Investing in Structured Cryptocurrency Products; Index
Introduction to Crypto Indexes
Crypto indexes are a welcome addition to the growing industry, especially due to these products' institutional appeal. Crypto-assets like what we have in with YLA must be mainstreamed to a much larger and diverse audience if the adoption and retention levels increase.
Lately investment vehicles from traditional finance (TradFi) have swooned the cryptocurrency industry, while this injects volume and liquidity – retail traders/investors – it also creates an exciting prospect. The structured products appeal to the many types of investors as discussed earlier – irrespective of net worth. Consequently, these products create leeway for investors, providing opportunities for deleveraging, portfolio repricing and rebalancing, and diversifying their portfolios with less additional risk common in TradFi. The context of the article is to highlight the safety of the crypto-asset index as opposed to the conventional tokens which are most problematic for the traditional investors — retail of institutional.
The growing adaptation of investors to the emergence of cryptocurrency and blockchain financial derivatives (assets) has created a need for the purposeful (re)structuring of these cryptocurrency products. From formalized trading exchanges (TradExs) to the arbitrage as common in the traditional capital markets, blockchain assets have made incursions into mainstream finance through the use of automated market makers (AMM).
These AMMs price assets through computerized algorithms instead of the hagglings of slippages incurred when either buying or selling these assets. In the case of YLA, it proposes the PowerIndex v2 Unlimited ETF product, which carries out the automatic changing of portfolio composition to maximize capital gains for our users. YLA through its distinct algorithms changes weights of strategies in the portfolio based on Yearn v1 Vaults TVL.
Why Crypto Index?
Structured cryptocurrency products like crypto indices provide a better shield against some of the common problems associated with cryptocurrencies. In contrast to the crypto tokens, apparently, investing in cryptocurrency indexes appears more complex, on the flip side, the cryptocurrency indexes offer more incentives. The structure of these indices, helps the investor to diversify his portfolio, ensure principal protection while keeping volatility at the barest minimum, they also provide more substantial returns as they are not issued by a bank or other centralized asset allocators – the Defi industry has birthed investment vehicles that require no intermediaries or approval to access. The structured cryptocurrency products are a much-needed logical addition to catalyze the growing mainstreaming of blockchain and its derivative into traditional finance.
Yearn Lazy Ape (YLA) was launched one month ago and gained traction among members of the crypto community. It has over $16m in TVL at the present. The introduction of $YLA was a result of the need for appreciable investment returns with interest on USD-pegged capital. $YLA has a diversified portfolio with various investment strategies from the Yearn v1 Vaults — Yearn v1 Vaults LP tokens are interest-accumulating tokens from Vault strategies.
Despite the initial misgivings, the concept of indexes as a structured cryptocurrency product (SCP) has been fully adopted by cryptocurrency enthusiasts. One of such misgivings was the fate of institutional investors in the SCP market. Although institutional investors face entirely different challenges in crypto markets dissimilar to retail investors; like the need for reliable professional trading systems and trustworthy escrow systems, these structured financial products provide wide-ranging solutions that are unbeatable.
A key metric in assessing the growth of the structured cryptocurrency products is by measuring how much impact it has had in the defi community. A known metric is a total value locked (TVL) – TVL counts up all the real assets seen in smart contracts and then multiplies that by the monetary value (in this case the dollar) that asset could sell for on the exchanges. From available data, TVL in Defi protocols rose from roughly $15 billion in January to an excess of $50 billion in March this year.
At the same time, several Defi assets have surpassed the expectation. In research by Messari, an online database for the crypto industry that provides data insights, pricing, and research on crypto-assets, at least 74 Defi assets have seen a spike in their value by more than 100% since the beginning of the year while seven of these assets have increased in value by more than 1000%.
While decentralization finance — quite unknown a few years ago — benefits the small-scale holders, the rise of sham projects and scammers has also gone unchecked due to the full anonymity it grants to users and the scant KYC (know your customer) protocols by the most safety-conscious centralized exchanges.
The intrinsic advantages of decentralization by the SCPs are remarkable. Firstly, all transactions (exchanges and arbitrages) are fully automated. Secondly, these crypto-assets, index of different crypto products, help in increasing the investment range of the mainstream investors. In addition to these, there is a unification of the investment portfolio in that, institutional investors can invest in a single blockchain asset without the attendant worries of; risk management, regulations, and portfolio rebalancing. For the predictable future, these solutions will attract more institutional investors to the market.
