Zerocap Launches Semi-Principal Protected Crypto Product With 40% Return Potential

Zerocap, an Australia-based digital asset firm, has been at the forefront of observing the evolution of structured crypto products since its inception in 2018. The firm operates various business lines, including an over-the-counter (OTC) desk, market making, derivatives, and crypto custody services. Zerocap's head of sales, Mark Hiriart, discusses the changing landscape of these products, the launch of a new semi-principal protected product, and the varying demand for structured products across different geographical regions.

Zerocap has recently partnered with CoinDesk Indices to introduce a semi-principal-protected structure based on the CoinDesk 20 Index (CD20). This product offers investors upside exposure to the CD20 with principal protection, limiting downside risk to 5% while providing up to 40% return potential on the upside. This innovative product is designed to cater to family offices, high-net-worth individuals, and investors seeking broad-based crypto exposure without delving into individual assets. The timing of this launch is particularly relevant given the current market sentiment, which anticipates some sideways action in the near term due to global trade headwinds and the rally in digital assets around Trump.

The new product fills a gap in the market by providing an established benchmark for the digital asset space, similar to how traditional markets use indices like the NASDAQ or QQQ ETF. The CoinDesk 20 Index was chosen for its quality, the strong relationship with Bullish for hedging, and the clear market need for index products in the crypto space. This product is part of a series of structured products Zerocap plans to create with CoinDesk Indices, featuring different payoffs for various risk appetites.

Structured products in the crypto space have historically faced limitations due to high volatility and the prevalence of perpetual futures with high leverage. However, as more participants hold structural positions, the demand for specific hedging solutions that perpetuals cannot provide is increasing. Venture funds, portfolio managers, and large mandate holders are seeking these solutions to manage risk and optimize returns. The advent of crypto ETFs, such as the blackrock ETF, has brought new participants into the crypto space, who naturally progress to exploring more sophisticated products for enhanced returns or risk management.

In Asia, there is a strong appetite for auto-call structures, where investors sell downside or puts to receive large coupons based on price targets on the upside. This differs from the more conservative approach in U.S. and European markets. Australia sits somewhere in between, and Zerocap has successfully converted non-structured product players into crypto structured product users. The firm is looking to expand this expertise into Asia, subject to regulatory requirements.

As the crypto market matures, different assets naturally have different volatility profiles. While stablecoins maintain stability and bitcoin's volatility may dampen with institutional adoption, there is still plenty of opportunity for high-volatility exposure down the market cap curve. The market is evolving to cater to different investor needs, providing broad beta exposure through established assets like bitcoin and ether, complemented by smaller allocations to emerging opportunities.

Zerocap has received some unusual structured product requests, including an option on FARTCOIN, highlighting the firm's unique position in the market. The intersection of DeFi and traditional structured products presents interesting opportunities, but the complexity of crypto and structured products may slow widespread adoption. Tokenization makes sense for legal documentation and fungibility, and this space will grow with real-world asset (RWA) tokenization.

The transition of digital assets from trading vehicles to long-term investments will occur as protocols and tokens demonstrate clear value propositions and use cases. Bitcoin has proven itself as digital gold, while the value proposition of Ethereum and other protocols is still being debated. As these assets become more integrated into economic systems, their long-term value propositions will become more measurable. Zerocap continues to innovate and expand its offerings in the structured crypto products space, catering to the evolving needs of investors worldwide.