Overview of Synthetics

Synthetics is a decentralized protocol designed to tokenize the price of an underlying index using an ERC20 token. It functions as a market index, leveraging an oracle to accurately track the price of the underlying index.

A prime example of a synthetic token is the Total Market Cap token (TCAP), which tracks the price of the entire cryptocurrency market.

Collateralization and Token Minting

Synthetics are backed by collateral such as ETH or DAI. When users interact with the protocol, they receive newly minted nominalized tokens that reflect the real-time price movement of the underlying index. Each synthetic token is algorithmically collateralized by a corresponding amount of ETH or DAI, ensuring sufficient backing for each token. This mechanism allows users to gain price exposure to the underlying index with a single action.