assets include collateral volatility, smart contract bugs, Oracle manipulation, and liquidity constraints.
2. Here's how Bitcoin Synths work
Let’s take the example of: 10X-24H-LONG-BTC:SYNTH-HYFI
This synthetic asset allows traders to gain leveraged exposure to Bitcoin price movements without directly holding BTC. Here's what each component means:
2.1 Position Parameters
10X (Leverage): Provides 10x leverage on your position, meaning you only need to put up 10% of the position value as collateral. For example, with $1,000 in collateral, you can control a $10,000 position.
24H (Duration): The synthetic asset expires in 24 hours from creation. At expiration, the position automatically settles based on the price difference between opening and closing.
LONG (Direction): Indicates a bullish position that profits when Bitcoin's price increases. The position gains value as the BTC price rises and loses value as it falls.
2.2 Asset Details
BTC:SYNTH (Underlying Asset): This synthetic asset tracks Bitcoin's price movements. While you don't own actual Bitcoin, your returns mirror BTC price performance.
HYFI (Collateral Type): Positions are collateralized using HYFI tokens. These tokens must be deposited to open and maintain the position.
If you open this position with 100 HYFI as collateral:
Your effective position size would be 10x larger (thanks to leverage).
You'll profit if Bitcoin's price increases within 24 hours.
The position automatically settles after 24 hours.
Your potential gains and losses are based on Bitcoin's price movement during this period, multiplied by the 10x leverage.
2.3 Liquidation Risk
Position liquidates if losses reach ~80% of collateral.
The liquidation price is clearly shown when opening the position.
No additional losses beyond collateral are possible.
Early warning notifications before liquidation.
2.4 Settlement Process
At position opening:
Deposit HYFI collateral.
Entry price recorded from Oracle.
Liquidation price calculated and displayed.
During position lifetime:
Real-time P&L tracking.
Liquidation monitoring.
No additional collateral can be added.
At expiration/settlement:
The final price is recorded from the Oracle.
P&L is calculated based on the price difference.
The remaining collateral returned to the wallet.
Settlement completes automatically
2.5 Example Trade Scenario
Initial conditions:
BTC Price: $100,000
HYFI Price: $0.20
Desired Position Size: $10,000 (10x leverage)
Required Collateral: $1,000 (10% of position)
Required HYFI Amount: 5,000 HYFI ($1,000 ÷ $0.20 = 5,000 HYFI)
Profitable Scenario after 24 hours:
BTC rises to $110,000 (10% increase)
Position profit: $1,000 (100% return on collateral)
Profit in HYFI: 5,000 HYFI ($1,000 ÷ $0.20)
Total return: Original 5,000 HYFI + 5,000 HYFI profit = 10,000 HYFI
Loss Scenario after 24 hours:
BTC falls to $90,000 (10% decrease)
Position loss: $1,000 (100% loss of collateral)
Loss in HYFI: 5,000 HYFI (complete loss of collateral)
Total return: 0 HYFI
Liquidation Scenario:
BTC falls to $92,000 (8% decrease)
Position loss: $800 (80% of collateral)
Liquidation triggers
Remaining collateral: 1,000 HYFI ($200 worth)