Synthetic Pair Pricing

Synthetic pair pricing is the calculation of an exchange rate between two assets that do not have a direct trading pair, by using a common third asset. For example, if you want to trade asset A for asset B, but no A/B pair exists, you can trade A for C and then C for B. The price of this synthetic pair is derived from the prices of A/C and C/B. This is a common practice in decentralized finance where liquidity for certain exotic pairs is low.

Synthetic pricing allows for efficient capital allocation across the entire ecosystem. However, it also introduces risks, as the final price is dependent on the liquidity and stability of the intermediate asset.