Synthetic dollar

Hundreds of billions of dollars now sit on blockchains as tokens, and most of them earn their holders nothing. A synthetic dollar is one answer to that: a token that aims to hold a dollar value through a managed portfolio, so the portfolio's return can reach the people who hold it.

How a synthetic dollar works

Picture a portfolio that owns an asset and, at the same time, holds a position that gains whenever that asset falls. A price move on one side is offset by the other, so the combined value stays close to a set dollar amount. This is called a delta-neutral position. The income comes from what the positions earn while they are held, for example market rates or the return on the collateral itself. Designs differ mainly in where that income comes from and how concentrated it is.

A worked example

Say a protocol receives 1,000 dollars of collateral. It buys 1,000 dollars' worth of an asset and opens a short position of the same size. If the asset falls by a tenth, the holding loses about 100 dollars and the short gains about 100 dollars, so the portfolio is still worth roughly 1,000 dollars. Over a month the holding and the hedge together earn some income, perhaps a few dollars after costs. That income, not a rise in the asset's price, is what reaches holders, often through a separate vault token whose value grows as the strategy earns.

Synthetic dollar vs. stablecoin

A fiat-backed stablecoin such as USDC or USDT holds cash and short-dated government debt in reserve, and the issuer usually keeps the income those reserves earn. A synthetic dollar differs on three questions worth asking of any dollar token: what the collateral is, where the income comes from, and how anyone can verify both. Some synthetic dollars hold crypto collateral hedged with short perpetual futures, so their income rises and falls with the funding payments traders make to each other. Others hedge different assets in different markets. The label alone tells you little; the answers to those three questions tell you most of what matters.

What to check before holding one

• The yield source, in plain words. If nobody can explain it, treat that as a warning.
• Proof of reserves from an independent provider, ideally updated continuously.
• Smart contract audits, and who performed them.
• What happens when markets turn. A synthetic dollar's yield is variable and never guaranteed, and its market price can move away from one dollar under stress.

Risks and limits

A synthetic dollar replaces one kind of trust with another. Instead of relying on a bank account, holders rely on the quality of the collateral, on hedges that hold up in fast markets, on the venues and counterparties where positions sit, and on the smart contracts that record who owns what. Sharp market moves, collateral problems or thin liquidity can push any dollar token away from its target value, an event known as a depeg. That is why live reserve data and a clear account of the strategy matter more than any headline figure.

trUSD is Tori Finance's synthetic dollar, collateralized by USDC/USDT. It is managed with a delta-neutral strategy that earns from global markets, with positions hedged to USD. strUSD is the ERC-4626 vault token that accrues the strategy's variable yield, and a strUSD share is a claim on trUSD held in the vault. Anyone can check reserves through Accountable's proof of reserves at tori.accountable.capital, and the smart contracts are audited by Sherlock and Nethermind.