The Synthetic Cross Rate Strategy is a decentralised method of trading and tracking foreign exchange cross rates using synthetic fiat currencies and stablecoins within the DeFi ecosystem. Traditionally, a cross rate refers to a currency pair that does not involve the US dollar, such as EUR/JPY or GBP/CHF. In a synthetic setup, these rates are replicated using on-chain instruments, enabling traders to express FX macro views, diversify currency exposure, and capture inefficiencies across decentralised platforms.

This strategy is ideal for crypto-native traders seeking permissionless access to FX-style opportunities without relying on centralised brokers or traditional forex markets.

What Is a Synthetic Cross Rate?

A synthetic cross rate is constructed by combining two synthetic currency pairs, such as jEUR/USDC and jJPY/USDC, to simulate a non-USD FX pair like EUR/JPY. By dividing or multiplying their prices, you can calculate and trade the equivalent cross rate entirely on-chain.

For example:
EUR/JPY = (jEUR/USDC) ÷ (jJPY/USDC)

This creates a programmable, real-time representation of the EUR/JPY exchange rate without needing direct exposure to either fiat currency.

Core Components of the Strategy

Synthetic Fiat Currencies

These are tokenised representations of real-world fiat currencies, usually fully collateralised or backed by a synthetic protocol.

• jEUR / jJPY / jGBP / jCHF / jCAD / jAUD (Jarvis Network)
• sEUR / sJPY / sGBP / sCHF (Synthetix)

They are available on decentralised exchanges and often trade against USDC, DAI, or other stablecoins.

Stablecoin Benchmarks

USDC, DAI, sUSD, or GHO are used as quote currencies to derive cross rates and facilitate liquidity.

Price Feeds and Calculation

Use DEX oracles or on-chain price data to calculate the synthetic cross rate:

Synthetic Cross Rate = Price of Base Currency / Price of Quote Currency

e.g.
jEUR/jJPY = (jEUR/USDC) ÷ (jJPY/USDC)
or
jGBP/jCHF = (jGBP/DAI) ÷ (jCHF/DAI)

This gives you a decentralised, real-time price for the cross rate.

Strategy Variants

Directional Cross Rate Trades

Trade synthetic cross rates based on macroeconomic views or central bank policy divergence.

Example:

• Long jEUR / short jJPY if expecting ECB to be more hawkish than the BoJ
• Trade the relative strength of synthetic currencies via ratio swaps

Arbitrage Opportunities

Exploit pricing inefficiencies between synthetic markets and real-world FX rates.

• If jEUR/jJPY on-chain diverges significantly from actual EUR/JPY, arbitrage with rebalancing or dual liquidity provisioning
• This is especially relevant during periods of crypto market dislocation or low liquidity

Hedging FX Exposure in DeFi

If you’re exposed to jEUR in a protocol or DAO treasury, synthetically short another cross currency like jCHF or jJPY to hedge macro volatility or balance portfolio exposure.

Yield-Enhanced Cross Rate Exposure

Earn passive income by:

• Providing liquidity to jEUR/jJPY pools on Curve or Uniswap
• Holding interest-bearing synthetic FX assets (e.g. aUSDC in one leg)
• Using cross rate exposure within automated yield vaults (e.g. Enzyme, TokenSets)

This transforms the strategy from purely directional into a yield-plus-FX hybrid.

Example Strategy: Long Synthetic EUR/JPY

Macro Setup:

• Expect ECB to raise rates more aggressively than BoJ
• Anticipate EUR/JPY strength

Implementation:

• Buy jEUR/USDC
• Short jJPY/USDC
• Rebalance weekly to maintain relative exposure
• Optionally stake jEUR or provide jEUR liquidity to earn yield

This mirrors a traditional long EUR/JPY FX trade using only synthetic assets.

Risk Management

• Tracking error: Peg deviations in synthetic fiat tokens
• Smart contract risk: Platform security across Jarvis, Synthetix, and DEXes
• Liquidity constraints: Especially for niche pairs or smaller synthetic currencies
• Correlation breakdowns: Sudden divergence between synthetic and real FX rates

Mitigate with position sizing, stop-loss thresholds, and diversified platform use.

Advantages of the Strategy

• 24/7 access to FX-style trades
• No reliance on centralised brokers or KYC
• Easily integrated with DeFi yield strategies
• Customisable basket construction and rebalancing
• Ideal for macro overlays, DAO treasury management, and hedging

Conclusion

The Synthetic Cross Rate Strategy brings global FX trading into the decentralised realm, offering crypto-native investors a way to replicate traditional currency strategies using programmable, synthetic instruments. Whether you’re expressing macro views, hedging treasury exposure, or seeking passive yield from currency differentials, this strategy opens up new frontiers in multi-currency DeFi management.

To learn how to build, automate, and scale cross-currency strategies using synthetic assets and on-chain analytics, enrol in the expert-led Trading Courses at Traders MBA.