A synthetic CDO is a form of a collateralized debt obligation (CDO) that invests in noncash assets and can provide investors with exceptionally high returns. They differ from standard CDOs in that they earn revenue by investing in noncash derivatives like credit default swaps (CDSs), options, and other co-investments rather than traditional debt products like bonds, mortgages, and loans. Synthetic CDOs are usually separated into credit tranches based on the investor’s tolerance for credit risk.