Index Coop is working to improve the protocol and related infrastructure to overcome the limitations of on-chain structured products. In a new report published on Tuesday, Index Coop identified a large number of challenges facing the rather nascent area of structured products in the digital asset industry, including infrastructure limitations.
Structured on-chain products are defined as any token, platform or vault that enables access to digital asset risks and returns and is delivered via a blockchain without the involvement of a centralized or traditional financial institution. The most prominent of these include Aave’s wrapped ETH (wETH) and Yearn Finance’s ETH and staked ETH (stETH) vaults.
The infrastructure limitations of this sector include a lack of cross-chain asset support, expense in maintaining products due to high issuance costs, and difficulty rebalancing on-chain products due to slippage. To address this, Index Coop is exploring auction-based rebalancing as a potential solution to lessen NAV decay, according to the report.
Structured products remain a small sector, with a combined total value locked (TVL) of just under $2.5 billion, accounting for just 0.21% of the wider crypto market. If their use in crypto grows, they could be seen as evidence of the growing sophistication of the industry and its increasing ability to attract mainstream investors.
At Index Coop, engineers are exploring auction-based rebalancing as a potential solution to lessen NAV decay, said Index Coop. Should their use in crypto grow, they could be seen as evidence of the growing sophistication of the industry and its increasing ability to attract mainstream investors.