Crypto trading firms are joining forces with traditional market players to trade on-chain structured products, as the U.S. regulatory push to oversee the industry continues. MEV Capital, a digital assets manager, and London-based financial services provider Marex have executed the first autocallable tied to ether (ETH) through a smart contract built by the decentralized derivatives platform Ribbon Finance, now rebranded as Aevo.
We are thrilled to provide the smart contract for the first fully on-chain autocallable trade, which represents a significant milestone for both Ribbon Finance and the structured products industry at large, said Jeremy Obadia, Head of Structured Derivatives at Ribbon Finance. Encoding complex payoffs on-chain not only removes the counterparty risk but also allows for a trustless and automated trade lifecycle.
An autocallable is a structured note that allows investors to earn contingent interest, usually at an above-market rate, if the underlying asset closes at or above a specific level on periodic observation dates. MEV purchased the two-week ether autocallable denominated in the dollar-pegged stablecoin USDC, with a barrier at 85% of the initial price, autocall trigger at 100% and guaranteed coupon of 0.5% per week (annualized 26%). Marex acted as a hedging agent.
On-chain deployment of exotic options such as autocallables would allow us to enhance several of our market-neutral strategies while staying on Ethereum – a public blockchain we are familiar with, said Laurent Bourquin, Managing Partner at MEV Capital.
The autocallable traded by MEV is suitable for market conditions where ether’s price is not expected to move much in either direction. That’s because the buyer stands to lose if the price drops below the barrier level. Similarly, the buyer stands to lose on the upside, as the product is terminated if the underlying trades above the initial price after one week.
Structured products like autocallables are quite popular in traditional finance, with more than $70 billion in U.S. structured notes issued last year. MEV, Marex and Ribbon eliminated the counterparty risk by locking the maximum payout and collateral in a secured and audited smart contract.
Bringing Autocallables on-chain and leveraging smart contract features make these products more transparent for investors, allowing instant settlement, seamless lifecycle and removing issuer credit risk. The blockchain technology will change the way products are transacted, said Harry Benchimol, Co-Head of Derivatives Engine at Marex Solutions. Given how yield farming is important in DeFi, it is exciting to see the Autocallable entering this fast-evolving ecosystem, providing a new way to extract yield while having some downside protection.