As identity restrictions in the secondary market gradually tighten, and incubation-type investments have high thresholds and long cycles, a more flexible and "configurable" investment method is attracting the attention of more and more high-net-worth investors: structured products.
In fact, structured investment is not a new topic unique to Web3, it is the “old way of playing” in traditional finance.
In the traditional market, investment banks often package a package of assets and then stratify them: the high-risk layer, such as "equity" or "subordinated bonds", is reserved for investors who are willing to seek returns; the low-risk layer protects the principal through priority repayment, principal preservation mechanism and other means to attract more stable allocation funds.
Now this logic has been moved into Web3.
What is structured investing in Web3?
The essence of structured products is to break down a "right to income" and then reassemble it into a combination that suits different risk preferences.
In traditional finance, this practice is widely used in products such as ABS, CDO, income certificates, and snowball notes. In Web3, this idea has not been abandoned. Instead, it has become more programmable and more efficient due to the flexibility of smart contracts and token mechanisms.
In the current Web3 market, we can roughly see the following types of structured products, each of which represents a typical disassembly idea:
Fixed Income Products
This is the most common type of structured product. Web3 project owners or platforms package some future income rights, such as Staking income, DeFi interest rates, and protocol fee sharing, and sell them in the form of "fixed annualized income" to attract stable funds to enter the market.
The most typical example is the stablecoin financial management and income certificate products launched by major trading platforms. Platforms represented by Binance, OKX, and Bitget mostly provide a "regular + annualized" product structure. Assets are locked for 30 days or 90 days, and the annualized income is usually between 5% and 15%. The currencies are mainly mainstream assets such as USDT, ETH, and BTC. Some platforms will also give the words "principal protection" to reduce users' risk perception.
In addition, some DeFi platforms, such as Pendle Finance, will tokenize and split DeFi income rights, forming a "YT (Yield Token) + PT (Principal Token)" structure. Users can choose to only buy PT to lock in future income, but not bear the risk of income fluctuations; or they can choose YT and bet on future interest rate increases. In essence, this is to layer "income rights" and "principal rights" to meet different risk preferences.
Convertible bonds/income certificates
This type of product is more common in primary investment or project cooperation. It is essentially a path of "debt first + token conversion at the right time": in the early stage, investors are rewarded with a stable fixed income, and in the later stage, according to the conditions, the project token is exchanged at a discount, taking into account both conservatism and gambling.
In practice, investors usually obtain the right to purchase project tokens in the future by signing agreements such as SAFT (Simple Agreement for Future Tokens) or Token Warrant. These agreements usually set specific nodes or conditions, such as project launch, reaching a certain development stage or a specific time point.
At the same time, in order to enhance attractiveness and protect against downside risks, the agreement will also introduce fixed income clauses. For example, during the period when the token is not yet online, the project party will pay fixed interest to investors on a quarterly or semi-annual basis in the form of stablecoins or other assets. The existence of this part of the return allows investors to lock in basic income while waiting for the project to advance, greatly reducing the risk they bear.
For example, the Web3 project Astar Network adopted a similar structured financing method in its early financing stage. Investors first enter in the form of debt and enjoy fixed returns; after the project goes online and the market value reaches a predetermined level, investors can choose to convert the principal and unpaid interest into project tokens at a predetermined discount ratio.
Risk-stratified funds
This is the type with the most "financial engineering flavor" among all Web3 structured products.
This type of product usually packages a basket of assets and divides them into different risk levels. The most common is the two-tier structure of Junior (inferior) and Senior (preferred): the Junior tier bears the main risks and has higher returns; while the Senior tier has priority in profit sharing when the project generates profits, and priority in protecting the principal when losses occur.
Does it sound a bit like the CDO (collateralized debt obligation) in traditional finance? Yes, it is an on-chain reconstruction of this classic logic.
A more representative Web3 project is Element Finance. This project was very popular in 2021. By separating the right to income from the principal, it built a two-layer structure of "fixed income + high-risk game". In subsequent iterations, it further introduced a risk stratification pool. Users can choose to enter the fixed interest rate pool (Principal) or the yield game pool (Yield), which essentially corresponds to the risk stratification idea of Senior and Junior.
The core advantage of this structure is that it uses a clear risk-return matching mechanism to meet the preferences of different investors. For the platform, it also achieves optimal allocation of funds and enhances the attractiveness of the overall pool.
But its weaknesses are equally obvious. Once the market fluctuates violently and the main pool assets suffer serious losses, the Junior Tranche, as the "first risk buffer", will shrink rapidly or even be completely wiped out. Although the Senior Tranche has priority, if the entire pool's solvency collapses, the priority cannot be realized.
In addition, Web3 funds "come fast and go faster", and when panic spreads, it often causes a "double-click effect of trust discount + capital run", and ultimately forms a "structural stampede" similar to that in traditional finance.
Platform structure products
In the past year, structured investment has gradually moved from "peer-to-peer asset packaging" at the protocol level to platformization and productization. Especially driven by exchanges, wallets, or third-party investment platforms, structured products are no longer just "income splitting" native to the protocol, but a closed loop of "design-packaging-sales" led by the platform.
For example, Ribbon will package volatility returns into structured financial products for users to purchase through the automated strategy of combined options (such as automatic selling of Covered Call); Bitget Earn's "Principal Protection + Floating Return" product links the basic stablecoin financial management with the returns of high-risk assets to form an optional hierarchical structure;
This type of product is usually aimed at users who "lack the ability to adopt complex strategies" but still want to obtain structured returns. The platform design lowers the threshold for participation.
The above structures are not mutually exclusive. Some products even span multiple structures, such as "risk stratification wrapped in income certificates" or "Tokenized bonds and then tranches."
But structuring is by no means an entry point that is "suitable for everyone".
On the surface, it lowers the threshold for participation and increases the flexibility of returns; but after breaking down each layer of the structure, you will find that its requirements for investors are higher than you imagined.
Legal boundaries and compliance challenges
Whether it is a Token combination packaged by the DeFi protocol or an annualized certificate customized by the exchange, as long as you want to participate, you will face an unavoidable question: Is it compliant?
Here are some questions you can ask yourself.
Are you a “qualified investor”?
In the traditional financial system, many structured products are “only sold to qualified investors”. Web3 just moves the protocol to the blockchain, and the rules have not changed.
Taking Hong Kong as an example, the SFC stipulates that most virtual asset derivatives (such as futures, leveraged tokens, structured income agreements, etc.) are considered complex products and can only be marketed to professional investors and cannot be publicly promoted to retail investors. The same is true for the US SEC. Most structured products involving future token rights, income splits, and priority profit sharing are limited to Reg D, and only qualified investors are allowed to participate.
In other words: if you are an individual user and you plan to use “anonymous wallet + bridge USDT + on-chain participation”, you may have already crossed the line. Even if it seems that you just “bought a financial product”, in the eyes of regulators, you may be participating in a collective investment scheme without authorization.
How does money come in? How does money go out?
Behind the marketing rhetoric of "annualized 10%" and "capital preservation structure", there is actually a more realistic and easily overlooked question: How does the money go in? And can it be taken out legally?
For mainland Chinese investors, this issue is particularly sensitive. Even if one transfers a sum of USDT to an overseas platform, it may touch the red line of foreign exchange regulation from a legal point of view. Not to mention that the mainland itself explicitly prohibits financial activities involving virtual currencies - participation itself poses potential compliance risks.
The situation is equally complicated on the withdrawal side. When you receive tokens, income certificates or other structured product returns in the future, in most cases you will need to realize fiat currency cash through "stable currency transfer + OTC withdrawal". However, once the path involves anonymous accounts and overseas gray platforms, there is not only a risk of bank freezing, but it may also be regarded as "illegal capital flow" or "tax evasion" and be included in the key monitoring objects by the regulatory authorities.
Simply put, no matter how "stable" such products may appear, if your funding path itself is "unstable", the entire investment chain will already have compliance risks.
Do you know what you bought?
The complexity of structured products lies in the fact that they look like financial management, but in fact they are a combination of contractual agreements. You think you are buying "lock for 30 days and earn 10%", but in fact it may be:
The income during the lock-up period comes from the tokens that have not yet been launched in the future;
The capital preservation promise is the platform’s bottom line, but the bottom-line asset is another DeFi strategy with extremely poor liquidity;
Or if your investment share is in “Junior Tranche”, the risk will hit you first.
These designs may not be clearly explained on the sales page. However, if you, as an investor, do not understand the underlying mechanism of the agreement and make mistakes in the future, the regulator will not let you off the hook just because you “didn’t understand”. On the contrary, if you are a high-net-worth investor with a large amount of investment, you may even be deemed to have “professional judgment” and be held more responsible.
Is the platform qualified to sell this to you?
The last question is also the one that many people easily overlook: Is the platform you participate in really qualified to sell structured products?
Take Bitget Earn as an example. It has VASP licenses in Lithuania, New Zealand and other places, and can provide a certain range of financial products. Some small platforms and wallets do not even have registered entities, and only sell "income certificates" or "Token principal protection packages" directly to global users through websites or Telegram.
Not only may such platforms constitute illegal sales of financial products, but once problems arise with the project or asset pool, you will not be able to find even the most basic legal path to accountability - because it is not an issuer with a legal entity at all.
Ultimately, structured investment is not an "information war" but a "cognitive war."
The product structure can be complex, but your identity cannot be ambiguous; the protocol logic can be abstract, but your funding path must be clear.
Only when the four links of "people-money-platform-path" can be connected in compliance with regulations, will you truly have the ability to participate in structured products.
How to participate in structured investment in compliance with regulations?
Structured products seem to be "wrapped in layer upon layer", but what really determines whether you can participate is not how fancy the yield design is, but three things: identity, path and platform.
From a practical perspective, Portal Labs recommends that investors at least clarify the following three points:
Don’t use “individuals” to bear all compliance risks
Many investors are used to participating in structured products through "personal wallet + OTC entry", but the problem is that once a dispute or compliance review occurs, you are the first to be exposed. Identity ambiguity is the first fuse of risk.
If you are a high net worth user, it is recommended to establish a relatively clear identity structure before investing, such as:
Overseas SPV (such as Cayman, BVI): used to participate in Token products, manage Token distribution and revenue recovery;
Hong Kong family office structure: convenient for matching trading accounts and using fiat currency for settlement;
Singapore Exempt Fund: Suitable for portfolio strategy management or long-term allocation, helpful for tax declaration and bank channel compliance.
Sometimes, setting up a structure is not just for tax purposes, but to allow you to have a clear "risk isolation zone" when participating in this market.
Where does the money come from? How does it go out?
The reason why many structured products have problems is not because the products themselves are illegal, but because the participation path is illegal, especially when it involves cross-border participation.
Therefore, you can focus on the following measures:
When making a deposit, use a bank account that matches your identity structure to avoid frequent large-amount payments from your personal account;
Try to complete currency exchange and settlement through licensed payment institutions or family offices, leaving complete bills and transactions;
Before withdrawing profits, first clarify the "legality chain" of the money - where it comes from, whether it is compliant, and whether there is any tax obligation, and do not wait until the account is subject to risk control to provide additional explanatory materials.
Whether a platform is reliable or not depends on where it is “registered”
Many platforms will claim that “we are the world’s leading structured asset platform”, but in fact even the registered place of the main body cannot be found, let alone compliance disclosure.
What you need to do is not to be attracted by the advertising words, but to figure out a few underlying issues:
Does it have the qualifications to sell financial products? For example, VASP, fund sales, investment advisory, collective investment license, etc.
Does it disclose the underlying assets of the protocol? Is there another illiquid contract pool behind the “capital preservation”?
Does it provide a clear dispute resolution mechanism, including contract arbitration, user rights protection path, legal entity information, etc.
After all, the more complex the product design is and the more "elegant" the revenue narrative is, the more you have to ask: Are you really allowed to sell this thing to me?
Finally, structured investments are not suitable for all high net worth investors.
On the surface, it provides more "configurability" - you can only invest in the principal or bet on floating; you can choose a fixed interest rate or exchange the income certificate for future tokens. However, this "flexibility" relies on the understanding of risk mechanisms, the ability to design funding paths, and the foreknowledge of legal responsibilities.
If you are used to "investing and waiting for the price to rise" and hope to exit as soon as possible and reduce the complexity of participation, then structured products may not be the ideal entry point. Because although it looks clearly structured, in fact, each layer has hidden rules and leverage. You must know what you are buying in order to avoid being passive when risks occur.
However, if you have a certain financial structure configuration ability, a stable identity structure and deposit channel, and are willing to spend time to understand the logic behind the product, then structured investment can indeed become a "controllable entry" for you to participate in Web3. It does not rely on cyclical emotions, does not force technical consensus, and is more about finding your own "risk/return balance point" in terms of mechanism.
