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🧪 Synthetic Assets

Last verified: July 2026

A synthetic asset lets you track the price of gold, a stock, or a foreign currency entirely on-chain — without ever touching the real thing. Here's how that's actually possible, and where it can go wrong.

The idea in one line

A synthetic asset is an on-chain token engineered to track the price of something else — gold, a stock, a foreign currency, even another cryptocurrency — without the issuer ever actually holding that underlying thing. Instead of owning real gold, you own a token whose value moves in lockstep with gold's price, backed by crypto collateral and kept accurate by an oracle.

How the tracking actually works

A user deposits crypto as collateral — typically worth considerably more than the synthetic asset they want to create, to absorb price swings safely. A smart contract then mints a token designed to track a target price, using an oracle to continuously feed in the real-world price of whatever's being tracked. If the price of gold rises, the oracle updates the contract, and the synthetic gold token's value rises to match — all without a single ounce of real gold changing hands anywhere in the process. This is genuinely different from tokenised real-world assets (RWA), where an actual physical or financial asset is held by a custodian; a synthetic asset simply mimics the price, with nothing real backing it beyond the crypto collateral.

Why this is genuinely useful

Synthetic assets let crypto users get exposure to traditional markets — gold, oil, foreign currencies, even individual stock indices — entirely on-chain, 24/7, without needing a traditional brokerage account or dealing with the settlement delays and access restrictions of conventional finance. For someone in a country with limited access to international markets, a synthetic asset can be a genuinely useful (if riskier) alternative route to similar price exposure.

Where the real risk lives

Because nothing physical actually backs a synthetic asset, its whole system depends entirely on two things working correctly: the collateral staying sufficiently overcollateralised (protected by liquidations if it falls too low, similar to DeFi lending), and the oracle reporting accurate, un-manipulated prices. A compromised or lagging oracle is a well-documented attack vector across DeFi generally — if a bad actor can trick the price feed, they can potentially mint synthetic assets at an incorrect price or drain a system's collateral. Synthetic assets also carry the same smart contract risk as any other DeFi protocol, on top of the specific oracle-dependency risk that makes them structurally different from a simple token swap.

Synthetic versus real-world-asset tokenisation

It's worth being precise about the distinction, since the two are often confused. Real-world asset (RWA) tokenisation — like Ondo's tokenised US Treasuries — represents a genuine legal claim on an actual asset held by a real custodian. A synthetic asset represents no such claim at all; it's purely a price-tracking mechanism backed by crypto collateral, with no legal right to any underlying gold, stock, or currency. Both can be useful, but they carry meaningfully different risk profiles and legal standing.

The India angle

Synthetic assets are crypto tokens under India's Virtual Digital Asset definition regardless of what they track, so the standard 30% tax and 1% TDS rules apply to gains from trading them — the same as any other crypto asset, even though what you're economically exposed to might be gold or a foreign stock index.