Shield Academy | Introducing structured products
Protect capital, improve yields, and tailor for retail need
Structured product in traditional finance
Structured Products can be loosely defined as savings or investment products where the return is tied to an underlying asset with specified features (maturity date, coupon date, capital protection level …). They are classified as ‘non-traditional’ investment strategies. A Structured Product is a product package that consists of 3 key components: a bond; one or more underlying assets; financial instruments linked to these underlying assets (the derivative strategy)
- Diverse and customizable: Issuers can tailor structured products to meet investors’ differing financial circumstances and needs.
- Potentially higher yield: Structured products offer potential yield enhancement if your market forecast is correct and the product issuer is credit-worthy. A structured deposit with full principal repayment at maturity can be a useful alternative to savings accounts, current accounts, or term deposits.
- Participating in the upside of the bullish stock markets with some downside protection: Capable of capturing investment opportunities no matter whether the market is bullish, bearish, or volatile, with optional measures to assist mitigate downside risks.
- Capital loss: As a structured product’s performance is determined by the underlying asset’s or index’s performance, adverse price fluctuations may result in a capital loss.
- Lack of liquidity: Generally, investors will have no access to their principal for the tenor (or term) of the structured deposit or note, without risking principal loss. For structured deposits, the principal protection only applies if they are held to maturity.
- Issuer risk: If the structured deposit or structured product issuer goes into a debt default, the investor risks losing his/her entire principal.
Structured product in Crypto
Crypto-native structured products are a new type of investment that combines the benefits of both an ERC-20 token and a standard index fund into a hybrid product. In 2021, the emergence of DeFi option vaults, a structured product adopting diversity on-chain option strategy, have grown explosively to $700 million TVL.
The strategy workflow is straightforward. Users may benefit from some of the greatest yields on USD in the market by supplying stablecoins to the Passive Angle USD Strategy. To participate, users deposit USDC in the Passive Angle USD Strategy, which the strategy then deposits in the sanUSDC_EUR pool on Angle Protocol. After then, the LP tokens are staked in the ANGLE yield pool.
- Open the option door to retail: Structured products are extremely straightforward and relatively cheap-deposit, wait for yield and withdraw. The effort of monitoring market conditions and determining the strike price and expiration date is eliminated for retail traders.
- Higher yield due to composability: One of the DeFi innovative features is composability. Take sETH as an example, users can earn passive staking rewards by stake ETH into the Lido protocol and receiving the LP token sETH. The Ribbon protocol enables sETH holders to deposit to run weekly automated ETH covered calls with a 20%-30% APY. The yield earned from both the covered call strategy and the ETH staking rewards are reinvested weekly, thus compounding the depositors' yields over time, which lead to multiple DeFi yields.
- Concentrated liquidity venue: As explained by QCP in the DOVs research, DOVs will be the cornerstone liquidity for Altcoin option markets. BTC and ETH are the dominant trading pairs in the centralized option market, but we can see the progress that DOVs actually become the concentrated liquidity venue for altcoin as the sizable vault(for instance AAVE, AVAX) grows.
- Strategy incurs risk: Although strategies have been well evaluated, there are hazards involved. There is a loss of convertibility between collateral and stablecoin when the underlying protocol becomes under-collateralized.
2. Smart contract risk: All code is open-sourced and might be exposed to smart contract vulnerability and exploits.
Structured product on Shield Protocol
Debuting a high-yield stable coin vault
Structured Products on Shield can therefore provide tailored solutions in line with a specific strategy in all market configurations. Whilst they are a useful tool for portfolio management and risk control, they are nonetheless very sophisticated. This sophistication is needed to meet the specific requirements of investors who each have their own investment profile and market knowledge. This is where Shield Vault enters the pictures at this point.
Shield USDT Vault is a high-yield financial instrument that allows users to simply stake to USDT to earn a 15% APY, and receive up to 100% capital protection. It combines growth potential with investment protection to offer you greater returns with minimal risks. Vaults will bring an additional new group of users into the Shield ecosystem, providing them with sustainable yield opportunities whilst driving consistent liquidity through the protocol.
As mentioned above, Shield USDT Vault naturally inherits the merits of both traditional and crypto structured products. Moreover, Shield Vault also protects users’ from loss of strategy. Those on-chain vaults eliminate the complex financial knowledge and high barriers, leading to usage with mass adoption. Thanks to the composability in DeFi, these vaults contribute to higher capital efficiency and liquid on-chain assets to facilitate the protocol.
Shield USDT vault will be 100% open-source and available on Github. Please keep in mind that you should not invest the fund you cannot afford to lose.
We’re looking forward to the launch of the Vault in a few days! Stay tuned with us.
From the beginning, simplifying derivatives has been one of Shield initiatives and we strive to build the decentralized derivatives infrastructure so that anyone can easily launch derivatives products on top of Shield protocol and boost DeFi adoption. The perpetual option, as you may have used the easiest on-chain option, is our first attempt, and the Shield team has been working on the Shield 2.0, we anticipate the paradigm-shift product coming in the near future.
Shield is building a one-of-a-kind decentralized protocol based on a fully non-cooperative game for future derivatives infrastructure, enabling global borderless access to finance. Perpetual Options is our first innovative long-term on-chain option without the effort, risk, or expense of rolling positions built on Shield protocol.