Introduction

What are structured products?

The complexity of financial instruments often preserves the financial elite who can achieve a better risk or reward payoff which far exceeds buying and holding an asset. In traditional finance, financial instruments are packaged into structured products by institutions for investors to access the various payoffs without the need to understand the underlying instruments. According to Bloomberg, the total structured product market accounted for over $7 trillion in invested assets. Structured products are still a novel concept in the DeFi market. With the gradual maturity of on-chain derivatives and fixed income products, structured products will become a core component of the entire DeFi space. A great benefit of decentralized money legos is the ability to create complex structured products combining financial instruments as a bundle with smart contracts acting as the broker, which is 100% transparent and reduces the complexity of figuring out the various DeFi protocols, and it is open to everyone. A question to ask is whether DeFi is ready for structured products? For structured products to exist, there needs to be mature derivatives markets for options and futures. It also requires the offerings of interest rate products.

Is DeFi ready for structured products?

In the past year, the decentralized derivatives market is taking off with the adoption of options, perpetual swaps and margin trading products such as Hegic, Opyn, Perpetual Protocol, Mango Markets, Bondifa, PsyOptions, etc. For interest rates products, Yearn, Alpha, Compound, Aave have mature floating interest rate tokens. UMA, Notional Finance, 88mph, Element, Pendle are all building fixed interest products. Though some of the derivatives still lack liquidity and composability, the current infrastructure is sufficient to bring in some basic structured products. The development of layer 2 and high performance blockchains like Solana will definitely speed up the adoption of derivatives, making more complex DeFi structured products possible.

Why Solana?

Solana's massive throughput up to 710,000 transactions per second makes it an attractive place for creating and trading derivatives and many other financial instruments. Derivatives products like Mango Markets, Bonfida and PsyOptions are deployed on mainnet with great user experiences and good liquidity. More derivatives exchanges like Zeta Markets is to be launched on Q4 2021, making it possible to create rich variaties of structured products.

Because of the high throughput and cheap transaction fees, derivatives exchanges on Solana are built on on-chain orderbooks, rather than off-chain orderbooks which most Ethereum's derivatives exchange are using(e.g., dYdX, Opyn). The on-chain orderbooks make the derivatives products composable with the rest of DeFi system, especially making it possible to automate the structured products creation.

In addition, compared with EVM chains, Solana's rust based development system is still a very under-explored place for DeFi applications, largely because of its development difficulty. However, Solana's has a huge user base with currently ~$10B capital and it is rapidly growing, making it an ideal place to build structured poducts protocol.