Unlocking Synthetic Derivatives With Chainlink Oracles

This article was first published on Chainlink
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Unlocking Synthetic Derivatives With Chainlink Oracles

Together with Synthetix we have developed a novel pricing mechanism to power a new synthetic derivatives product that gives users on-chain exposure to oil. This innovation is one in a growing number of examples of how Chainlink is bringing synthetic assets from traditional markets to DeFi through the provisioning of secure oracles with access to high quality data.

Financial systems have evolved significantly since the days of direct barter. Today, there exists a whole suite of financial products from loans and 401k plans to weather insurance and credit default swaps. The only limit now is one’s own imagination, as investors can get financial exposure to just about anything for the right price.

Throughout history, the creation of financial products has been mostly restricted to large financial institutions. This is predominantly because of the risk and capital involved with offering exotic financial products and the financial regulations surrounding it.

Decentralized Finance (DeFi) has arguably for the first time in history created a new permissionless financial framework that allows anyone in the world to build standard and unique financial products alike and offer them to the general public. Right now, anyone with an Internet connection can obtain a stable-rate loan on Aave, gain long exposure to gold on Synthetix, swap assets with instant access to AMM liquidity on DODO, and much more.

A key part of empowering this new financial infrastructure is access to data. Chainlink is providing a standard open-source framework where anyone can build any price oracle design or access existing ones via Chainlink Price Reference Data Contracts. Many of these initial price oracles are focused on cryptocurrencies because it’s what most DeFi products are built around. However, Chainlink’s Price Reference Data has since expanded to include commodities, FX rates, and indices. This is really just the beginning of what’s ...

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