Index Coop Aims to Improve Limitations of Protocol, On-Chain Structured Products

Decentralized autonomous organization (DAO) Index Coop says it is working to improve the protocol and related infrastructure to overcome the limitations befalling the user experience of on-chain structured products.

Index Coop identified a large number of challenges facing the rather nascent area of structured products in the digital asset industry, among them infrastructure limitations, in a new report published on Tuesday.

Structured on-chain products are defined by the report 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 (the difference between a trade’s expected price and the price at which the trade is executed).

“At the Index Coop, engineers are exploring auction-based rebalancing as a potential solution to lessen NAV decay,” Index said in the report.

Structured products remain a small sector, with a combined total valued locked (TVL) of just under $2.5 billion, according to Index’s report, accounting for just 0.21% of the wider crypto market.

Structured products in traditional finance typically combine several products, such as stocks or bonds, into a single package. 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.