Synthetic liquidity refers to a method that provides market participants access to liquidity without needing to hold the underlying asset. This is often achieved through derivatives or other financial instruments that mimic the characteristics of an asset.In practice, synthetic liquidity allows users to trade or invest in an asset’s performance without directly owning it. This can be especially useful in markets where the actual asset is scarce or difficult to acquire. It can help enhance price discovery and minimize slippage during trades.Projects employing synthetic liquidity typically use smart contracts, which automate transactions and ensure that synthetic assets are collateralized. This means that even though users interact with synthetic versions of assets, their value remains closely tied to the actual underlying assets.Overall, synthetic liquidity offers greater access and flexibility for traders. It enables participation in markets while minimizing barriers, increasing efficiency, and potentially boosting overall market activity.