Struct Finance, a DeFi platform that facilitates interactions between investors and digital asset-linked interest rate products, has announced the release of the BTC.Vaults, B-USDC. This new facility is a timely addition to Struct Finance’s Genesis USDC Vaults, and it ushers in a golden age of DeFi yield prospects.
Using Avalanche to leverage Bitcoin in DeFi
The tranche-based Bitcoin are possible using Avalanche’s BTC.B (Bridged Bitcoin) to facilitate the creation of the B-USDC Interest Rate Product for DeFi use cases. The new vault was developed by Struct Finance on top of GMX’s Liquidity Provider Token (GLP) to create fixed returns for Bitcoin and variable returns for US Dollar Coin (USDC) while hedging against volatility and other risks.
Despite Bitcoin’s market dominance, native yield production has historically been difficult due to the cryptocurrency’s lack of a DeFi layer. With BTC.B (Bridged Bitcoin), Avalanche has opened up new doors for Bitcoin in DeFi. Currently, the return on Bitcoin investments in major lending pools ranges from 0.2% to 0.5%. Returns on wBTC-BTC.B items offered by stable swap pools are only around 2%. However, Struct’s BTC.B-USDC product overcomes these constraints by providing vastly improved returns.
“Our BTC.B-USDC Vaults represent an innovative application of Bitcoin in DeFi. We’re taking full advantage of Avalanche’s Bridged Bitcoin (BTC.B) to bring about a fresh wave of opportunities in the digital asset space,” said Ersin Dalkali, the Co-founder of Struct Finance.
BTC.B is generated via the decentralised bridge Avalanche Core and can be linked across networks trustlessly via the Layer Zero bridge, unlike WBTC which relied on centralised bridges.
To eliminate the requirement for acquiring secondary tokens or relying on centralised bridges, BTC.B allows Bitcoin holders to explore DeFi potential on the Avalanche blockchain. BTC.B is an ERC-20 token that represents Bitcoins that have been moved to the Avalanche network.
Risk management with delta hedging
Struct Finance’s Interest Rate Products are an innovative approach to repackage the risk of any yielding DeFi assets in multiple sections to meet your risk profile among the very unpredictable crypto market. This is accomplished through a method called “tranching.” Each Interest Rate Product has two different tranches, each with its own return structure:
- Fixed returns: Conservative investors that want guaranteed returns can benefit from the Fixed-return Tranche.
- Variable returns: Investors with a higher tolerance for risk and a desire for higher returns might take advantage of the Variable-return Tranche.
To provide stable returns, the underlying asset’s yield is initially invested in the fixed tranche. The remaining funds are given to the variable tranche, which gains more direct access to the underlying yielding asset. The yield accrued on the variable tranche may be greater than that of the fixed tranche, less than it, or even zero.
Struct Finance’s BTC.B-USDC Vaults employ an innovative strategy for mitigating investment risk known as delta hedging. The high-yielding fixed tranche may steal the show, but the product’s variable side adds intriguing complexity and opportunities.
The BTC.B in the fixed tranche is exchanged for GMX’s GLP token upon deployment of funds into the vault, creating a short Bitcoin against GLP position and a negative delta. On the other hand, the USDC is exchanged for GLP, which has a positive delta.
This novel delta-hedged architecture effectively counteracts the delta’s negative effects. The end result is a solid plan that gives investors the assurance they need to deal with the volatile nature of the cryptocurrency market.
This deft balancing act between the vaults’ fixed and changing surfaces makes it possible for investors to unlock Bitcoin’s full potential. Struct Finance enables institutional investors with varying risk tolerances can optimise their investment strategies to achieve their desired returns in any market environment.