Exploring the Evolution of Crypto Options and Structured Products: A Look at Market Microstructure and Institutional Infrastructure

The crypto options space has seen a rollercoaster ride from July 2021 to June 2022, with exponential momentum followed by a decimation in vault TVL and returns during periods of volatility. Retail investors are feeling the impact, especially those involved in options and structured products vaults utilizing short volatility strategies.

According to defillama.com/protocols/Options, options and structured products are complex and require active management. While demand for convexity and 0DTE options is rising among retail investors, institutional providers are gearing up to cater to non-retail investors with the necessary infrastructure.

Market microstructure has always been a challenge in the crypto space, with issues like fragmented liquidity and supply/demand disparities. However, as crypto transitions from a fully retail market, there is a shift towards addressing these challenges and providing institutional-grade products.

Institutional investors are increasingly looking at crypto for portfolio allocation, with back-tested data showing positive results when adding BTC to a balanced portfolio. As the market evolves, there is a growing opportunity to deliver crypto payoffs to traditional investors through products like ETFs and ETPs.

Despite hurdles in integrating traditional intermediaries with crypto participants for structured products, there is optimism for exponential growth in the sector. ARP Digital, a structured product provider, believes there will always be a demand for yield-bearing and volatility products in the crypto space.

Investors are now more conscious of the sources of yield and the associated risks, leading to a focus on structured products that offer verifiable yields based on market outcomes. As the market matures and demand for product development grows, the future of crypto structured products looks promising.