Innovation in DeFi — Structured Products
Before now, people usually spend several months and sometimes years learning options trading. And even with that, it is typically a series of losses before one can start making profits.
But, thanks to decentralized finance (DeFi), the game has changed. As the name implies, DeFi democratizes access to financial instruments and products.
For the first time in DeFi, Polysynth is bringing structured products to Ethereum. Yes, you heard right — the best of traditional finance (TradFi) to DeFi.
The fluctuations of most vaults make it difficult for people to earn — real yield.
Polysynth is a DeFi Options Vault (DOV) protocol built on Ethereum and Polygon.
With Polysynth, traders can bypass the complexities of options and structured product trading. And seamlessly trade options with a single click.
Fixed Coupon Notes (FCN) are one of the innovative products of Polysynth that helps investors earn better yields.
Essentially, FCN is an exotic structured product with equity and bonds-like attributes.
Here’s how it works! Let’s say Mr X deposit some $USDC funds into an FCN vault, usually made up of multiple crypto assets. That singular deposit will allow Mr X to get high daily yield payments until the FCN expires/matures.
You may be wondering where FCN generates its yield from, right?
Let me explain.
When Mr X deposits some funds into the FCN vaults, Polysynth aggregates the deposits across several FCN vaults and sends them to the money markets to win an auction with the highest APY.
Here’s where it gets interesting.
For instance, if the FCN expires without any major fluctuations, the settlement is done, and 100% of the deposits are returned to the investor. Plus, yields earned are redeemed as a payoff to investors.
FCN allows traders to get a daily fixed #RealYield income stream in a bull or bear market.
Interestingly, there’s a ‘Knock-In’ and ‘Knock-Out’ feature in FCN that makes it cool.
The knock-out functionality optimizes an upper limit to the best-performing asset in the basket. In contrast, the knock-in functionality optimizes a lower limit for the worst-performing asset in the basket.
They act as the checks and balances of the vaults.
The best part about FCN is that it has downside protection.
It’s like a backup feature that ensures you get back your entire capital at expiry, except in rare cases where the underlying asset, such as BTC or ETH, falls over 90% in 30 days, which is highly unlikely.
As with every crypto product, FCN is not without some potential risks.
• If the FCN encounters a knock-in event during its tenure, the payoff is calculated based on the worst-performing asset.
• And if the underlying asset’s value slides below the knock-in level-, you risk losing a portion of your capital.
Although, you still receive coupons for the entire 30 days.
If you liked how this innovative product works, you can follow Polysynth on Twitter — for the latest updates on their yield-generating structured products and check out their Structured Products by visiting https://polysynth.com/trade/options/exotic-options.
