  Synthetic assets are decentralized finance (DeFi) analogues of derivatives in
the traditional finance (TradFi) world - financial arrangements which derive
value from and are directly pegged to fluctuations in the value of an
underlying asset (ex: futures and options). Synthetic assets occupy a unique
niche, serving to facilitate currency exchange, giving traders a means to
speculate on the value of crypto assets without directly holding them, and
powering more complex financial tools such as yield optimizers and portfolio
management suites. Unfortunately, the academic literature on this topic is
highly disparate and struggles to keep up with rapid changes in the space. We
present the first Systematization of Knowledge (SoK) in this area, focusing on
presenting the key mechanisms, protocols, and issues in an accessible fashion
to highlight risks for participants as well as areas of research interest. This
paper takes a broad perspective in establishing a general framework for
synthetic assets, from the ideological origins of crypto to legal barriers for
firms in this space, encapsulating the basic mechanisms underpinning
derivatives markets as well as presenting data-driven analyses of major
protocols.
