Structured Products Explained
You've likely heard about the benefits that come with tokenizing real estate, carbon credits, and other assets, but there's a more sophisticated financial instrument itching to come on-chain: structured products.
Structured products brought innovation to finance by enabling the packaging of tailored risks, allowing investors to design their portfolio exposures in a highly customized way. They combine multiple assets into a single package to create unique risk-reward profiles that individual assets can't provide alone. These products are available to a wide range of customers and can be purchased through various platforms.
However, the complexity of creating structured products makes them expensive, opaque, and operationally risky. The infrastructure of traditional finance is outdated, cumbersome, and siloed, posing significant operational risks in today's interconnected global economy.
Imagine the current financial value chain as a series of commercial counterparties engaged in transactions. Each party maintains its own ledger (often in Excel) to track contractual rights and obligations. As transactions proceed, reconciliation occurs through slow asset transfers (T+2) and manual processes, including back-and-forth emails and manual spreadsheet reconciliation.
This is where Redbelly Network's purpose-built approach comes in. By embedding accountability and compliance at the protocol level, Redbelly creates an environment where complex financial instruments can exist without the crippling overhead that keeps them out of reach for most investors.
What is a Structured Product?
Structured products function like sophisticated financial Lego blocks. They combine different pieces, such as equities, bonds, derivatives, commodities, or alternative assets, into custom-built investment vehicles that wouldn't be possible with individual components alone.
This modular approach to finance serves a clear purpose: giving investors exposure to multiple asset classes through a single instrument. Unlike buying separate investments across different platforms and accounts, structured products blend various components into one unified vehicle with a tailored risk-return profile.
The typical structured product in traditional finance combines a relatively safe base (like bonds) with exposure to riskier but potentially more rewarding assets (like equities or commodities). The resulting hybrid delivers something neither component could offer independently: custom-tailored exposure with a more predictable outcome.
Here's the problem, though. In traditional finance, creating and distributing these products is an administrative nightmare. The foundational components of structured products are derivatives, which act as risk-offsetting mechanisms between financial institutions. This result is:
- Different assets often live on different registries, requiring constant reconciliation
- Documentation can be mountainous
- These instruments are notoriously difficult to price and manage; their risks are often opaque and can act as volatile catalysts for major financial crises (e.g. GFC 2008).
- Rebalancing generally happens periodically, not in real-time
- The "prospectus" is so complex that only specialists truly understand what they're buying
In other words, structured products have historically been playthings for the wealthy and institutional investors. Despite their obvious benefits, the overhead costs and compliance complexity make them impractical for the average investor.
But what if all that administrative overhead disappeared? What if creating, distributing, and managing structured products could be packaged into a single token, with all components recorded and verified on the same registry? And what if anyone could buy in with just a few hundred dollars?
That's the potential of bringing structured products on-chain and why purpose-built blockchain infrastructure like Redbelly Network will be the place where structured products finally become available to everyone.
Structured Products with Bitcoin
To lay out the opportunity, let’s consider the world’s largest digital asset: Bitcoin.
Bitcoin, in its dormant state, earns no yield. Yet, it is highly liquid and secure, a rare and valuable trait. This combination makes Bitcoin a compelling asset for underwriting global economic risks.
Economic security refers to using an asset as backing or collateral to reduce risk in a financial arrangement. When Bitcoin serves this function, it transforms from a speculative holding into productive capital that secures real-world economic activity.
To make this concrete, consider the following scenario that could be managed using structured products on Redbelly Network:
A property developer needs financing but lacks traditional collateral. A lender is hesitant to provide capital without adequate security. Through a structured product on Redbelly, Bitcoin holders could lock up their BTC as economic security, enabling the lender to issue capital confidently. In return, the Bitcoin holder earns a fee, effectively generating yield on otherwise idle Bitcoin through the transfer of risk.
In this structured product:
- The Bitcoin holder provides security without selling their BTC.
- The property developer gets access to capital they couldn't otherwise obtain.
- The lender can issue loans with reduced risk.
- All participants share in the economic value created.
In traditional finance, this arrangement would require multiple intermediaries, complex legal frameworks, and significant overhead costs.
On Redbelly Network, this same structured product becomes accessible, transparent, and efficient. The Bitcoin remains in a secure smart contract that automatically enforces the terms of the arrangement. If the developer repays the loan as scheduled, the Bitcoin holder receives their yield and eventually their Bitcoin back. If there's a default, predefined liquidation procedures protect the lender.
The beauty of this approach is how it connects previously disconnected markets:
- Bitcoin holders seeking yield without selling their assets.
- Developers needing capital without traditional collateral.
- Lenders looking to expand their lending activities with reduced risk.
"But wait," you might say, "couldn't a Bitcoin holder just sell their BTC, lend directly to property developers, and buy back later?"
Technically, yes, but this approach would expose them to significant price risk during the investment period. The structured product allows them to maintain their Bitcoin position while still generating yield.
This isn't just incremental improvement. It's a fundamentally new financial primitive that changes how capital flows between digital and physical assets. These structured products can be created, traded, and settled on Redbelly Network with compliance and efficiency.
Redbelly Network: The Home For Structured Products
Let's address the elephant in the room: "Why can't this be done on existing blockchains?"
The short answer is that it technically can, but the experience would be so clunky and inefficient that no serious asset issuer would bother trying.
Here's why:
When a major bank or fund manager creates a structured product, they're staking their reputation and legal standing on every aspect of that offering. They need absolute certainty around three critical elements:
Identity and Eligibility
Who exactly holds this product? Are they permitted to own it in their jurisdiction? Have they been properly screened against sanctions lists?
Asset Verification
Are the underlying components legitimate? Who audits and verifies the T-bills or construction loans? How frequently is this verification updated?
Compliance and Settlement
Can transactions be processed with certainty and finality? Will the chain handle thousands of simultaneous yield distributions without congestion?
On general-purpose blockchains, addressing these concerns requires multiple third-party solutions bolted together with complicated middleware. Each solution introduces a point of friction and potential failure to the system. The result is a Rube Goldberg machine of compliance. Technically possible but commercially impractical.
Hutly experienced this when they tried to tokenise rent rolls on Ethereum. They quickly discovered the limitations: unpredictable gas fees making yield distributions financially unviable, transaction bottlenecks during peak periods, and most critically, no built-in way to verify user identity in compliance with real estate regulations.
Redbelly proposes a fundamental shift in how structured products and derivatives are created and managed through a natively integrated and resilient system. Redbelly is uniquely positioned to secure structured product flows through its deterministic and instant settlement technology. Finality is mathematically proven, leading to legal clarity over asset transfers, an essential feature in sophisticated markets.
Instead of managing assets and ledgers in Excel with delayed (T+2) settlement, structured products can now be encoded into smart contracts. These smart contracts enable automatic and instant reconciliation, coupled with atomic asset transfers.
Purpose-Built Infrastructure That Makes It Possible
Redbelly streamlines the entire value chain from regulatory compliance to product issuance via smart contracts and value transfer through atomic settlement. This is achieved through three core architectural features:
Verifiable Credentials
Instead of forcing every structured product issuer to rebuild KYC systems from scratch, Redbelly embeds identity verification at the protocol level. Once a user or asset is verified on the network, their credentials can be checked programmatically by any structured product without exposing sensitive personal data. This creates a reusable, composable compliance layer that dramatically reduces overhead.
On-Chain Registry
Unlike systems that create "digital twins" while keeping the actual registry off-chain, Redbelly maintains the registry on the blockchain. This means the chain becomes the single source of truth for asset ownership, transaction history, and compliance status - no more reconciliation between disconnected systems. Everything exists in one standardized environment.
Protocol-Level Compliance
Rather than treating compliance as an afterthought, Redbelly builds it into the foundation. The chain itself enforces regulatory requirements, creating a secure environment where verified participants can interact with verified assets. By embedding compliance at the protocol level, Redbelly enables issuers to create structured products that satisfy existing regulatory requirements from day one rather than retrofitting compliance as an afterthought. Future integrations with standards like FATF Travel Rule and MiCA will be implemented directly at the protocol level.
Creating and managing structured products becomes dramatically more efficient with these purpose-built features. Asset issuers can focus on designing thoughtful offerings rather than wrestling with compliance overhead, and investors can access these products with minimal friction.
Let's be clear: we're not just talking about tokenizing existing structured products. We're talking about creating tokenized structured products via smart contracts directly linked to tokenized assets. The benefits are significant: operational efficiency, streamlined value chains, and far greater transparency and auditability of risk exposure.
The Future of Financial Products Is Modular
Structured products represent the natural evolution of tokenization, moving beyond simple digitization toward true financial innovation. By solving the core challenges of identity, compliance, and settlement that have prevented these instruments from reaching mainstream adoption, Redbelly Network opens the door to a new category of financial products that can be assembled, modified, and traded with unprecedented efficiency.
Whether you're an asset issuer looking to create multi-component financial products or an investor seeking sophisticated instruments with lower barriers to entry, the infrastructure to make it happen now exists.
To learn more about bringing structured products on-chain or participating in the Redbelly ecosystem, visit https://access.redbelly.network/
