Shield Academy | Introducing structured products

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)

(Source: DBS Treasury)
  1. Diverse and customizable: Issuers can tailor structured products to meet investors’ differing financial circumstances and needs.
  2. 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.
  3. 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.
  1. 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.
  2. 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.
  3. 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.

(Source: StakeDAO Medium)
  1. 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.
  2. 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.
  3. 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.
  1. 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.

Structured product on Shield Protocol

Debuting a high-yield stable coin vault

Shield USDT Vault

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