Structural products represent the next phase in the evolution of Decentralized Finance (DeFi).

The development of DeFi in recent years has dramatically transformed the cryptocurrency ecosystem, introducing new, high-quality protocols and the opportunity to earn from cryptocurrency ownership. This evolution has also sparked the emergence of a derivatives …

The development of DeFi in recent years has dramatically transformed the cryptocurrency ecosystem, introducing new, high-quality protocols and the opportunity to earn from cryptocurrency ownership. This evolution has also sparked the emergence of a derivatives segment, a fundamental component for the growth of any financial system, alongside fixed yields. The remarkable influx into ETFs, driven not only by professional market participants, has created demand for familiar products. In this context, structural products are set to be a trend in the DeFi 2.0 era, especially in the post-halving period.

ETFs serve as a harbinger

Just half a year ago, “halving and growth in 2024” were synonymous, but as of January this year, BlackRock and ETF changed everything. Most likely, we are witnessing the first step of Bitcoin towards maturity. Since the second half of January, there have been inflows into Bitcoin ETFs, and we’re talking about billions. Following the approval of spot Bitcoin ETFs in the US, there has been a remarkable development, with these ETFs amassing $10 billion of Assets Under Management (AUM), showcasing a robust inflow of one billion dollars in a single day. This development indicates a substantial interest in Bitcoin ETFs, highlighting their potential to change the industry and initiate a new market cycle. Moreover, the future outlook for spot Bitcoin ETFs in 2024 appears optimistic, with predictions suggesting that BTC could surpass its previous highs. A crypto services firm, Matrixport, projects that BTC could reach $120,000 by the end of 2024, driven by the expected tens of billions of dollars flowing into spot Bitcoin ETFs. This prediction aligns with the anticipated growth of the asset class in the medium term, backed by institutional investment following the approval of these ETFs. Analysts from Galaxy Digital anticipate an inflow of $14.4 billion into the spot ETF in its launch year, followed by $27 billion in the second year and $39 billion in the third year, significantly altering the value of the cryptocurrency and cementing its status as an asset class

Consequently, in the first week of March, we’ve already approached a retest of historical highs. Now the question “Where will we stop” is stirring the minds of traders and market participants. But from our perspective, it’s worth asking today, “What kind of capital is this?”

Why is the question “What kind of capital” important? Because in this case, we can understand the trajectory of DeFi development in the next 1-3 years. The acceptance of ETFs has made Bitcoin an asset for institutional investors, who in turn will fuel mass adoption. Institutions will begin to promote Bitcoin and other cryptocurrencies (primarily Ethereum) to the masses. Thus, retail clients will rightfully question: Can I buy an ETF, or can the cryptocurrency/DeFi ecosystem offer me something more interesting?

The influx of liquidity into crypto will generate tremendous demand for mass adoption in the DeFi segment. This will result in epic growth. Priority will be given to protocols that focus primarily on simplicity and are tailored to the mass market.

Decentralized Finance (DeFi) has been at the forefront of revolutionizing the financial sector by leveraging blockchain technology to democratize access to financial services, eliminate intermediaries, and increase transparency and security. The advent of DeFi has led to the creation of a parallel financial system where traditional financial services such as lending, borrowing, trading, insurance, and asset management are available in a decentralized, open, and permissionless ecosystem.

A significant evolution within the DeFi landscape is the introduction of structural products. These products represent a sophisticated fusion of traditional financial instruments with the innovative features of blockchain technology. Structural products in DeFi often combine elements like fixed income, derivatives, and options within a single product, offering investors tailored investment opportunities with varying levels of risk and return.

For example, structural products can offer capital protection strategies that shield investors from downside risks while allowing participation in the upside potential of underlying crypto assets. These products utilize smart contracts to automate execution, ensuring transparency and eliminating the need for intermediaries. This innovation not only broadens the investment options available within the DeFi space but also attracts a more diverse investor base, including those from traditional finance looking for familiar investment structures with the added benefits of DeFi.

Moreover, structural products contribute to the overall liquidity and efficiency of the DeFi ecosystem. By providing more sophisticated investment strategies, these products encourage more capital inflow into DeFi, enhancing liquidity which is crucial for the seamless operation of decentralized exchanges, lending platforms, and other financial services.

What is the mass client accustomed to?

For cryptocurrency holders, their high volatility (the average volatility of the American stock market is around 17%, while the average volatility of Bitcoin and Ethereum is around 55%) may cause some concern. Of course, the cryptocurrency segment is in its early stages of consumer adoption and mainly consists of early adopters. However, for it to transition to the next qualitative level, certain transformations will be required, one of which is the ability to generate stable income from their assets.

If we look at the classical financial market, there are four ways to generate stable income:

  • Bank deposit – this option implies minimal income, but maximum protection against risk.
  • Purchase of bonds (government and corporate) – this option offers higher returns, but is also associated with increased risk (companies or governments may default on debt payments).
  • Buying dividend-paying stocks – this option offers higher returns than bonds, but also involves even greater risks (in the event of a company defaulting on dividend payments, shareholders may lose their investments). One way to mitigate risks associated with buying dividend-paying stocks is to invest in ETFs (for example, those that track “dividend aristocrats,” i.e., companies that have never lowered or canceled dividend payments over a long history).
  • Structured products. A structured product is a combination of fixed income and derivatives. Fixed income can be obtained through a deposit or bond, or through interest rate options. The derivative part typically includes options that describe the objectives of this strategy (for example, capital protection, participation in market movements, etc.).

Projects like YieldFort exemplify this bridge between traditional financial security and the avant-garde realm of DeFi. By offering products such as fixed-income returns akin to bank deposits and capital protection strategies against the volatility of cryptocurrency prices, YieldFort is crafting a suite of services that marry the reliability of conventional investments with the lucrative potential of the crypto market.

This nuanced approach to finance, where the cutting-edge meets the conventional, not only broadens the scope of investment possibilities but also paves the way for the mass market to engage with cryptocurrency in a familiar yet revolutionary manner. As DeFi continues to evolve, the contributions of platforms like YieldFort will be crucial in shaping its trajectory, ensuring its appeal extends beyond the crypto-savvy to the mainstream financial market, and heralding a new chapter in the democratization of finance.

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