Synthetic Assets vs Spot: When to Use Each
Understanding the trade-offs between synthetics and native assets
A comparison of synthetic asset exposure versus holding the underlying, and when each approach makes sense.
Step-by-Step Guide
What You Actually Own
Spot: You own the actual asset (stock, gold, crypto). Synthetic: You own a token that tracks the price, backed by stablecoin collateral.
With synthetics, your counterparty risk is the protocol, not a custodian.
When Synthetics Win
24/7 trading, instant settlement, composability with DeFi, no brokerage requirements, global access, ability to short easily.
Synthetics shine for active trading and complex strategies.
When Spot Wins
Dividends (synthetics don't receive them), voting rights for stocks, physical delivery for commodities, regulatory clarity.
For long-term holding, consider if dividends or ownership rights matter to you.
Tax Considerations
Tax treatment may differ between synthetic and spot positions. Consult a tax professional for your jurisdiction.
Some jurisdictions treat synthetics as derivatives with different tax rates.
Risk Profile Differences
Spot: custody risk, exchange risk. Synthetic: smart contract risk, oracle risk, liquidity risk. Neither is risk-free.
Diversify across both if you want exposure to an asset class.
Risks to Consider
- Synthetics don't convey ownership or voting rights
- No dividends or yield from underlying asset
- Protocol risk is unique to synthetics
- Regulatory environment is still evolving
Practice With These Assets
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