Concept

Tokenized structured product is a structured product that, by means of tokenization, is converted into small standardized units, in the form of tokens, that are issued and trade on the blockchain. A structured product, by definition, is a product constructed out of two different (economically different) products/ instruments/ contracts with the aim of creating a yet further different structure (with different, usually enhanced or improved, risk-return profile) capitalizing on the features of the components (building blocks). Structured products are very much similar to derivatives in the sense that both types of products have an underlying. The value of the underlying is typically set against a given strike price in order to determine the eventual outcome or performance of the product: if the underlying price is less or equal to the strike price, the holder will get the strike price. Otherwise, the holder will get the underlying instrument. In the realm of crypto, tokenized structured products are designed to meticulously mirror the performance of real-world assets (RWAs), a category that accommodates any asset class, with the potential to reduce overall costs and legal complexities associated with the tokenization process. Furthermore, this provides security for investors with a bankruptcy-remote structure.

Tokenization

Tokenization is the process of creating digitized or tokenized assets out of a tangible or intangible asset. Tokenization capitalizes on the capability to use and leverage blockchain technology to securitize assets, both traded and non-traded. A tokenized asset represents a divided share in the ownership of real, financial, or digital assets that is recorded on a blockchain in the form of digital tokens. By means of an asset tokenization, an issuer creates digital tokens on a distributed ledger or blockchain, which represent. The ownership share (the tokenized portion of the asset in question) is, per se, digital and tradable. Like an initial coin offering (ICO), the tokens are issued via a security token offering (STO) process, through which investors can buy different types of tokens (payment, equity or utility tokens.) Blockchain guarantees that the tokens issued and released represent an asset, that is immutable.

Example

An example of a tokenized structured product is a product structured out of cryptocurrencies, real world assets and derivatives. The product operates via a protocol tokenized that tracks publicly traded securities/ investments with different exposures. A token can be backed 1:1 by an equivalent security held by a regulated custodian. As expected, only KYC-verified investors (accredited investors) could acquire such tokens directly. However, non-KYC investors can access such offerings through secondary markets by means of decentralized exchanges (DEXs).