Shield Vault: How to Navigate a Bear Market with Structured Products

After experiencing the LUNA crash event, the entire market has completely entered a period of stagnation. The days of chasing profits in a bull market are gone, replaced by investors holding a large number of altcoins that they are reluctant to sell at a loss. How to further increase the value of these altcoins during a downward cycle has become the most concerning issue for every investor.

Structured Products

Unlike stablecoins, holding project tokens rarely has low-risk appreciation scenarios that match the project itself. However, earning option premiums by holding spot assets and selling options has become one of the few low-risk cryptocurrency investment choices in a bear market.

For ordinary token investors, learning options trading to become a qualified seller or mastering risk hedging strategies is almost impossible. Thus, structured products issued by option market makers and subscribed to by investors have become a hot choice. Structured products can consist of various combinations of options strategies, among which the most widely used strategy in a bear market is the covered call strategy.

Covered Call

Before understanding the covered call strategy, let's familiarize ourselves with a few options concepts.

• Option: The right to trade the target asset in the market at an agreed price before expiration.
• Strike Price: The agreed price mentioned above is the strike price. The strike price of a call option will be higher than the current price, while the strike price of a put option will be lower than the current price.
• Premium: The option fee that the buyer needs to pay to the seller to purchase the option.

The so-called covered call means holding the spot asset while selling a call option. When the settlement price is below the strike price, the sold call option will earn back the premium paid by the buyer, thus increasing the amount of the asset when the price drops. When the settlement price is above the strike price, the holder profits from the spot asset as it rises, thereby increasing the asset's value in USD terms when the price goes up.

Since profits can be made in both rising and falling markets, the covered call strategy has become the most commonly used recovery strategy for structured products in a bear market.

Shield Vault - Permissionless Structured Product Issuance Platform

Shield Vault is an on-chain structured product launched by Shield, a decentralized option vault (DOV) issuance platform that allows project parties or market makers to apply customized on-chain options strategies without permission, issuing diversified option vaults (SS-Vault/M-Vault/LP-Vault) to improve the risk-return profile of project token holders.

SS-Vault: Win-Win in Both Directions

SS-Vault adopts the covered call strategy as described above, mainly targeting illiquid long-tail assets. Project parties can set different option premium expenditures (APY yield) based on the strike price to issue an option vault that benefits investors in both rising and falling markets. The interface for creating a vault is as follows:

A simple example of an SS-Vault:

Token Name: ABC

Applied Strategy: SS-Covered-Call

Current Token Price at Deposit: 1 ABC = 1 USDT

Strike Price: 2 USDT

Vault Duration: 30 days

Unexercised APY (Token-based): 30%

Exercised APY (USDT-based): 20%

Assuming Alice deposits 100 ABC at the current price, she will face two potential outcomes based on whether the strike price is triggered after thirty days:

Situation 1: At the end of the investment period, the price is greater than or equal to the strike price of 2 USDT, and the option is exercised.

Situation 2: At the end of the investment period, the price is below the strike price of 2 USDT, and the option is not exercised.

During this 30-day staking period, Alice earns premiums (annualized 20-30%) and, if the strike price is not triggered, she earns a token-based yield (annualized 30%), which amounts to 2.47 ABC; if the strike price is triggered, she earns a USD-based yield (annualized 20%), which amounts to 103.28 USDT. With the expectation of limited price increases in a bear market, Alice can continue to hold her assets while additionally gaining token returns.

Traditional Single-Token Staking Becomes a Thing of the Past

Compared to traditional single-token staking mining, which cannot flexibly set incentives based on market prices, leading to excessive incentives that trigger selling pressure expectations, it inherently becomes a game of death spiral.

The Shield SS-Vault applies the concept of options to achieve a revolutionary upgrade:

1. Flexibly set rewards based on the strike price, allowing for more precise market circulation adjustments.
2. Incentive limits: Selling pressure above the strike price is retracted, breaking the death spiral expectation and enhancing holder confidence.

The Call to Arms in a Bear Market

As a permissionless SS-Vault, more and more protocols are applying the Shield Vault protocol to issue vaults to retain holders who have lost confidence in a bear market. At the same time, an increasing number of holders are proposing vault issuance proposals within the community.

Conclusion

Shield is applying professional options methods to reshape the original single-token staking mining, LP token mining (Yield Farming), and other secondary market liquidity incentive methods through the creation of product matrices such as SS-Vault, M-Vault, and LP-Vault. This not only helps token holders recover in a bear market but may also trigger a new "secondary market liquidity management" DeFi 3.0 paradigm revolution, which we eagerly anticipate.