As 2021 draws to a close, the premier lineup in the DeFi landscape largely consists of synthetic asset platforms (SAPs). An SAP is any platform that enables users to mint synthetics, which are derivatives whose values are pegged to existing assets in real time. As long as oracles can supply a reliable price feed, synthetics can represent any asset in the world and take on its price — be it a stock, commodity or crypto asset. 

As such, SAPs finally bridge the gap between emergent DeFi platforms and legacy finance, allowing investors to place their bets on any asset anywhere, and all from the cozy confines of their favorite blockchain ecosystem. Decentralized and operating on Ethereum’s layer one, SAPs would appear to be crypto’s next major growth catalyst. However, unlike for sound money and verifiable artwork, in the world of collateralized lending, decentralization and secure ownership only make up half the equation.

Collateralized debt

In traditional finance, instruments of collateralized debt are among the world’s most prominent financial assets, boasting a cumulative valuation of nearly $1 trillion. Most people know them as mortgages — a term whose etymology traces back to thirteenth-century France and which translates, literally, as “death pledge.” Perhaps morbid or melodramatic to the average individual, but to the many millions who lost their retirement accounts, life savings, homes and livelihoods in the aftermath of the 2008 financial crisis, the terms “death pledge” and “collateral damage” are not only appropriate but par for the course in…