Flexible configuration or risk nesting?
Written by: Portal Labs
As the identity restrictions in the secondary market gradually tighten, and the barriers to entry for incubation investments are high with long cycles, a more flexible and “configurable” investment method is gaining the attention of more and more high-net-worth investors: structured products.
In fact, structured investment is not a new topic that only exists in Web3; it is an “old game” of traditional finance.
In traditional markets, investment banks often bundle a package of assets and then process them in layers: the higher risk layer, such as “equity” or “subordinated bonds”, is left for investors willing to take on the risk for potential returns; the lower risk layer, on the other hand, protects the principal through priority repayment and capital protection mechanisms, attracting more conservative funds.
This logic has now been brought into Web3.
What is structured investment in Web3?
The essence of structured products is to break down a “right to income” and then reassemble it into combinations that fit different risk preferences.
In traditional finance, this practice is widely present in products such as ABS, CDO, income certificates, and snowball notes. In Web3, this idea has not been discarded; rather, due to the flexibility of smart contracts and token mechanisms, it has become more programmable and combinable in efficiency.
In the current Web3 market, we can roughly see the following types of structured products, each representing a typical decomposition approach:
fixed income product
This is the most common type of structured product. Web3 project teams or platforms package a portion of future revenue rights, such as Staking rewards, DeFi interest rates, and protocol fee sharing, and sell them in the form of “fixed annual returns” to attract conservative capital.
The most typical example is the stablecoin financial products and income certificate products launched by major trading platforms. Platforms represented by Binance, OKX, and Bitget mostly provide a “fixed term + annualized” product structure. Assets are locked for 30 days or 90 days, with annualized returns usually ranging from 5% to 15%, and the main currencies are mainstream assets such as USDT, ETH, and BTC. Some platforms also use the term “capital protection” to reduce users’ perception of risk.
Additionally, some DeFi platforms, such as Pendle Finance, tokenize the rights to DeFi yields by splitting them, creating a structure of “YT (Yield Token) + PT (Principal Token)”. Users can choose to only purchase PT, locking in future yields without bearing the risk of yield fluctuations; they can also choose YT, betting on future interest rate increases. Essentially, this is a layered approach to handling “yield rights” and “principal rights” to cater to different risk preferences.
convertible bonds / income certificate products
Such products are more commonly seen in primary investments or project collaborations. Essentially, it is a path of “debt priority + token optional conversion”: initially providing fixed income stable returns to investors, and later, upon certain conditions being triggered, exchanging at a discount for project tokens, balancing conservatism and speculation.
In practice, investors typically obtain the right to purchase future project Tokens by signing agreements such as SAFT (Simple Agreement for Future Tokens) or Token Warrants. These agreements usually establish specific nodes or conditions, such as the project going live, reaching a certain development stage, or a specific point in time.
At the same time, to enhance attractiveness and mitigate downside risks, the agreement will also introduce fixed income terms. For example, during the period when the Token is not yet launched, the project party will pay investors fixed interest on a quarterly or semi-annual basis, in the form of stablecoins or other assets. The existence of this portion of returns allows investors to secure basic earnings while waiting for the project’s progress, significantly reducing the risks they bear.
For example, the Web3 project Astar Network adopted a similar structured financing method in the early financing stage. Investors first enter in the form of debt, enjoying fixed returns; once the project is launched and the market value reaches the predetermined level, investors can choose to convert the principal and unpaid interest into project tokens at a predetermined discount rate.
Risk Layering Fund
This is the type with the most “financial engineering flavor” among all Web3 structured products.
These types of products typically bundle a basket of assets and then divide them into different risk levels. The most common structure is the two-tier system of Junior and Senior: the Junior layer bears the main risk and offers higher returns; while the Senior layer receives priority in profit sharing when the project generates returns and prioritizes capital protection in case of losses.
Doesn’t it sound a bit like CDOs (Collateralized Debt Obligations) in traditional finance? That’s right, it is an on-chain reconstruction of this classic logic.
Representative Web3 projects, such as Element Finance. This project was extremely popular in 2021, creating a “fixed income + high-risk speculation” dual-layer structure by separating yield rights from principal. In subsequent iterations, it further introduced risk-layered pools, allowing users to choose to enter either the fixed-rate pool (Principal) or the yield speculation pool (Yield), essentially corresponding to the risk layering approach of Senior and Junior.
The core advantage of this structure lies in its clear risk-reward matching mechanism, which meets the preferences of different investors. For the platform, it also achieves optimized allocation of funds, enhancing the overall attractiveness of the 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 line of risk buffer”, will quickly shrink and may even be completely wiped out. Although the Senior Tranche has priority, if the entire pool’s repayment capability collapses, that priority cannot be realized.
Moreover, with Web3 funds “coming in quickly and leaving even faster”, during times of panic, it often results in a “trust discount + capital run” double-hit effect, ultimately forming a phenomenon similar to “structural liquidation” in traditional finance.
platform-type structure product
In the past year, structured investment has begun to shift from protocol-level “peer-to-peer asset packaging” to a platform-based and productized approach. Especially driven by exchanges, wallets, or third-party investment platforms, structured products are no longer just the protocol-native “yield splitting,” but are instead a closed loop of “design-packaging-sales” led by the platform.
For example, Ribbon will package volatility returns into structured financial products by combining automated strategies for options (such as automatically selling Covered Calls) for users to subscribe to; the “Principal Protection + Floating Income” product launched by Bitget Earn links the returns of basic stablecoin investments with high-risk assets, forming a tiered structure that can be selected.
These products are typically aimed at users who have “no complex strategy capabilities” but still wish to obtain structured returns, and the platform’s design lowers their participation threshold.
The above structures are not mutually exclusive; some products may even span multiple structures, such as “Yield Certificates Wrapped Risk Layering” or “Tokenized Bonds Re-Cut into Tranches.”
However, structured is definitely not an “entrance suitable for everyone.”
On the surface, it lowers the entry barrier and enhances the flexibility of returns; however, when you break down each layer of the structure, you will find that its requirements for investors are higher than expected.
Legal Boundaries and Compliance Challenges
Whether it’s a token combination packaged by DeFi protocols or a customized annual certificate from an exchange, as long as you want to participate, you will face an unavoidable question: Is it compliant?
You can ask yourself the following questions.
Are you a “qualified investor”?
In the traditional financial system, many structured products are “only sold to qualified investors.” Web3 simply moves the protocols onto the chain; the rules have not actually 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 regarded as complex products and can only be offered to professional investors, and cannot be publicly promoted to retail investors. The same applies to the US SEC, where the vast majority of structured products involving future Token rights, income splitting, and priority profit sharing fall within the scope of Reg D, allowing only qualified investors to participate.
In other words: If you are an individual user and plan to use “anonymous wallet + bridge USDT + participate on-chain”, you may have already crossed the line. Even if you appear to have “just bought a financial product”, in the eyes of regulators, it could be considered unauthorized participation in a Collective Investment Scheme.
How to deposit money? How to withdraw money?
Behind marketing phrases like “annualized 10%” and “capital protection structure,” there is actually a more realistic and often overlooked question: How does the money get in? And can it come out legally?
This issue is particularly sensitive for investors in mainland China. Even transferring a small amount of USDT to an overseas platform could potentially cross the legal red line of foreign exchange regulation. Furthermore, mainland China explicitly prohibits financial activities involving virtual currencies—participation itself carries potential compliance risks.
On the withdrawal side, the situation is equally complex. When you receive Token, earnings certificates, or other structured product returns in the future, in most cases, you will need to achieve fiat currency conversion through “stablecoin transfer + OTC withdrawal.” However, once the path involves anonymous accounts or overseas gray platforms, there is not only a risk of bank freezing but it may also be regarded as “illegal fund transfer” or “tax evasion” behavior, making it a key monitoring target for regulatory authorities.
In simple terms, even if these products seem “stable”, if the path of your funds is itself “unstable”, the entire investment chain has already buried compliance risks.
Do you know what you actually bought?
The complexity of structured products lies in the fact that it looks like wealth management, but in reality, it is a combination of contracts based on protocol logic. You think you are buying “lock for 30 days, earn 10%”, but in fact, it might be:
- The earnings during the lock-up period come from Tokens that the project has not yet launched.
- The principal protection commitment is backed by the platform, but the underlying asset is another DeFi strategy with extremely poor liquidity;
- Or your investment share is a “Junior Tranche”, and the risk hits you first.
These designs may not be articulated on the sales page. However, if you, as an investor, do not understand the underlying mechanism of the agreement, and step on the thunder in the future, the regulator will not let you go because you “don’t understand”. On the contrary, if you are a high-net-worth investor and the amount of participation is large, you may even be deemed to have “professional judgment” and have a heavier responsibility.
Does the platform have the qualification to sell this to you?
The last question, which is also the one that many people easily overlook: Does the platform you are participating in really qualify to sell structured products?
Taking Bitget Earn as an example, it has a VASP license in Lithuania, New Zealand, and other places, allowing it to offer a range of financial products. Some smaller platforms and wallets, even without registered entities, directly sell “profit certificates” or “Token principal protection packages” to global users through websites or Telegram.
Such platforms may not only constitute illegal sales of financial products, but also, once a project or asset pool encounters issues, you won’t even find the most basic legal accountability path—because it is not an issuer with legal entity at all.
In the end, structured investment is not an “information war”, but a “cognitive war”.
Product structure can be complex, but your identity cannot be ambiguous; protocol logic can be abstract, but your fund path must be clear.
Only when the four links of “people - money - platform - path” can be compliant and connected, you truly have the ability to participate in structured products.
How to Comply with Structured Investment Participation?
Structured products seem to “wrap layer upon layer,” but what really determines whether you can participate is not how fancy the yield design is, but rather these three things: identity, path, and platform.
From a practical perspective, Portal Labs suggests that investors at least clarify the following three points:
Do not use “personal” to undertake all compliance risks.
Many investors are accustomed to participating in structured products using the “personal wallet + OTC entry” method, but the problem is that once a dispute or compliance review arises, the first to be exposed is yourself. Ambiguous identity 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:
- Offshore SPV (such as Cayman, BVI): used to participate in Token-related products, manage Token distribution and revenue recovery;
- Hong Kong family office structure: facilitates pairing with trading accounts and conducting fiat currency settlements;
- Singapore Exemption Fund: Applicable for portfolio strategy management or long-term allocation, it aids in tax declaration and compliance with banking channels.
Sometimes, setting up a structure is not just for taxes, but to have a clear “risk isolation zone” when you participate in this market.
Where does the money come from? How does it go out?
Many structured products encounter “problems” not because the products themselves are illegal, but because the participation pathways are not lawful, 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 deposits into personal accounts;
- Try to complete currency exchange and settlement through licensed payment institutions or family office structures, leaving complete invoices and transaction records;
- Before withdrawing earnings, first clarify the “legitimacy chain” of this money—where it comes from, whether it complies with regulations, and if there are any tax obligations; do not wait until the account is under risk control to provide explanatory materials.
Whether the platform is reliable depends on where it is registered.
Many platforms claim to be “the world’s leading structured asset platform,” but in reality, you can’t even find their registered location, let alone any compliance disclosures.
What you need to do is not to be attracted by advertising slogans, but to clarify a few underlying issues:
- Does it have financial product sales qualifications? Such as VASP, fund sales, investment advisory, collective investment licenses, etc.;
- Does it disclose the underlying assets of the agreement? Is there another illiquid contract pool behind the “capital preservation”?
- Does it provide a clear dispute resolution mechanism? Including contract arbitration, user rights protection pathways, legal entity information, etc.
After all, the more complex the product design and the more “elegant” the profit narrative, the more you have to ask: is this thing really allowed to be sold to me?
Finally, structured investments are not suitable for all high net worth investors.
On the surface, it offers more “configurability” — you can choose to only focus on the principal, or you can take a gamble on fluctuations; you can opt for a fixed interest rate, or exchange a yield certificate for future Tokens. However, this “flexibility” relies on an understanding of risk mechanisms, the ability to design funding pathways, and an awareness of legal responsibilities in advance.
If you are used to “investing and waiting for appreciation” and hope to exit quickly and reduce participation complexity, then structured products may not be the ideal entry point. Although they appear to have a clear structure, each layer has hidden rules and leverage. You must know exactly what you are buying in order to avoid being completely passive when risks occur.
However, if you possess a certain ability to configure financial structures, have a stable identity structure and deposit channels, and are willing to spend time understanding the logic behind the products, then structured investment can indeed become a “controllable entry point” for you to participate in Web3. It does not rely on cyclical emotions, does not force technical consensus, and more so finds your own “risk/reward balance point” on a mechanistic level.
