The Evolution of Structured Crypto Products

Australia-based digital asset firm Zerocap is in a prime position to observe the development of the structured product space, having operated OTC, market making, derivatives and crypto custody businesses since it was founded in 2018.

Here Zerocap’s head of sales Mark Hiriart discusses how these products are changing, a new semi-principal protected product his firm is launching, how demand for structured products varies by geographical region, and the most unusual structured product request he’s seen.

Tell us about Zerocap.

Zerocap is Australia's leading institutional digital assets firm, established in 2018. We operate multiple business lines including an OTC desk, market making and derivatives business, all underpinned by our custody offering. We operate as a Corporate Authorised Representative of an Australian Financial Services License (AFSL) holder, which authorizes us to trade financial products like derivatives with wholesale accredited investors. We have also established a number of high-profile partnerships with institutions like ANZ Bank for their stablecoin, and the Reserve Bank of Australia (RBA) for various proof of concepts and pilots. While we've become the leading liquidity player in Australia over the last 18 months, our reach extends to clients in over 50 countries.

You recently announced a new product — tell us about it.

We've partnered with CoinDesk Indices to launch a semi-principal-protected structure on the CoinDesk 20 Index (CD20). The product offers upside exposure to the CD20 with principal protection limiting downside risk to 5%, while offering up to 40% return potential on the upside. This is the first in a series of structured products we'll be creating with CoinDesk Indices, featuring different payoffs for various risk appetites.

The timing is particularly relevant given the current market sentiment. With the rally in digital assets around Trump and potential global trade headwinds to navigate, we anticipate some sideways action in the near term. This medium-risk exposure product is well-suited to the current macro environment.

What gap in the market does your new product fill, and who is it designed for?

In the digital asset space, we don't have established benchmarks like there are in traditional markets. For example, if an Australian investor or someone in Hong Kong wants U.S. tech exposure, they typically look for products linked to the NASDAQ or QQQ ETF. In crypto, we haven't had that level of indexization yet. This product is designed for three groups: family offices and high-net-worth individuals seeking to enter the space; investors wanting broad-based crypto exposure without deep diving into individual assets; and those who understand bitcoin but want diversified exposure with managed risk.

Why did you choose to base it on the CoinDesk 20 Index?

We selected the CoinDesk 20 Index for four key reasons. One, we deeply respect the CoinDesk brand and their index team's quality. Two, our strong relationship with Bullish provides access to futures contracts for hedging. Three, there's a clear market need for index products in the crypto space. And lastly, my background in equity derivatives at investment banks shows me how people use these products, and it's a natural evolution for crypto.

How are structured products evolving?

Two main factors have historically limited structured product adoption: one, high crypto volatility meant simple spot positions could provide significant returns, and two, the prevalence of perpetual futures with high leverage reduced demand for options markets. That balance is shifting, however, as more participants hold structural positions. Venture funds, portfolio managers with value-based allocation policies and large mandate holders need specific hedging solutions that perpetuals can't provide due to path dependency.

What impact is the advent of crypto ETFs having on structured products?

ETFs serve as a "gateway drug" to structured products rather than cannibalizing them. The introduction of products like the BlackRock ETF has brought new participants into the crypto space. As these investors become comfortable with crypto exposure through ETFs, they naturally progress to exploring more sophisticated products for enhanced returns or risk management.

What institutional demand patterns are you seeing for crypto structured products in Asia versus other regions?

Asia typically shows 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. Having worked at JP Morgan and Morgan Stanley in equity derivatives trading, I've seen these regional differences firsthand.

Australia sits somewhere in between, and at Zerocap, we've successfully converted non-structured product players into crypto structured product users. We're looking to expand this expertise into Asia, subject to regulatory requirements.

Are we at risk of over-engineering crypto's volatility out of existence?

As crypto develops, different assets naturally have different volatility profiles. While stablecoins maintain stability and bitcoin's volatility may dampen with institutional adoption, there's still plenty of opportunity for high-volatility exposure down the market cap curve, from Solana to memecoins. The market is maturing to cater to different investor needs. For portfolio allocation, whether it's 1%, 2% or 5%, investors need broad beta exposure through established assets like bitcoin and ether, complemented by smaller allocations to emerging opportunities.

What’s been the most unusual structured product request you’ve seen?

We are one of the few desks globally that offer derivatives on alt coins and hence we get asked to price some wild and wacky things. I can officially confirm that we have traded an option on FARTCOIN recently, which is quite something for someone who has spent his career at the big US banks!

With that in mind, where do you see DeFi and traditional structured products intersecting?

While DeFi and structured products present interesting opportunities, we need to acknowledge that crypto is already complex, and structured products add another layer of complexity. However, tokenization makes sense for legal documentation and fungibility, since you can audit source code to understand exactly what you're getting. This space will grow with real-world asset (RWA) tokenization, but widespread adoption may take time.

When do you think digital assets will become long-term investments?

The transition from trading vehicles to long-term investments will occur as protocols and tokens demonstrate clear value propositions and use cases. Bitcoin has proven itself to be viewed as digital gold, while it is still debatable to callEthereum "ultrasound money”. Other protocols are still fighting to find their niche and demonstrate tangible value in the digital economy. As these assets become more integrated into economic systems, their long-term value propositions will become more measurable.

For more information visit https://zerocap.com/.

Authors' views and opinions are their own and not associated with CoinDesk Indices. The interview was conducted by CoinDesk Indices and is not associated with CoinDesk editorial.

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