Synthetics
Synthetic assets are an important part of a decentralized ecosystem. They allow open, always-on access to markets or even the creation of new ones that could not previously exist.
Right now there are a number of synthetic projects already like Maker DAO, Abracadabra.money, Synthetix, and Liquity. However, the crypto industry is only just starting to realize the potential of synthetic tokens. Most are linked to prices of assets that already exist in traditional finance like fiat currencies, stocks, or gold.
This is where BAO’s vision differs. We want to create an open financial data market, by building a platform that allows the creation of synthetics representing any kind of data in the world.

Use Cases

Most people do not understand the full scope of possibilities with synthetics.
They think that derivatives are only good for synthetic stocks. They just want to buy stocks like $APPL or $GME on the blockchain 24/7.
While that is a good use of synthetics, it is just replicating our existing market on the blockchain. What is far more powerful and exciting is that with synthetics we can do something new.
With synthetics, you can turn any quantifiable discrete event into a financial feed that people can buy and sell.
You can create an asset based on the β€œUnemployment Rate in Hong Kong” or β€œAverage Annual Rainfall in Seattle” or the β€œNumber of iPhones Sold Annually”.
These synthetic assets allow you to buy long or short depending on if you think the number will go up or down, and this creates powerful use cases.
You could now give anyone in the world performance rewards based on specific criteria.
Imagine the Mayor of a city that in addition of his base salary, could also get a bonus package from a basket of tokens representing the inverse unemployment rate, the city happiness score, and the inverse crime rate in their city. The better results they create for their city, the more their tokens are worth.
Synthetic markets incentivize liquidity to be accurate. Incentivized liquidity is accurate.
Those who own financial accuracy can then pick any finance business they want to start. Goodbye Moody’s, Meridian, Experian, Fannie Mae, and others.
Hello BaoBanks.

Soft vs hard synthetic Tokens

Bao uses the terms "soft" synthetics and "hard" synthetics to refer to two different types of synthetic assets, defined below. We will implement them separately, as you can see from our roadmap.
Soft synthetics are tokens representing a basket of underlying tokens. Examples of well-known token baskets in the space currently are DPI, Indexed.Finance (CC10, ORA5, DEGEN, etc.) and PieDao.
Hard synthetics are synthetic tokens that link price to data. That data could itself be a price, like $TSLA stock price, the price of 1 ounce of gold, or something more exotic like the number of goals Neymar Jr scores, rainfall levels or crime rates, etc. The value of the synthetic asset is backed by collateral and can have various mechanisms to help it keep its peg. Common examples are being able to redeem the collateral at the rate the data says is correct, or by creating discounts to buy back and β€œrepay” your synthetic position, or premiums on selling it, incentivizing more β€œborrowing”.
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