The Terra-Based Synthetic Asset Protocol

One of the primary convictions of DeFi and the crypto community is to grant broader financial access to many of the world’s financially underserved regions.

The current macroeconomic environment confines the wealth creation of global markets and major asset classes to a small range of influential, geographically-confined economic leaders. The subsequent wealth disparity is fueled by a lack of basic access to financial tooling, services, and capital-efficient models for asset classes ranging from equities to commodities and real estate.

Asset tokenization on permissionless blockchain networks has been proposed as an avenue to reducing barriers to entry into global markets, increasing efficiency, and providing other benefits. However, asset tokenization is a broad topic with both regulatory and technical hurdles limiting its manifestation.

Many of the original tokenization ideas, like security token offerings (STOs), were ill-conceived and blended regulatory problems with incompatible technology. Some of the first successful tokenized asset ideas focused on physical assets. These include NFTs for artwork, fractionalized shares of commercial real estate, and precious metals like gold — such as tokenized IOUs mimicking deposits with reputable custodians.

More recently, and concurrent with the recent DeFi boom, we’ve seen an explosion in the tokenization of abstract asset classes such as stocks, bonds, derivatives, and ETFs. The deluge of DeFi products on permissionless networks like Ethereum has sparked a divergence of tokenized assets into two primary categories:

  1. Asset-Backed Tokens
  2. Synthetic Assets

Asset-backed tokens are backed one-to-one with the physical or abstract asset they represent. For example, Wrapped Bitcoin (WBTC) on Ethereum is a one-to-one representation of BTC on Ethereum, but the circulating ERC-20 tokens are only a reflection of BTC that is under the custody of BitGo. The simplicity of the design makes WBTC intuitive to understand, especially from…

Read More