In the context of THORChain (TC), synths are primitives for both higher-order financial features, as well as fully-secured, fully-backed synthetic assets that can be sent anywhere in the Cosmos IBC ecosystem and they will always retain the guarantee they can be redeemed for the underlying asset.
THORChain synths are unique in that they are 50% backed by their own asset, with the other 50% backing being provided by RUNE. This is achieved by using pool ownership to collateralise the synth, which ensures always-on liquidity and pricing. Users mint Synths by depositing the native asset (or RUNE) into TC and the Synths are always redeemable back to the native asset (minus a slip conversion fee).
Main benefits of THORChain synths:
There are numerous details on how THORChain’s synth design functions, but its main benefits are that:
- Trading and arbing on TC with synths avoids the slower and higher gas fees on most native external chains.
- They open up the possibility of single side price exposure to a single asset, yet earning a yield via Synths savings vaults.
- They open up the possibility of borrowing and lending on TC, aka THORFi.
To mint synths on THORChain, users will add RUNE to the pool (or swapping from an asset into RUNE, then adding that). SynthUnits are issued to cover the new liquidity but are held by the protocol (not owned by anyone).
For the TC network as a whole, Synths are expected to deepen liquidity pools, thus encouraging more trade volume (besides the increased trade volume coming from Synths themselves) and thus increasing earnings for the network and also standard liquidity pools providers.