May 31, 2022
Why Structure: Putting Assets to Work
4 min read
The portion of a person’s portfolio value that is allocated into traditional assets (like stocks and bonds) currently cannot be put to work in the rapidly growing DeFi applications, such as yield farming. Additionally, these traditional assets are not convenient for most people since they cannot be transferred person-to-person. Consequently, these assets have less utility value than they would if these disadvantages were eliminated.
To address these problems, Structure tokenizes traditional assets, thus enabling them with all of the conveniences and utility that we have come to know and love in crypto assets. Traditionally, there has been a marked difference between the way institutional investors have used their assets to generate returns and the options available to the average shareholder. Large firms like Blackrock often loan out securities and use their assets to secure loans that they use for further investing. Blackrock does not see themselves as a passive holder of assets, but rather as an active manager seeking to maximize returns through active use of their massive asset portfolio. However, such options have never been available for small investors.
The world of DeFi introduced a whole range of investment opportunities that allowed holders of Bitcoin, Ethereum or other cryptocurrencies to act more like Blackrock. Rather than just hold Bitcoin, one could lend it out and earn interest. For instance, as of April 2022, on Apricot Finance one can loan SOL out for 7.48% APR. This means whatever happened with the price of SOL, you could earn a return without selling your asset. Conversely, on Blockfi you could use your Bitcoin as collateral to borrow at relatively low rates — currently around 4.5%. One could borrow against the value of their Bitcoin and reinvest the borrowed amount, thus creating leverage. A vast array of options is available with crypto assets including staking, liquidity pools, and more. Deploying your assets in these new DeFi apps can earn returns of 3% for simple lending to 60% or more for more exotic or leveraged strategies. The important idea is that with crypto assets you do not have to be a passive holder, you can actively use your assets to generate returns.
Structure enables traditional assets like stocks and bonds to be used in DeFi protocols that until now have been restricted to cryptocurrencies. For example, if you own $5,000 of Tesla stock, it is nearly impossible for the small investor to borrow against that asset value or loan the stock out to earn a return. By tokenizing stocks and bonds, Structure bridges the gap between the world of DeFi and traditional assets. Not only can you buy stocks from around the world, you can now use them in ways that have been, until now, only available to the largest institutions.
Further, tokenized assets can be transferred peer-to-peer, this is how they become available to DeFi applications. Each token is created when you make a purchase through Structure. If you buy $100 worth of Apple stock, Structure places $100 of Apple stock in trust and creates a token that is linked to that stock. If Apple increases in value by 10%, your token is now worth $110, conversely, if it falls by 10% it would be worth $90. Once tokenized, assets function like money. Tokens can be transferred directly to another individual. You could give a $100 gift of Apple stock directly to someone by sending it to their private wallet. As increasing numbers of companies begin accepting crypto payments, you could begin to pay bills from your asset portfolio rather than from your savings. You could contribute stock or other assets to a worthy cause (assuming of course the beneficiary is willing to accept a tokenized asset as a form of payment, which is becoming increasingly common). Again, the world of DeFi apps is available for active use of your assets to earn returns. Significantly, the stocks are held in trust so that even if Structure itself were to disappear, the token would still maintain the value of the underlying asset. Structure gives you both access to more assets to invest in and new ways to use the assets that you have.