The DeFi market is booming and you can find new solutions every single day. Today we are going to discuss the new niche - decentralized structured financial products. In traditional finances, such types of products are available to hedge funds and institutional investors only. But with decentralized finance, they became available to retail investors, too.
So I decided to talk to Serge Levin, founder of Structure Finance, a decentralized platform for structured financial products, about his way in crypto, traditional financial products, DeFi, and how it can influence Wall Street, trends in DeFi, and much more.
I come from a traditional finance background. Before I started Structure Finance I was a Portfolio Manager at several hedge funds and before that, I was a Structured Products trader at a few investment banks. I used to work at Nomura, Citibank, and Morgan Stanley.
I started trading Bitcoin and I realized that it has a huge potential to revolutionize the financial industry
I first discovered crypto about 5 years ago. I started trading Bitcoin and I realized that it has huge potential to revolutionize the financial industry. So I was looking to launch a project and this is how I got Structure Finance’s idea.
A couple of years ago we were discussing how users and cryptocurrency traders have access to all the range of financial products available to investors in traditional finance. It was especially surprising that nobody was really trying to provide structured notes and exotic options to people. So we figured, maybe we should be doing it? But we thought instead of actually trying to be a dealer, we should probably try to figure out how we can facilitate access to these products in DeFi, so that's how we started Structure Finance.
Our flagship product, Volatility Income Pools is a system of vaults that allows investors to profit from overpriced volatility in crypto without trading options. You can get a yield on what you hold. It is a very simple yet powerful paradigm. In the last month investors in the FLOW pool of VIP have collected over 80% (that’s about 1000% APY).
The idea is to bring structured financial products directly to the crypto community. We disintermediate structured financial products by removing product issuers and providing products directly on the blockchain. Also, we wanted to have a truly community-driven project where we crowdsource ideas and implement them as structured products.
DeFi offers a few new approaches to financial products that do not exist in the traditional finance space
DeFi offers a few new approaches to financial products that do not exist in the traditional finance space. The first one is autonomous exchanges with automated market-making that allow people to provide liquidity without being facilitated by the market makers. Also, DeFi has greatly expanded the idea of pooled investments.
These ideas are very different from what Wall Street is doing right now. DeFi is very community-oriented, distributed ways of dealing with financial goals, so it reaches a lot of people that mainstream finance has left behind and removes a lot of incumbent advantages that exist on traditional exchanges.
DeFi is very community-oriented, distributed ways of dealing with financial goals so it reaches a lot of people that mainstream finance has left behind
Historically, institutional investors have had much wider access to non-standard financial products, especially derivatives. There is an idea that non-institutional investors are less sophisticated and that the market should protect them from themselves. In reality, I think there are plenty of people who would like to be able to do the same stuff that is being done by institutional investors and is not allowed to do it. Crypto, in general, is much more egalitarian, so you don't need to be an institutional user to have access to something that is non-standard.
Crypto, in general, is much more egalitarian so you don't need to be an institutional user to have access to something that is non-standard
Structured products and exotic options allow people to make the types of trades that are not really accessible using regular financial products. Things are like betting on lack of movement, betting on relative movement between 2 assets, betting on the best performance and the worst performance. These are types of payoffs that are not really accessible to vanilla Delta One or vanilla options but they are very useful that allow people to make money on the environment; otherwise, they can not.
Structured products and exotic options allow people to make the types of trades that are not really accessible using regular financial products
I think we're going to see more proliferation of options and option-like products, simply because it’s lagging behind. Also, I think we are going to have all sorts of aggregating vehicles that allow you to switch seamlessly between various sources of yield and stuff like that. We are trying to leverage these trends with our VIP product actually.