• In January US SEC approved Bitcoin spot ETF,

• In April / May of this year, Bitcoin upcoming mining supply will be cut in half in an event called the “halving”

Bitcoin was trading close to $49,800 as of Tuesday at 11:22am London time1 on Feb 13, which is the highest price since December 2021.

Reason behind the recent rally can be mostly attributed to strong ETF inflow and demand since spot ETF approval. Since January 11, net inflow to Bitcoin ETFs totalled to $2.8 Billion, showing underlying demand for the digital asset:

As the same time, Fidelity Canada quietly allocated 1.2% to Bitcoin in its Fidelity All-in-One Conservative ETF Fund. Again this shows growing demand from investors looking to diversify their portfolios:

Conclusion

We can see that the initial launch of US Bitcoin ETFs has been a success from a number of metrics such as inflow and added portfolio allocation from asset managers.

However, short term price movements of Bitcoin (or any asset) is nearly impossible to predict. As a firm, we advise our customers to use options and fixed income to get exposure to Bitcoin while agnostic to short term price movements. In other words: use options to get hedged exposure to an asset without risking too much.

So far we have seen the strategies performing as intended. We have been successfully helping many accredited investors get risk managed exposure to Bitcoin while carefully controlling the risk of loss. We shall continue to refine and better our products.

Disclaimer: The information provided in this blog post is for educational and informational purposes only and is not intended as financial advice. The content is not meant to provide, and should not be relied upon for investment, accounting, legal, or tax advice. You should consult your own financial, legal, tax, or other professional advisors before engaging in any transaction. The views expressed on this blog are the author's own and do not necessarily reflect the views of any financial institutions or other entities. Investing in financial markets involves risks, and there is always the potential of losing money when you invest in securities. Past performance is not indicative of future results.

Bitcoin is a scarce digital asset and also a technological breakthrough that allows for digital ownership of an asset without worry of double spending or censorship. It can be used as a digital gold or a medium of exchange.

In Bitcoin's programmed cycle, a significant event known as the halving (or "halvening") is set to occur around April or May of 2024. This event will reduce the rate at which new bitcoins are generated by half, effectively slicing the rewards received by Bitcoin miners for their mining efforts.

This halving mechanism is a fundamental aspect of Bitcoin's design, aiming to control the supply of new bitcoins into the market and mimicking the scarcity-driven appreciation often seen in precious metals like gold.

In this post, we will be covering:

• What is Bitcoin halving?

• Why does halving matter?

• How does this affect Bitcoin?

Let’s dive in.

What is Bitcoin halving?

“Halving” is the cut in upcoming supply of Bitcoin produced by Bitcoin miners. Let’s see how this works:

• Bitcoin is a network of computers that runs the same software - the Bitcoin software1.

• The computers do work on behalf of the Bitcoin network. The computers are referred to as “miners”. 2

• The miners help the Bitcoin process transactions, such as transfers of Bitcoins between people.

• After processing a transaction, one of the miner computers will earn a reward in the form of Bitcoins. These are called “Mining Rewards”. Currently a miner earns 6.25 Bitcoins for successfully processing a batch of transactions. This means the miner is award with about $240,000 USD worth of Bitcoins based today’s price.

• Upon Bitcoin halving, the Mining Rewards will be cut to 3.125 Bitcoins per batch of transactions from 6.25 Bitcoins. 3

• The Bitcoin software states that after every 210,000 batches of transactions4, the mining rewards will be cut in half. The halving process is enforced through computer source code.

The following is a quick visualization on how much Bitcoin is issued to the miners vs its price:

Why does halving matter?

The halving policy was written into Bitcoin’s software to counteract inflation by maintaining scarcity. 5 Digital scarcity enforced through computer algorithm gives Bitcoin its value.6

Post previous halving events, we have seen impressive growth in USD settlement volume and new participants in Bitcoin’s network.

Bitcoin network’s total settlement value in USD has seen exponential growth post halving. This means

1. More users enter into the Bitcoin network before and after the halving event, and

2. Increased transaction and usage of Bitcoin’s network

How does this affect Bitcoin?

Since the most natural source of selling Bitcoin are miners, the selling pressure of Bitcoin on a daily basis declines after the halving event.

Currently there are approximately 27,000 Bitcoin mined on a monthly basis. At price of $40,000 per Bitcoin, the monthly selling pressure from miners is about $1 billion. After the next halving, miner monthly selling will decrease to 13,500. Should demand remain the same, the price of Bitcoin would increase. 7

Historically, price and volatility of Bitcoin have dramatically increased post previous halvings:

Conclusion

Bitcoin halving is a once in a 4 year event that deserves attention. During the previous halvings we have seen dramatic price movements of Bitcoin. Historically the event captures the attention of existing investors as well as attracts incoming capital flow of new investors.

Combining this with the recent Bitcoin ETF approval, we are keen to observe the capital flow and analyze the pattern for the capital for Bitcoin as a bourgeoning digital commodity.

Disclaimer: The information provided in this blog post is for educational and informational purposes only and is not intended as financial advice. The content is not meant to provide, and should not be relied upon for investment, accounting, legal, or tax advice. You should consult your own financial, legal, tax, or other professional advisors before engaging in any transaction. The views expressed on this blog are the author's own and do not necessarily reflect the views of any financial institutions or other entities. Investing in financial markets involves risks, and there is always the potential of losing money when you invest in securities. Past performance is not indicative of future results.

What happens next after the approval? Here are some of the key takeaways.

Increased Liquidity

Investors now have an easy to access vehicle to get direct spot exposure to Bitcoin mostly without worrying about custody or the underlying technology nuances.

Before the ETF, if an investor want Bitcoin exposure, they have the following options:

1. Purchase spot Bitcoin through a crypto exchange

2. Buy a close-ended trust fund named GBTC (only available to accredited and institutional investors)

Buying spot bitcoin has custody as well as theft risks. GBTC was gated for most investors and it has limited liquidity. With the introduction of the ETF, investors with a brokerage account can buy one of2 the Bitcoin ETFs easily and without worrying about custody risk.

Increased access to Bitcoin will increase the overall liquidity of the market. Higher liquidity will reduce cost of trading Bitcoin over time.

Bitcoin Derivatives

Before the ETF, Bitcoin’s derivative markets are consisted mostly of perpetual futures traded on off-shore exchanges of questionable legality. There were no Bitcoin option markets3 traded on a regulated exchange in the US. If needed to trade with size, there are various liquidity providers and market makers who might trade option contracts on Bitcoin governed under an ISDA agreement.

With the availability of an exchange traded ETF, we expect exchange traded options to become available in late 2024. We also expect capital to flow from off-shore to on-shore regulated trading venues as the industry matures.

About 7 years ago, in 2017, CME launched Bitcoin futures. At that time, Binance and Bitmex dominated the futures open interest. Today, CME commands the #1 spot for futures open interest for Bitcoin. We expect the same for options for Bitcoin when it launches later this year or early 2025.

Conclusion

After the ETF, we look forward to Bitcoin’s halvening event in April or May of this year. We will have a different blog post about this unique to Bitcoin event.

The Bitcoin ETF broadens access to Bitcoin as an asset class. Bitcoin is a unique digital asset that is analogous to gold (store of value) as well as medium of exchange. We expect activities across both spot as well as derivative markets will continue to grow. These developments will serve to increase adoption of crypto as alternative financial rails.

Disclaimer: The information provided in this blog post is for educational and informational purposes only and is not intended as financial advice. The content is not meant to provide, and should not be relied upon for investment, accounting, legal, or tax advice. You should consult your own financial, legal, tax, or other professional advisors before engaging in any transaction. The views expressed on this blog are the author's own and do not necessarily reflect the views of any financial institutions or other entities. Investing in financial markets involves risks, and there is always the potential of losing money when you invest in securities. Past performance is not indicative of future results.

Is crypto dead? Is this it for the industry?

It is not an exaggeration to say that sentiment was pretty close to an all time low. The news headlines were not helping:

• FTX, once the second-largest crypto exchange, declared bankruptcy just a month and half prior, in November 2022, after an incredible run on exchange. This is a major blow to the confidence of the industry.

• Genesis, one of the largest market makers and lenders in crypto, declared bankruptcy in January 2023.

• In March 2023, two of the crypto-friendly banks, Signature and Silvergate, both failed, dealing a blow to the crypto-to-fiat currency infrastructure. Many said that this would cut off the fiat supply to crypto for years to come.

…And so on. There were no shortage of negative headlines month after month. We simply became unsensitized to the noise and continued to build.

Ironically1, January 2023 also marked a bottom2 for crypto prices:

Despite the onslaught of negativity, the industry chugged along for the rest of 2023 - leaving the bad actors behind and learning from its mistakes.

2023 - Our Investment Performance

• We start tracking performance since launch on September 25, 2023, and marked-to-market as of December 21, 2023

• +7.5% average net investment return (ROI) across all client book

• Across the client book,

  • The highest ROI is +17.46%

  • The lowest ROI is -1.015%

• All of the returns are achieved while keeping principal 93% hedged at all times

For detailed performance calculation methods, please feel free to contact us.

Company Progress

Back in 2022, we had an idea: to use financial derivatives as lego pieces. The lego pieces can be assembled together into new and better financial products for investors. We call this “composable options”.

Here is our progress in 2023 to turn the idea into reality:

1. Dec 2022

   1. Began engaging with Alberta Securities Commission on Fig Investments’ platform.

2. Jan 2023

   1. Fig’s beta platform was developed. Opened platform for beta testing on technical features.

   2. Introduced Thesis Builder to help investors better understand how the investments are created and what is possible with options and derivatives.

3. Feb 2023

   1. Backtesting of option based investment strategy performance. Benchmarking returns vs buy and hold.

   2. Onboarding option market maker and liquidity providers.

   3. Various feature improvements

4. April 2023

   1. Changed our name from Fig Finance to Fig Investments to better reflect the company’s business

5. June 2023

   1. Integrated options data for select equities, such as Tesla, Nvidia, Apple, and Coinbase, to test our structuring engine’s robustness.

   2. Further testing of principal hedged notes specification.

   3. Testing of settlement procedures of notes

   4. Test trading against our counterparties

6. July 2023

   1. Internal testing of trading and settlement of options with counterparties

   2. Additional custody, banking, and infrastructure setup for flow of funds.

7. Sept 2023

   1. Received regulatory approval via exemptive relief from ASC and BCSC

   2. Soft launch of Fig Investments’ platform

   3. Successfully graduated from Alberta Innovates' Digital Traction program and grant

8. Oct 2023

   1. Mr. David Schaffer joins Fig Investments as strategic advisor

   2. Received inbound institutional interest from asset managers, advisors, and investment firms in Canada, Switzerland, and US for Fig Investments’ software platform as a service

9. Dec 2023

   1. Achieved over $2 million in total derivative volume

   2. On track to reach over $2 million in AUM by Q2 2024.

   3. Began work on version 2 of Fig Investments’ platform3

Themes We are Watching In 2024

• Bitcoin’s halvening event is expected in April 2024. Historically Bitcoin’s price has increased just prior to and shortly after the halvening event.

• Are rate cuts coming or are we “higher for longer”? The FOMC median forecast implies 3 rate cuts next year. We think the markets may have been too eager to price in cuts.

• Is Trump going to be the president again? What would a Trump second term look like?

• Where and when is the Bitcoin ETF? Although Canada already has a spot ETF live and trading, we have yet to see a Bitcoin ETF in the US. Will we see a US based Bitcoin ETF approval in 2024? We think so.

To Our Earliest Customers

We would like to thank all of our earliest customers for your support. All early customers will receive exclusive updates from Fig Investments on our product and company updates. Stay tuned.

Cheers to a prosperous 2024!

Disclaimer: The information provided in this blog post is for educational and informational purposes only and is not intended as financial advice. The content is not meant to provide, and should not be relied upon for investment, accounting, legal, or tax advice. You should consult your own financial, legal, tax, or other professional advisors before engaging in any transaction. The views expressed on this blog are the author's own and do not necessarily reflect the views of any financial institutions or other entities. Investing in financial markets involves risks, and there is always the potential of losing money when you invest in securities. Past performance is not indicative of future results.

Most people think of this:

Day trading is markedly different from professional trading. Institutional traders have specific mandates, performance attribution, scope, and risk parameters in their job.

At Fig Investments, we trade options with the following two goals:

1. To hedge all the structured notes obligations that we have to our customers.

2. To source and fulfill requests for liquidity of redemption requests.

Let’s dive deeper.

Options & Fixed Income Trading

At Fig Investments, our goal is to help investors get risk managed returns on Bitcoin and Ether using structured option strategies - known as structured notes.

We trade when:

1. A customer buys a note.

2. A customer submits a request to redeem a note early.

When we trade, we are obligated to:

1. Fulfill the order within 30 minutes during Canadian business hours.

2. If we cannot fulfill the order, then we will cancel (kill) the order and refund the proceeds to our customer without fees.

Circumstances in which we cannot fulfill the order:

1. Absence of liquidity - we cannot buy or sell at the size to hedge the obligation.

2. Price moves against a customer’s order price.

3. Order is placed outside of Canadian business hours.

Where & how do we trade:

1. US T-bills: we trade US t-bills via our Canadian onshore brokerage.

2. Bitcoin and Ether options: we trade over-the-counter (OTC) bilateral option contracts1 with market makers such as B2C2.

3. All orders are placed as limit orders. This means that they can only be fulfilled if the quoted price is better than the order price.

4. We maintain direct voice channel with all of our counterparties to confirm trades, usually within minutes.

5. We maintain a diversified set of counterparties to ensure the quotes provided on the option contracts are competitive. We compare quotes provided vs a theoretical price called a “mark price” to ensure the price is reasonable while executable.

After Trade Management & Settlement

After a trade is completed:

1. We book the structured note on the customer’s account either immediately or within 1-3 business days

2. Trades are immediately funded, which means USD are immediately sent to the counterparties to settle the delivery of the securities

3. We reconcile the notes and decomposing instruments on our books vs the cash and instruments that we carry on a daily basis

Safeguard Measures

1. Customer USD and CAD cash are held at a bank account segregated from Fig Investments’ corporate capital

2. US t-bills are held at a qualified custodian in Canada, segregated from company’s own brokerage account

3. We do not engage in proprietary trading of customer’s funds and securities. This means we will not be buying or selling the US t-bill and the option contracts without customer knowing

4. Fig Investments’ corporate entity, Volatility Labs Inc, maintains regulatory capital to cover for the unlikely scenario of loss of note’s principal

5. We continuously fundraise from private equity and venture capital markets to fund our operations and ensure stability of operations.

To Learn More

Please visit us at https://fig.investments.

Since launching about 2 months ago, we are very grateful for the support of our customers. Please subscribe to keep updated on our developments. Alternatively feel free to email gm@fig.investments for all your questions.

Disclaimer: The information provided in this blog post is for educational and informational purposes only and is not intended as financial advice. The content is not meant to provide, and should not be relied upon for investment, accounting, legal, or tax advice. You should consult your own financial, legal, tax, or other professional advisors before engaging in any transaction. The views expressed on this blog are the author's own and do not necessarily reflect the views of any financial institutions or other entities. Investing in financial markets involves risks, and there is always the potential of losing money when you invest in securities. Past performance is not indicative of future results.

Customers may contact us to submit a redemption request. After the request is sent, here’s what happens under the hood.

1. Fees and Cost

Until September 2024, all early trading fees are waived, meaning there is a $0 early trading fee for all customers. After September 2024, a 0.5% early trading fee on the note's principal will be charged if the redemption is successful.

We do not charge a spread2 on the options for early redemptions. This means the price we receive from our trading partners is what you get.

2. How is my note’s redemption value determined?

As mentioned in our prior posts, structured notes are nothing more than a combination of long positions3 in:

1. US treasury bill, and

2. Call options on an underlying asset, such as Bitcoin.

Therefore:

Redemption Value = T-Bill Bid Price + Options Bid Price

Where:

• Redemption Value is the note’s total redemption value

• T-Bill Bid Price is the price at which the t-bill within a note’s underlying portfolio4 can be sold

• Options Bid Price is the price at which the options of a note can be sold

To determine the redemption value of a principal-hedged note, we need the closing bid prices of both the T-bill and the option contracts.

Redemption Value Example:

September 25, 2023: a customer bought a Bitcoin index linked principal hedged note for $100,000. The note has the following underlying portfolio:

1. $95,000 was used to buy a US t-bill

2. $5,000 was used to buy a set of call options

December 3, 2023: the customer needs to redeem the note to buy a car. Suppose we can get the following quotes on December 3, 2023 for the various instruments:

1. The US T-bill has a bid-side quote of $97,000 through our broker's exchange

2. The call options has a bid side quote for $12,000 through one of our option trading counterparties

Hence, the redemption value of the note would be:

$97,000 + $12,000 = $105,000

3. How Do We Trade to Close the Positions?

US T-Bills

We trade US T-bills through an exchange via our onshore broker. After settlement the proceeds and the security are custodied at an onshore qualified custodian.

US T-bill is one of the most liquid instruments in the market. Bid and ask spread, which is an indication of liquidity, is usually between 2 - 10bps.5 These exchange traded fixed income has market hours of between 5am to 2pm pacific time.

This means we can place a trade for a t-bill and be fairly certain that we will get the proceeds at close to fair market value.

Option Contracts

We trade the option contracts through our trading counterparties6. These counterparties would provide a closing bid7 to Fig Investments, indicating the price at which they are willing to close the option contact, if any. 8

Before placing a closing trade, we will provide an indicative quote to the customer on the redemption value to confirm whether to proceed.

Over-the-counter Bitcoin and Ether option contracts may be quoted 24/7, depending on the specific trading counterparty.

4. How Do I Receive the Redemption Proceeds

After confirming and settling9 redemption value of the note, the proceeds are wired via SWIFT to customer’s bank account of choice.

Wire payments are typically received within 24-48 business hours.

Uncompromising Transparency

Fig Investments does not take the opposite side of a customer's trades. This means we show you exactly the market price that can be obtained for the T-bills and options from available counterparties, both on the buy and sell sides.

If we charge you a fee on the cost, we will disclose it to you directly via Fig’s platform.

There are no hidden or opaque calculations and fees.

About Fig Investments

Fig Investments specializes in using

• Options

• Fixed Income

To help investors achieve risk managed returns on Bitcoin and Ether.

To learn more, please visit us at https://fig.investments.

Disclaimer: The information provided in this blog post is for educational and informational purposes only and is not intended as financial advice. The content is not meant to provide, and should not be relied upon for investment, accounting, legal, or tax advice. You should consult your own financial, legal, tax, or other professional advisors before engaging in any transaction. The views expressed on this blog are the author's own and do not necessarily reflect the views of any financial institutions or other entities. Investing in financial markets involves risks, and there is always the potential of losing money when you invest in securities. Past performance is not indicative of future results.

Year-to-date in 2023, Bitcoin has outperformed almost all major global equity, fixed income, and commodities indices2

Is Bitcoin Going To $20,000 or $100,000 Next?

One of the biggest mistakes in investing is to think you can time the market. The truth is: you can’t predict short term price movements3.

But here is what we know about Bitcoin:

1. It is a technological breakthrough that allows for digital ownership of an asset that no one entity controls

2. It behaves like a digital gold or commodity

3. It is increasingly being used for settlement, payment, or store of value

If you think Bitcoin could go higher over long run, you should think like a professional investor or trader: risk management.

How to Think Like a Professional

Here is the investing mental framework of the best investors in the world:

1. Begin with the end in mind. Have an investing goal and stick to it. 4

2. Set asset allocation as a % of total portfolio.

3. Set proper risk expectations: know your return targets vs max loss possible.

4. Actively monitor performance vs expectations.5

💭 Top investors and traders globally, be they individuals or institutions, typically share a similar mental approach.

But Most Investors Fumble On Risk…

Mike Tyson once said:

“Everyone has a plan: until they get punched in the face”

In the context of investing: properly risk managed portfolios allows you to take “punches”6, whether you anticipate them or not. That’s why risk management is so important.

Always be asking: what’s the worst thing the market can do to your portfolio?

Yet most investors fumble on risk management. Why? Because it can be so arbitrary.

Especially Bitcoin: it is statistically possible, and probable, that Bitcoin may +/- 70% in a given year7.

How do you plan to deal with that? Or more importantly, how to control your greed or fear if it moves up or down very quickly?

Here is our experience.

Use Options Like Professional Money Managers

At Fig Investments, we use options as tools to help investors capture returns on assets with defined risks.

What do we mean by this?

If you have heard of options before, you would know they can be used to:

1. Speculate

2. Hedge

Most importantly:

Options give investors a controlled exposure on an asset with defined risk. 8

Using our proprietary framework, we combine option positions9 together in define structures, called structured notes, to help investors capture returns on Bitcoin while controlling max loss.

A Case Study

• We recently helped an investor capture up to 70% of the recent upside on Bitcoin

• While controlling the maximum portfolio draw down to 12%.

• Bitcoin went up 50% in during the period and the investor captured 35% of the gains while knowing they cannot lose more than 12% of their principal at any given point in time.

Result:

We help the investor to create options portfolio that gave them a controlled exposure to Bitcoin with defined target returns while hedged with a max drawdown.

The Only Surgical Investment Tool

Sophisticated investors use options to methodically capture returns, not to purely speculate.10

Building a proper options portfolio requires lots of

• Thought,

• Math, and

• With end goal in mind.

However, options are complicated. They are high dimensionality instruments that has different:

1. Maturity dates

2. Strike prices

3. Trading and liquidity venues

4. Option greeks like delta, gamma, theta, etc

5. Margin requirements

Managing all these factors can be a headache - even for most professionals.

That’s where Fig Investments come in.

Learn More

Backed by our decades of experience in trading, portfolio management, and hyper scale software backgrounds, Fig Investments specialize in using options as tools to help our customers to capture returns on Bitcoin.

To learn more, book a free 1-1 call with us 👇

Book Free Consultation With Us

Or alternatively, visit our website at https://fig.investments.

Thank you for reading!

Disclaimer: The information provided in this blog post is for educational and informational purposes only and is not intended as financial advice. The content is not meant to provide, and should not be relied upon for investment, accounting, legal, or tax advice. You should consult your own financial, legal, tax, or other professional advisors before engaging in any transaction. The views expressed on this blog are the author's own and do not necessarily reflect the views of any financial institutions or other entities. Investing in financial markets involves risks, and there is always the potential of losing money when you invest in securities. Past performance is not indicative of future results.

TL;DR:

Fig Investments uses traditional banking rails + tried and true processes to deliver our innovative Bitcoin-linked principal hedged notes.

But let’s dive deeper.

Let’s explore the journey of a dollar that goes into a Fig Investments note and see how we safeguard customer’s funds.

Step 1: Funding Account

After KYC and passing our compliance, customers can fund their accounts via wire transfer.

After the wire is received, we match the wire with the customer account and customer can see their account credited with the funds usually 24-48 Canadian business hours.

🔒 How do we Safeguard Customer Funds?

• Strict segregation of customer vs company capital - customer wires point to a specially designated bank account that is distinctively separated from company working capital accounts

• Our banking and trading partners are onshore and regulated financial institutions in 🇨🇦

• No offshore banking arrangements

Step 2: Buying a Note

After account is funded, customers can check their accounts online. When they are ready, they can buy a structured note directly on Fig’s platform by placing a trade.

Upon receiving the wire, all customer funds will immediately be transferred to our onshore custodian for safekeeping. Our custodian also handles fixed income trading and custody.

After a trade is placed, our trading desk has 30 minutes to either:

• Fulfill and book the order, if the price is better than what customer sees on screen, or

• Kill the order, if the price moves against the customer. No fees or cost and the cash balance of the account is updated thereafter.

🔒 How do we Safeguard Customer Funds?

• A One-Time-Pin (OTP) is sent to the customer's email to confirm every order placement

• All orders are fulfilled with dual manual checks before booking the note on customer account

• All orders are executed as either 'fill' or 'kill', ensuring no unexpected costs or additional fees arising.

Step 3: Settlement

After note is booked, then we will register the following two securities on our books:

1. A US Treasury Bill Instrument - custodied at a qualified custodian.

2. A long-only OTC Bitcoin or Ether option contract with a counterparty such as B2C2

To reduce custody and security risk, we do not trade or custody spot assets in cryptocurrencies like Bitcoin and Ether.

🔒 How do we Safeguard Customer Funds?

• No proprietary trading - we do not trade instruments held on behalf of customers outside of our regulated activities

• Dual approval before execution of any trade

• Document procedures to ensure robust calculation of index returns in the event of market disruption that prohibits the calculation of Bitcoin index returns

• Daily reconciliation of books and trading records

• Quarterly reporting to our principal regulator, Alberta Securities Commission, which includes our company’s working capital, AUM, and company’s financial health

• We do not trade or hedge with spot Bitcoin and Ether or other crypto currency assets - significantly reduce custody and operational risks

Step 4: Payment and Withdrawals

At maturity, all USD maturity proceeds from US T-bill and option contracts are consolidated from our custodians and counterparties into our customer segregated bank account. The payout from a note is based on a customer’s booked term sheet.

Then the payment is delivered to the customer via bank wire after confirmations

🔒 How do we Safeguard Customer Funds?

• We maintain regulatory capital to cover the note principal in the event of unlikely losses resulting from operational issues

• We use traditional financial rails for fund flow and settlement which has well documented processes and risks

• Wire transfers ensure fast, secure processing of payments and withdrawals.

All of this is wrapped behind our beautiful UI, easy-to-use work flow, and exchange-like interface.

For more information:

Website: https://fig.investments

Documentation: Click Here ↗️

Email: gm@fig.investments

Disclaimer: The information provided in this blog post is for educational and informational purposes only and is not intended as financial advice. The content is not meant to provide, and should not be relied upon for investment, accounting, legal, or tax advice. You should consult your own financial, legal, tax, or other professional advisors before engaging in any transaction. The views expressed on this blog are the author's own and do not necessarily reflect the views of any financial institutions or other entities. Investing in financial markets involves risks, and there is always the potential of losing money when you invest in securities. Past performance is not indicative of future results.

Question:

What backs the structured notes that Fig Investments sells?

Answer:

🛠️ Engineering and 🔎 Transparency.

What are Structured Notes?

Quite simply, structured notes are nothing more than a basket of financial instruments:

PrincipalProtectedNote = Option[] + US-TBill

For principal protected note:

• Think of it as a mini portfolio

• Buying a principal protected note is equivalent to purchasing a US T-Bill and a set of options

• The principal is guaranteed by the US T-Bill upon maturity

• The options provide the payout on the note for when the underlying asset goes up and capped losses (to the premium) when the asset goes down

What are T-Bills?

A t-bill, or a treasury bill, is a form of government debt security. The t-bill that Fig Investments buy are issued by US Department of Treasury. They are short term investments, typically maturing from a few days up to 52 weeks. US t-bills are backed by the U.S. government.

For a principal protected note, the t-bill promises the return of principal.

What are Options?

Options are financial contracts that give the buyer the 'option' to buy or sell an asset at a defined price.

Example: a Bitcoin call option1 with $40,000 strike price that expires on March 25, 2024 will have the payoff that looks like this:

On maturity:

• If Bitcoin price < $40,000, then the max loss is $1,000, which is the premium

• If Bitcoin price > $40,000, then the gain is (Price - $40,000)

Structured Notes on Fig Investments

Combining US-Tbill with options, we can engineer a structure that looks like this:

• Total Note Principal: $100,000

• T-bill Principal: ~$96,700 (matures to $100,000)

• Bitcoin Options: ~$3,300(used to buy a call spread on Bitcoin with strike price of $40,000 and $95,000)

• This combo promises you principal protection while giving you a ~20% upside participation on Bitcoin

• On the backend, Fig’s structuring engine double checks all factors in building the note, such as pricing, liquidity, fulfillment, spread, volatility, and accounting for individual instruments. All within 3 seconds! 🚀

100% Backed By Transparency

Since structured notes are nothing more than its composing instruments, they are inherently backed by the underlying assets they are composed of - the Treasury bills (T-bills) and the options.

At Fig Investments, we transparently show our customers the composing instruments as well as proof of reserve - a transaction record on the fact that we 100% hedge every single obligation of the structured notes on our books. No exceptions.

• Transparent term sheets: What you see on the screen is what we guarantee for fulfillment, or you get your money back. You can see the fees, spread, cost, and time of fulfillment

• Backed by 1-1 hedging. For each note, customers can see the note composition as well as the transaction record of our hedge. Transaction records are transparently attached to every note sold through Fig Investments

• Segregation of customer assets from company capital. The principal of a principal protected note, which is guaranteed by the US-Tbill upon maturity, is held at a qualified custodian and is strictly segregated from our company’s working capital

Fig Investments - 100% Backed Structured Notes

At Fig Investments, we take great pride in our ethos on:

🔬 Transparency

⚙️ Efficiency

🌎 Inclusivity

To make structured products accessible for everyone.

For questions, please do not hesitate to reach out to us at gm@fig.investments.

Disclaimer: The information provided in this blog post is for educational and informational purposes only and is not intended as financial advice. The content is not meant to provide, and should not be relied upon for investment, accounting, legal, or tax advice. You should consult your own financial, legal, tax, or other professional advisors before engaging in any transaction. The views expressed on this blog are the author's own and do not necessarily reflect the views of any financial institutions or other entities. Investing in financial markets involves risks, and there is always the potential of losing money when you invest in securities. Past performance is not indicative of future results.

Investing in Bitcoin, an asset notorious for its volatility, presents a considerable challenge, particularly when it comes to forecasting its short-term price movements. There are two main trading philosophies to consider:

• Mean Reversion: This theory posits that prices tend to revert back to the average over time.

• Momentum: This belief holds that current trends are likely to continue moving in the same direction.

However, determining which price philosophy applies to Bitcoin is not straightforward. In my experience as a portfolio manager, the common refrain from seasoned professionals is "it depends," which underscores the complexity of market price dynamics and the difficulty in predicting them.

The secret to success in Bitcoin investment is not found in precise prediction but in effective risk management. The true challenge lies in handling the outcomes when predictions fail.

Here are several strategies to manage investment risks while exploring the potential rewards of Bitcoin:

1. Diversification: Limit Bitcoin to a reasonable segment of your total investment portfolio. This preparation for any outcome, including total loss, is crucial when dealing with high-risk assets.

2. Position Management: Implement tools such as stop-loss orders to curb your exposure. If Bitcoin's value dips below a certain threshold, reducing your position can help protect your capital.

3. Derivative Use: Structured products and derivatives can offer a hedge against your investment, capping potential losses while still allowing for gains.

At Fig Investments, we specialize in risk-managed solutions designed for Bitcoin investors. For instance, we offer a principal-protected note that promises a 10% upside on Bitcoin while also providing complete principal protection. This product combines U.S. Treasury Bills and Call Options to offer hedged growth opportunities.

This strategy provides the following benefits:

• ✅ The chance to earn returns if Bitcoin's value increases.

• 🔐 Principal protection in the event of a Bitcoin downturn.

It's a balanced approach to risk management that mitigates the fear of missing out (FOMO). Nevertheless, a word of caution: Derivatives can be complex and potentially risky if not used correctly. It's essential to fully understand the fees, risks, and total costs associated with any financial product.

At Fig Investments, we pride ourselves on transparency, with all fees and product details openly disclosed. This commitment to clarity has earned us the trust and appreciation of our customers.

For more detailed information, consider visiting Fig Investments.

Remember, it's crucial to conduct thorough research and possibly consult a financial advisor before making any investment decisions, as this blog post is not intended to be financial advice.

FOR IMMEDIATE RELEASE

Veteran wealth management executive, David Schaffner, joins Fig Investments as Strategic Advisor

Schaffner’s role will help Fig realize its vision to disrupt the traditional structured notes market, and scale it to the next level of growth. 

Vancouver, BC, November 2, 2023 — Volatility Labs Inc. (“Fig Investments”), a Canadian fintech company, is thrilled to announce that David Schaffner, CFA, has signed on as a Strategic Advisor. Schaffner is poised to provide invaluable guidance with his wealth of knowledge and distinguished career in asset and wealth management as the startup embarks on its next phase of growth in democratizing the structured products market.

“I’ve always been bothered by the typical structured notes offered by banks. Most investors who are sold a structured note don’t know what it is and how it works. Through Fig’s software platform, investors will not only gain more transparency to this product and its fees, they will also learn the mechanism of how it works. This platform is a good thing for the financial industry. It’s a good thing for consumers,” Schaffner remarks about his decision to advise Fig.

David’s career and executive experience spans across decades. He was the President and CEO of Leith Wheeler Investment Counsel for 8 of his 15 years there.  During his time in management the firm’s assets under management grew from $4B to $13B. Most recently, he was the President and CEO of CWB Wealth Management until 2020, when he transitioned into semi-retirement as a strategic wealth consultant. In his role at CWB Wealth Management, David established Canadian Western Bank’s wealth management division through launching CWB Wealth Management, integrating its various bank-owned wealth subsidiaries, and launching its proprietary mutual funds. 

“We are extremely excited to work with David as the Company’s strategic advisor. We’re looking forward to leveraging his tenured strategic and business acumen to help us scale Fig’s structured products platform to the next level. We are humbled to get his support as we move forward with our mission to democratize structured products for investors across the world”, says Guanzhi Ma & Tony Qian, Co-Founders of Fig Investments. 

Fig Investments’ mission is to democratize structured products. Fig's innovation seeks to bring transparency and inclusivity to the trillion-dollar structured note market, which is currently dominated by traditional investment banks. Through its software platform, investors can customize, trade, and monitor structured notes as easy as trading other financial instruments like stocks or ETFs. 

For more information about Fig Investments, visit https://fig.investments. 

About Fig Investments

Fig Investments was co-founded by Guanzhi Ma, CFA and Tony Qian in Edmonton, Alberta in 2022. The company's co-founders have deep industry experience in fixed income portfolio management and hyper-scale software engineering. With cutting-edge technology and a strong commitment to regulatory compliance, Fig is set to revolutionize the $10+ trillion structured products market.

By focusing on transparency, efficiency, and inclusivity, Fig is redrawing the boundaries of the investment landscape, opening a world of unprecedented opportunities for investors and institutions globally.

Media Contact:

Guanzhi Ma, CFA

CEO & Co-Founder, Fig Investments

Phone Number: 780 700 5056

gm@fig.investments 

Edmonton Address:

10008 32 Avenue NW

Edmonton, AB T6N 1G7

Vancouver Address:

Suite 2400

745 Thurlow Street

Vancouver BC V6E 0C5

Blockchain technology can significantly enhance transparency, reduce costs, and foster trust in this trillion-dollar system. By moving derivative trading and settlement on-chain, counterparties can track collateral movements in real time, allowing for immediate settlement without overnight risk. The irreversible nature of transactions also increases trust between parties. A recent trade between JP Morgan and Barclays, where tokenized iShares Money Market funds were transferred on a private blockchain to settle a derivative contract, showcases the potential of this application.

On the partnership, Guanzhi Ma (CEO & Co-Founder, Fig Investments) remarks:

“ As noted in our regulatory approval, our ultimate mission is to bring derivatives settlement on to a public blockchain. To speed up our development process and ensure robustness, we’ve partnered with Uniblock to exclusively provide the tooling and support in our mission to bring the settlement protocol on-chain. We see significant value in Uniblock’s platform that unifies all of web3 development needs into a single platform” 

Similarly, Kevin Callahan (CEO & Co-Founder, Uniblock) says:

“Uniblock is excited to work with Fig Investments because we firmly believe that real world assets will be one of the next big unlocks for Web3, helping to expose millions of people to the technology with a strong and tangible use case.”

As we begin our protocol development process, we are excited to share with you our various challenges, learnings, and milestones. We invite all stakeholders to join us on this journey to use blockchain to improve and build upon our financial system for the betterment of all.

About Uniblock

Uniblock empowers Web3 developers by providing a single platform with access to all essential Web3 tools. We offer normalized data across various Web3 platforms, complete with backup and error handling. Our goal is to consolidate the top Web3 integrations into one comprehensive toolkit, allowing developers to scale their projects seamlessly. We're committed to partnering with leading tools like Alchemy, ThirdWeb, Moralis, Parsiq, and QuickNode to streamline integrations across all Web3 categories, including DeFi, GameFi, NFTs, Tokens, Security, On-ramp, and more. With Uniblock, developers can trust in the consistent delivery of their data, even in the face of service disruptions.

Website | Blog | Twitter | LinkedIn | Discord | YouTube

About Fig Investments

Fig Investments helps investors get risk managed exposure to Bitcoin and Ether through its regulated principal hedged notes platform. Using technology and prudent risk management systems, Fig Investments is on a mission to make innovative crypto investment products available for investors worldwide. 

Website | Blog | Twitter | LinkedIn

Contact:

Kevin Callahan

kevin@uniblock.dev

Guanzhi Ma, CFA

gm@fig.investments

When Fig launched on September 25, we have received overwhelming amount of interest from various prospective customers, institutions, and investors. We are very thankful for our early supporters and are working non-stop on the next steps in our product roadmap to bring to you a suite of risk managed Bitcoin investment products.

One question that keeps arising is: why did you choose Bitcoin as the first asset for Fig's structured notes instead of stocks?

This is because I fundamentally believe Bitcoin would and should serve as a diversifying asset class in most investors’ portfolios. Let me explain why.

What I think Bitcoin is Not

It is helpful to begin with what I believe Bitcoin would NOT become.

I believe Bitcoin is not and will not be currency to be adopted by any country with strong sovereign power over its citizens. A country adopting Bitcoin as its currency will lose its sovereignty.1

Historically and until now, money and politics have rarely separated. In the eyes of a government, fiat currency is nothing but a means to influence the behaviour of its citizens within its military enforced sovereign soil. Taxes, currency base, distribution of fiat money, and recognition of legal tender are used to incentivize its citizen’s behaviour to influence the production of goods and services that the country’s elected leaders deem to be most important for the country’s survival. In the context of global trade, monetary system is used to influence production in areas that are valuable to other nations through trade.

Then What is Bitcoin?

If not a country’s currency, then what is Bitcoin? I think it is too binary to think that Bitcoin will either become a currency or not. That line of thinking does not take into account of its unique digital nature - it seems that most investors apply framework for evaluating gold to Bitcoin. Historically gold has served as an alternative money. But due to its lack of fluidity and arbitrary supply mechanic, its usefulness has been limited to an “inflation or chaos hedge”.

Bitcoin has several unique properties that makes it inherently different than gold, or any other asset in the world.

1. It is digitally scarce.2

2. It is an extremely fluid asset that can be transported to anywhere in the world without deterrence.3

3. It is a decentralized and censorship resistant ledger network that is theoretically more robust during times of stress.4

Bitcoin Use Cases

Given these unique attributes, Bitcoin is similar to gold but could play a more intimate role in the financial system. Like a fine wine, all it needs is time.5 I am looking at Bitcoin from a pragmatic lens in the context of investment portfolios. Below are some possible use cases of Bitcoin which I think are possible:

1. Bitcoin becomes a fluid collateral6 used by financial institutions in their borrowing and lending operations. Due to the Bitcoin ledger’s transparency and the fact that transactions cannot be deleted from the blockchain, using Bitcoin as collateral has its benefits of improved trust between counterparties. Because of its digital and transparent nature, one cannot rehypothecate Bitcoin. This significantly reduces risk of unintended leverage and makes the financial system safer. 7

2. It evolves into a parallel financial system that works in distress situations like wars and catastrophe. During times of hostility, financial systems are likely weaponized with unintended consequences. Bitcoin, without a centralized entity controlling the operations of the network, can operate even if nation states’ financial systems are either controlled or paralyzed. For example: sending units of value (Bitcoin) to family and friends in places of distress like Ukraine. Gold cannot serve this role.

3. It is a store of value. I know this sounds paradoxical. Money is nothing but a social contract with a set of expectations shared among a group of consenting participants. For example: my fellow Canadians and I expect the Canadian dollar to be worth a certain amount of goods and services with a minimal volatility in annual price fluctuation (i.e. 2%). Using the same train of thought, gold is worth a certain amount of goods and services with a moderate amount of price volatility. If enough consenting participants agree to participate in Bitcoin’s system, then they would agree that at its current state, Bitcoin is a unit of account that is worth approximately $28,000 USD worth of goods and services, with a +/- 46%8 annual fluctuation in price. This is benchmarking against a fiat currency. It is not impossible one day enough people will benchmark prices against Bitcoin only.

In the next few posts I will dive into details of each of the possible use cases. If any of the use cases come to fruition, there would be profound consequences which may change the way we look at the financial system that we are so used to for the past 80 years.9

(In)Conclusion

Go back to Fig’s founding story, I am grateful to have been born and be able to experience the world as it is today - full of changing dynamics and thought provoking shifts. Blockchain was a young industry back in 2013. Now, almost 10 years later I still believe it is still a young industry now. However, I firmly believe it is one of the most transformative technology in our lifetime. Bitcoin and blockchain presents a very unique role in which it attempts to separate money from “state” - whatever the definition of state10 is.

In that light, I view Bitcoin is an option on the changing geopolitical, and consequently financial, landscape and therefore should be part of most investors’ portfolio as part of their diversification strategy.

My main take away after studying blockchain for close to 10 years is that it is important to question why is our status quo the way it is. Despite being labelled “scam” or “fugazi” for years11, it is perhaps prudent to not dismiss Bitcoin outright, but to study it from the perspective of an empircist rather than a rationalist. If nothing more, perhaps we can gain insight into the flaws and strengths of our existing financial system by studying a prospective new system that is designed to supplant it. It is not an asset with cashflow nor profitability. It is important to view Bitcoin from a macro lens in order to fully appreciate its potential.

Remember that none of the information presented in this letter or on the blog constitutes investment advice or solicitation of any kind. Views in this blog post are personal opinion of the author and do not reflect the view of Fig Investments. The author and Fig Investments are not your financial and investment advisors. Before investing money in any asset or investment product, you should conduct your independent due diligence. Please refer to Fig Investments' disclosures here.

FOR IMMEDIATE RELEASE

Fig Investments Receives Regulatory Approval to Pilot Test Crypto Structured Notes Platform

Edmonton, AB and Vancouver, BC — Volatility Labs Inc. dba Fig Investments ("Fig" or “Fig Investments”), is excited to announce that it has received exemptive relief from the Alberta Securities Commission (ASC) and British Columbia Securities Commission (BCSC) to permit it to distribute novel crypto structured investment products to accredited investors. The exemption will allow Fig to pilot test its ground-breaking technology platform, which promises to disrupt the existing structured notes market by introducing a transparent, efficient, and inclusive alternative.

Fig’s intuitive, digital-native web platform enables instant access to structured notes with customizable risk and return parameters that provide hedged exposure to price movement in the bitcoin (BTC) and Ether (ETH) markets. Fig's innovation seeks to bring transparency and inclusivity to the trillion-dollar structured note market, which is currently dominated by traditional investment banks.

"With an estimated $7-$15 trillion in total assets under management (AUM) in the structured notes market, the industry is ripe for disruption," said Guanzhi Ma, CEO of Fig Investments. "Our platform leverages technology to offer hyper-customizable products with turnaround in minutes instead of days, with a vision of democratizing access to investment opportunities that were previously inaccessible to most investors."

Fig’s Platform Helps Investors Get Risk-Managed Exposure to Crypto

Currently, investors seeking exposure to BTC or ETH can buy and hold coins directly, or invest in an ETF that holds the coins. Both options offer long-only, unhedged exposure, and holding coins directly also exposes investors to crypto risk due to the digital nature of crypto assets and their susceptibility to theft and hacks.

Fig’s crypto structured notes help investors get exposure to BTC and ETH, while reducing custody and asset price risk. Through Fig’s structuring engine, investors can customize a specific fixed return percentage that will automatically be repaid at maturity, with a variable return based on capped directional exposure to BTC or ETH – a first in the world. The structured notes have well documented and understood traditional custody and settlement infrastructure, with underlying portfolios comprised of U.S. treasuries and OTC crypto options.

Securing a Competitive Advantage with First-of-its-Kind Exemptive Relief

First-of-its-kind exemptive relief granted by the ASC and BCSC will allow Fig to test its platform with accredited investors in Alberta, British Columbia and eligible foreign jurisdictions. If the pilot test is successful, Fig intends to register as a portfolio manager and exempt market dealer in Canadian jurisdictions to allow for broader distribution of its products.

Fig's initial focus will be on crypto structured investment products, with a long-term goal of expanding to equity structured products and digital representations of all asset classes. Ultimately, Fig seeks to introduce the world to its blockchain-based settlement protocol for bilateral, over-the-counter option contracts.

"We are pioneering transformative software-based investment tools which will usher in a more inclusive financial future. Our platform leverages technology to deliver hyper-customizable products with subsecond turnaround instead of days. We are excited to lead this new frontier with our unique backgrounds in fast-paced startups and asset management." added Tony Qian, CTO & Co-Founder of Fig Investments.

Accredited investors are invited to explore Fig’s structured notes directly at https://www.fig.investments/.

Collaboration with Alberta Innovates to Bring Blockchain-Based Derivative Settlement Protocol

In 2022, Fig Investments received a grant from Alberta Innovates for developing a blockchain-based settlement protocol for settling bilateral option contracts on crypto assets. Its long-term goal is to launch the on-chain settlement protocol on one or more public blockchain networks and to encourage the adoption of on-chain settlement for crypto options and other types of derivative contracts.

“It is exciting and encouraging to see the securities regulators of Alberta and British Columbia providing an environment for fintech innovators like Volatility Labs Inc. (Fig Investments) to pilot its novel crypto linked investment product platform. We look forward to seeing the outcomes of this interprovincial collaboration and how the company's platform uses technology to help investors get access to innovative investment products. Alberta Innovates is proud to have supported Volatility Labs through the Digital Traction program which supports digital tech companies with software development at the core". - Doug Holt, Associate Vice President, Investments, Alberta Innovates.

“We are very thankful for the support from Alberta Innovates and all stakeholders. We are excited by the technological possibilities and look forward to contributing to the research and development of blockchain-based derivative settlement technology to benefit global capital markets,” added Guanzhi Ma.

About Fig Investments

Fig Investments was co-founded by Guanzhi Ma, CFA and Tony Qian in Edmonton, Alberta in 2022. The company’s co-founders have deep industry experience in fixed income portfolio management and hyper-scale software engineering. With cutting-edge technology and a strong commitment to regulatory compliance, Fig is set to revolutionize the $10 trillion+ structured products market.

By focusing on transparency, efficiency, and inclusivity, Fig is redrawing the boundaries of the investment landscape, opening a world of unprecedented opportunities for investors and institutions globally.

For media inquiries, please contact:

Volatility Labs Inc.

Guanzhi Ma, CFA

gm@fig.investments

Edmonton Address:

10008 32 Avenue NW

Edmonton, AB T6N 1G7

Vancouver Address:

Suite 2400

745 Thurlow Street

Vancouver BC V6E 0C5

Why Options?

• Easy to buy and sell - they are one of the most popular financial instruments, used by a wide variety of retail and institutional investors.

• Flexible - allowing investors to express a wide variety of market views, tailored to their time horizon and investment goals.

• Many use cases - hedge an existing portfolio position, used as insurance against an undesirable event, or provide leverage exposure to an asset

What Are Options?2

• They are derivative financial instruments - i.e., their value is derived from an underlying asset such as a stock.

• They give the buyer a right (not obligation) to buy or sell an asset at a specific price (strike price) in the future. 3 The right to buy an asset is called a Call Option, and the right to sell an asset is called a Put Option.

• Buyer would almost always4 pay a premium to the seller to buy an option.

• You can trade an option, usually through a brokerage account, by buying or selling it.

• Each option has a fixed maturity date such as October 5, 2023.

• Options have a strike price. The strike price is the price at which the buyer of a call (put) option can buy (sell) the asset to the seller of the option contract.5

How are Options Used in Structured Notes?6

• Options are typically a component of a structured note in order to give the note holder a guaranteed payout structure upfront.

• In general, to create a structured note, option(s) is(are) either sold to generate a volatility-based yield of an asset, or is(are) bought to provide a directional exposure to an asset.

• For principal protected notes, one or a combination of options are bought in order to give the note holder participation in the price movement of an underlying asset while maintaining principal protection for the note holder.

• For yield enhancement notes, either call or put options are sold in order to give the note holder a volatility-based yield of the underlying asset. The risk to the noteholder is that if the price of the asset exceeds the strike price, which triggers the exercise of the option, the noteholder may take on losses. However, the beauty of a structured note is that the risk and payoff of a note is guaranteed up front so there is no surprise to the noteholder.

Conclusion

Options are versatile financial instruments that offer both retail and institutional investors a range of strategic possibilities, from hedging risk to amplifying returns. Their adaptability also extends to the realm of structured notes, where they serve to predefine risk and reward for investors. Whether you're looking to protect your principal or enhance yield, options can be tailored to meet diverse financial goals. However, understanding their complexities is crucial for maximizing their potential. In summary, options are indispensable tools in modern finance, offering unparalleled flexibility and strategic depth.

Remember that none of the information presented in this letter or on the blog constitutes investment advice or solicitation of any kind. Fig Investments is not currently offering any investment products. Before investing money in any asset or investment product, you should conduct your independent due diligence. Please refer to Fig Investments' disclosures here.

ETFs, or Exchange-Traded Funds, are more commonly known to investors. They are designed to track the performance of a specific index, commodity, bond, sector, or even a basket of assets. For example, the SPY is an S&P 500 ETF. It is the largest and oldest ETF in the world. It tracks the performance of the Standard and Poor’s 500 Index (S&P 500) which is one of the most commonly used benchmarks for the overall U.S. stock market.

On the other hand, structured products (or more commonly known as “notes”) are prepackaged investment products that guarantees the investor a payout structure upfront. For example: a principal protected note on the S&P 500 is a type of structured note that offers the investor exposure to the S&P 500 if the index goes up, and be protected if the index goes down. Despite its relative obscurity, structured products market size is 50% bigger than ETFs.

3 Similarities between Structured Products & ETFs:

1. Access to Niche Markets:

   1. Both structured products and ETFs allow investors to gain exposure easily to a variety of assets or indices - some of which are niche and hard to access. For example, certain ETFs focus on specific sectors, regions, or themes, while some structured products might offer exposure to a particular commodity or cryptocurrency.

2. Professional Management:

   1. Both ETFs and Structured Products are professionally managed. They are packaged investments designed to meet specific investment objectives. The risks are appropriately measured and hedged, and the instruments traded are managed by investment professionals.

3. Innovative & Regulatory Compliant:

   1. Both ETFs and Structured Products are highly innovative. They let investors invest in a combination of assets without the hassle of managing positions daily. Furthermore, investors take comfort knowing that both are subject to regulatory oversight in the jurisdictions in which they're offered.

3 Differences Between Structured Products & ETFs:

1. Complexity and Transparency:

   1. While ETFs are generally straightforward and offer a transparent view of the underlying assets, structured products can be more intricate. The product specifications are often bespoke with conditional returns and specific triggers, making them hard to compare and understand for the average investor.

2. Cost:

   1. ETFs typically have a transparent fee structure, mainly consisting of the expense ratio. In contrast, structured products might have layered costs, including fees for the product itself. Moreover, the banks that issue structured products might include additional fees for the spread on the underlying assets they purchase to hedge the positions.

3. Where to Buy:

   1. You can typically purchase ETFs through a registered broker or a financial advisor. In contrast, structured products have more fragmented distribution channels. Often, you would subscribe to a structured note through an investment bank. Or, if you have a connection to a bank’s structuring desk, you can request a custom note based on your objectives. However, you'd typically need a net worth above a certain threshold to access this personalized service.
      

Fig Investments: Revolutionizing Structured Products

At Fig Investments, our mission is to make structured products as accessible as ETFs.

Through Fig’s web application, investors can easily and transparently customize, compare, and purchase innovative structured notes tailored to their investment goals—all at a fraction of the cost typically associated with banks.

For more information, please visit Fig Investments.

Remember that none of the information presented in this letter or on the blog constitutes investment advice or solicitation of any kind. Fig Investments is not currently offering any investment products. Before investing money in any asset or investment product, you should conduct your independent due diligence. Please refer to Fig Investments' disclosures here.

Today, we simplify and demystify some of the structuring products, exploring three effective ways to think about and incorporate structured products into your investment portfolio. In many cases, it makes more sense to use a structured product than buying an asset.

1. Hedge Against Single Asset or Market Risk

Proper risk hedging is the number one difference between amateur and professional investors. Structured products can act as an effective hedge against single asset or market risk. One type of structured product - principal hedged notes - has a built-in safety net, ensuring your initial investment remains safe even when markets swing unfavorably.

Think of this like an insurance policy on your investment. For example: you would like to have a small portion of your portfolio exposed to a highly volatile asset class like crypto - specifically Bitcoin. While you might not see sky-high returns if Bitcoin goes up, you won’t suffer substantial losses if Bitcoin goes down 80% in 6 months. This is perfect for someone who are looking to protect the gains they have made on their crypto portfolio. Also, for risk-averse investors or those nearing retirement, this kind of stability is priceless.

2. Passive & Tailored Returns

Think of structured products as a tailored exposure to a specific asset without you having to manage the position on a day-to-day basis. Within your portfolio, you may have higher risk appetite for some assets such as a high-beta growth stock than others. You may also be more convicted on US broad market than the FTSE.

In these scenarios, it may make more sense to buy a structured note for the asset rather than buying the underlying asset. For example: a structured product linked to the SPY could promise double the return if the market increases by a certain percentage and capped loss if the market declines. The note requires no day to day management from the investor as it guarantees the payout structure before the note is purchased. The investor would capture the returns by maturity date of the note if their market view is correct.

3. Tactical Allocations

Structured products are suitable for many tactical portfolio maneuvers. Below we list some examples that may be relevant for many investors & traders:

Example 1:

You are bearish on Apple stock for a short period of time but don’t want to manage a short position as it is too risky and time consuming.

How Structured Note Can Help:

Buy a principal hedged note on the stock that captures the downside within a fixed expiry date. This means that if Apple stock goes down during the time period of the note, the note will earn a positive return. If not, then the note’s max loss is capped. Versus shorting the stock, the note requires no daily management from the investor - you don’t have to worry about margin or the unlimited loss potential from shorting Apple stock if the stock goes up on value.

Example 2:

You think Bitcoin might go down to US$20,000 and would be willing to buy it at that price. You would like to earn higher than average yield on your capital while you wait for the price of Bitcoin to go down.

How Structured Note Can Help:

Purchase a dual currency note of $20,000 denominated in both Bitcoin and USD. If Bitcoin price is US$20,000 or below on maturity date of the note, you will take delivery of Bitcoin in exchange for the note. If Bitcoin price is above US$20,000 on maturity date of the note, you will get your principal US$20,000 and yield back.

Structured products can be linked to a variety of underlying assets – from stocks and bonds to commodities and currencies, even to more unconventional assets like cryptocurrencies. This offers a unique ability to expand your portfolio’s reach beyond traditional investments - through structured products.

Imagine having a structured product that gives you exposure to the crypto market. There is the need to understand the intricacies of crypto trading, custody, and keys. In this way, structured products allow you to dip your toes into new waters, all while keeping your investment strategy intact.

Keep in mind, structured products are:

1. Passive investment vehicles. This means they are not meant to be traded on a day-to-day basis. This reduces your trading cost while maintaining a directional view on a market.

2. Highly bespoke. You can adjust the risk, return, and payoff structures of a product to match your investing objectives.

3. Portfolio in a box. In each structured product you have a mix of different financial instruments. You can use it to get exposure to a single asset or a whole market. It can be described as a highly versatile Exchange Traded Fund (ETF).

Conclusion

Incorporating structured products into your portfolio is like adding new colors to your investment palette. They offer a unique way to hedge against risk, add passive & tailored potential returns, and diversify your portfolio.

However, as with all investing, it's crucial to understand what you're getting into. Always read the fine print, assess the risks, and ensure the product aligns with your financial goals.

Remember that none of the information presented on this letter and blog are investment advice or solicitation of any kind. Fig Investments currently is not offering any investment products. You should do your independent due diligence before investing money into any asset. Please see Fig Investments’ disclosures here.

Amongst the different applications, one area is particular interesting to me: crypto structured products. With crypto options coming on-chain via applications such as Psyoptions, Opyn (among many others), it opened up possibilities to compose these instruments together and synthesize new financial products, like legos. Now if you have spent some time on crypto twitter (CT, as it is called), you will know that the “lego” comparison is definitely over hyped in the course of 2021. But to me, it is an exciting field.

If it is not obvious: existing financial industry infrastructure is largely siloed and layered. There may be collective efforts from some industry leaders to create more or less regional technology stacks to improve communication and balancing of ledger between institutions. Overall, financial system has been built on layers simply due to its systemic importance - you cannot shut off the financial system to do a root level upgrade, even for a couple of hours. Upgrading the financial system is about adding band-aids as fixes rather than peeling off temporary fixes to build something new. Because of this, it is imaginable that financial products and services are slow, costly, and don’t “talk” to each other. This naturally gives the incumbent players little incentive to innovate.

Hence when you mention programmable, composable, and interoperable financial instruments and contracts, it has deep implications on the future of finance and the innovation that these attributes can bring.

Blockchain Option Protocols - Beginning (Early 2021)

At first there was options. Options are not new. It is believed that financial options were developed by Belgian financial exchanges as far back as the 16th century. But options on the blockchain is new and interesting. In early 2021, we have seen the birth of blockchain options protocols.

These are applications that exist as smart contracts on a blockchain that offers the buyer and seller a function (or a set of functions) to trade options for crypto assets. Although the specific implementations may differ from application to application, the underlying instrument is the same - giving a buyer the right but not the obligation to buy or sell an instrument in the future at a specific price.

Trading volume on these option protocols were not high until after the introduction of DeFi Option Vaults (“DOV”). Trading options on chain has numerous challenges. Providing liquidity for options is too capital intensive for non-professional traders. Options are inherently multidimensional - non-linear cardinality based on strike price, current underlying asset’s price, and expiry date. Combining high capital requirement with high dimensionality you get complexity. And retail users don’t like complexity.

For example:

• There are over 700 different option instruments on bitcoin on Deribit exchange.

• There are over 3000 different option instruments on Tesla stock traded across 8 different exchanges!

Which option should one buy? Who would be taking over the other side of the trades? When the price of the asset move, how would strike price be updated? These are difficult technical and usability trade-off questions for pure option protocols on the blockchain. As a result, we didn't see much interest for pure option protocols on the blockchain.

It was only after the introduction of something called DeFi Option Vaults (“DOV”) that these on-chain option applications saw a 10x increase in trading volumes. DOVs are the primitive crypto structured products and they have lead the growth of this category for most of 2021.

DeFi Option Vaults - Rise and Fall (Middle of 2021)

At its core, most DOVs are pools of assets stored on a smart contract that let users earn a non-guaranteed income on an asset by selling options using the asset as collateral.

Let’s say Joe has 1 Ether. The current price per Ether is $2,000. Joe would deposit the 1 Ether into a DOV smart contract. The smart contract would systematically sell 1 call option to another user such as Alice, or (more likely) a liquidity provider firm such as Bob Trading Inc. Let’s assume Alice bought the option.

The option costs Alice $100. The option has strike price of $2,200. Joe gets to keep the premium of the option ($100). Sounds like Joe can keep earning income on his Ether as long as he repeats this process. What is the catch?

This strategy is a basic covered-call strategy. If the price of Ether does not exceed $2,200 (which is the strike price), Joe will keep the premium as well as his Ether. However, if Ether rises above $2,200, Joe will give up all the gains for prices above $2,200 (Alice will capture those gains). Covered call strategy is great if you expect the price of the asset to stay the same or fall, or you deliberately say “I want to sell my Ether at $2,200 regardless of its future price movements”.

It is estimated that over 90% of all DOVs in 2021 are covered-call strategy. The product had great traction as most DeFi users has some form of assets on the blockchain. Instead of letting these assets sit idle, one can generate income on these assets by selling options. In addition to covered-call strategies, we have seen other structured products come on-chain such as the knock-in knock-out structured product application such as Cega, and some exotic products offered by Ribbon finance. Fig Investments’ predecessor was born out of this period: Sollar. The original idea was to compose multiple options together to create synthetic fixed income on the blockchain.

At its peak, DOVs exceeded $1 billion in total value locked. However, these products are not without its controversies. Many users believed that the income provided by selling options is risk-free (it’s not) and or that their assets are safe inside a DOV (not true). Attribute this to the speculative fervour or the lack of regulation, the end result is that DOV lost its appeal once the crypto bear market hit by early 2022. It’s TVL saw a 95% drop between peak and trough. Many DOV protocols exited the business entirely.

Crypto Structured Products - The Future (2022 and Beyond)

Was DeFi option vault a failed experiment? I think the answer depends on how one looks at it:

• Prior to DOV, covered call is an obscure strategy that historically only sophisticated investors have access to;

• It increased on-chain options trading volume by 10x;

Arguably we see crypto structured products highlight the most important use case for blockchain: the inevitable tokenization of assets.

What made DeFi option vaults possible? There are many factors. We argue the most important of which is the tokenization of options. Through tokenization, we implicitly lay the ground work for a new financial system based on a simple and imaginable building block: tokens.

With the option token standards, users and liquidity providers can bid on standardized option tokens with ease, both financially and technically. Whether it is tokens for options, tokens for stocks, the idea is that each token carries a standardized set of attributes that allows them to work together, without friction, without middleware. Assets can be verified through tally of a token’s attribute(s), increasing transparency and simplicity. Transparency reduces counterparty risk. Uniformity of asset configuration reduces cost.

What would become of financial product pricing if market friction cost is truly negligible instead of assumed negligible2 ? Market friction includes explicit dollar cost as well as implicit cost priced in credit spreads. We will have dramatically increased the design space for financial products and innovation. What if we can truly build a hyper tailored portfolio to an investor’s goals, using combinations of financial instruments that are simply not possible before? The investor would be:

• They would be less likely to panic sell during market volatility, reducing emotional cost of investing, and

• More likely to earn higher risk-adjusted returns,

In my opinion, the next frontier could be crypto structured products. But we think the next generation of “structured products” encompass far bigger themes:

1. Structured portfolios where a portfolio constructed using shallow parametrics but with upside and downside clearly defined.

2. Separation of income vs risk, giving investor the choice of generating income with measurable definition of risk rather than loosely defined heuristics;

3. Outcome based investing, whereby portfolio construction is to achieve a (set of) goal(s) instead of using goals to fit a portfolio.

All of these are possible if enough assets are tokenizable. We see almost an endless design space for new and exciting investment products in an industry that is increasingly commoditized.

Alas, the king is dead; long live the king.

Conclusion

Despite the volatility of DeFi and crypto structured products, their potential is undeniable. They've democratized sophisticated strategies and underscored the power of asset tokenization.

The vision of a future financial ecosystem, rooted in the simplicity and versatility of tokens, promises greater transparency, accessibility, and customization. Even with the fluctuations in DeFi Option Vaults, the journey towards this innovative future has only begun. The rise and fall of this early experiment serve as stepping stones in the evolution of a transformative sector - one where what is to come is set to be more powerful, resilient, and innovative than ever before.

Remember that none of the information presented on this letter and blog are investment advice or solicitation of any kind. Fig Investments currently is not offering any investment products. You should do your independent due diligence before investing money into any asset. Please see Fig Investments’ disclosures here.

You’ve probably heard of stocks, bonds, and or ETFs. These asset classes and financial instruments are well known and you may have bought them through your broker or financial advisor for your own portfolio. In particular, ETFs has risen to the spotlight over the past decade with their lower fees and appeal of exposure to a wide variety of markets through a simple-to-purchase product. It is estimated that ETFs Assets Under Management (AUM) has reached a total of $6-7 trillion in 2022 and are expected to increase to $12-16 trillion by 2027.

If you think that is impressive, then structured products market is even more so. Structured products market is estimated to be 50% bigger than ETFs. Yet most people have not heard of structured products before.

We covered what structured products are in a previous post:

Now let’s dive deeper into the structured products market.

Who Buys Structured Products

If you have a private banker, it is likely you’ve been offered to buy a structured product before.

The primary buyers of structured products are sophisticated investors. This includes high net worth individuals (HNWIs), family offices, and institutions such as hedge funds, pension funds, and insurance companies. These investors typically possess a greater understanding of complex financial markets and have specific risk-return objectives that conventional financial instruments can't satisfy.

HNWIs and family offices might use structured products to access unique investment strategies or to provide a level of capital protection. On the other hand, institutions may use them for more complex purposes, like hedging certain exposures or implementing nuanced views on various markets.

Who Sells Structured Products

Traditionally, structured products have been created and sold by large investment banks. Banks like J.P. Morgan, Goldman Sachs, UBS, and Barclays have specific divisions such as the structuring desk dedicated to creating these complex products. These institutions possess the necessary infrastructure, financial engineering expertise, and regulatory know-how to design, create, and manage these products.

These products are typically issued as senior obligations of financial institutions, which puts them on par with bank deposits, but they typically don't have the deposit guarantee of a federal institution such as the FDIC.

However, with the recent rise of fintech, boutique asset and wealth management firms have begun to enter the space. Leveraging technology such as Fig Investment’s platform, these smaller firms are now able to provide structured products to their clients, although the breadth and complexity of their offerings may still lag behind larger institutions.

Market Size & Transaction Volume

The structured product market is colossal, with an estimated value of around $11 trillion worldwide. This makes it significantly larger than the ETF market, which boasts a considerable $6-7 trillion in AUM.

For transaction volumes, it's important to note that, unlike more liquid markets like equities or bonds, structured products are often bespoke and traded over-the-counter (OTC). This means transaction volumes can fluctuate significantly and are generally not publicly disclosed.

Standardized structured products are traded on Euronext’s Structured Products Exchange. As of May 2023, over €600B of structured products are traded on a trailing monthly basis on Euronext alone.

Product Types

There's a vast range of structured products, each tailored to meet specific investor needs. Some common types include:

1. Capital Protection Notes: Debt securities issued by financial institutions that offer a return based on the performance of underlying assets.

2. Participation Notes: Debt securities with a return linked to the performance of an underlying asset. These are often capital-protected.

3. Yield Enhancement Notes: Notes that typically provide a synthetic yield by selling option on an underlying asset.

4. Leverage Products: This is a structured note that provides a multiplied return based on the change in an underlying asset's price. However, the note may also contain conditions that could lead to significant losses if the asset's price moves in the opposite direction.

These products can be linked to a single asset, multiple assets, or various indices. More complex structures might be tied to a combination of equities, commodities, interest rates, foreign exchange rates, or cryptocurrencies.

Regulatory Landscape

The regulation of structured products is complex and varies by country. For instance, in the U.S., structured products fall under the jurisdiction of the SEC and FINRA. The regulations cover areas like product creation, marketing, sales practices, and risk disclosure.

In the European Union, structured products are regulated by the European Securities and Markets Authority (ESMA), under the framework of MiFID II and the PRIIPs Regulation. These regulations require manufacturers to provide investors with a Key Information Document (KID) highlighting the risks, rewards, and costs associated with the product.

Conclusion

While complex and challenging, the structured product market provides a wealth of opportunities for savvy investors looking for tailored risk-return profiles. With continuous technological advances and regulatory developments, we can anticipate greater accessibility, transparency, and comprehensibility in this market. These developments will not only benefit sophisticated investors but may also open the door for a broader range of investors to consider structured products as part of their diversified investment portfolios.

Remember that none of the information presented on this letter and blog are investment advice or solicitation of any kind. Fig Investments currently is not offering any investment products. You should do your independent due diligence before investing money into any asset. Please see Fig Investments’ disclosures here.

I grew up in the dot-com era. Living through up and downs of various technology hype and death cycles, it never ceased to amaze me how far we have come since the dial up days and the 1.4MB floppy disks that can barely store a picture taken by an iPhone today. Surely many expectations didn’t match reality. Looking through the narrative cycles, we have seen an improved standard of living and higher productivity as a society. Within our company, we see a whopping 50%+ YOY improvement in development productivity across all of our engineers thanks to LLMs and various structural technology improvements. We came a long way from askjeeves.

How does technology fit in with finance? In the ever-evolving landscape of 21st-century investing, traditional approaches are continuously being reshaped. One key player driving this transformation is structured products. Back in 2019, Bloomberg estimates that the total structured products market exceed $7 trillion, which is bigger than ETFs ($5.3 trillion) and total hedge fund market ($2.9 trillion). Yet, many investors are still not entirely familiar with their function and importance in contemporary investment approaches. Let's unlock the mystery.

Structured Products: A Primer

At their core, structured products are pre-packaged investment strategies combining traditional securities such as bonds with more complex instruments known as derivatives (options, futures, etc.). These financial hybrids are designed with the intent to achieve specific risk-return objectives, often tailor-made to suit an investor's unique risk appetite and market outlook. While they may appear intimidating initially, these instruments can offer a unique pathway to enhance returns, manage risks, and diversify investment portfolios.

Why Structured Products Matter

Structured products offer several benefits for the savvy investor:

1. Enhanced Returns: With the strategic integration of derivatives, structured products can outperform traditional investment instruments under certain market conditions.

2. Risk Diversification: The unique blend of assets that constitute a structured product enables investors to distribute their risk, providing a buffer against market volatility.

3. Access to Diverse Markets: Structured products can open doors to markets or asset classes typically inaccessible to individual investors.

Technology: A Catalyst for Structured Products

Traditionally when one goes to a financial advisor, either in person or online, they are presented with pre-made off-the-shelf products. Their advisor would walk them through their return objective and risk tolerance and then the customer is expected to choose between those presented products after signing a stack of paperwork. In this digital age, we expect more. More customization, more return - all the while cheaper and faster.

Technology is quietly transforming the world of investing, and structured products is an integral part of it. First, it has democratized access to these financial instruments, which were once the exclusive domain of seasoned and high net worth investors. Nowadays, platforms like Fig Investments exist to facilitate access to structured products and help decipher their complexities.

Second, technology has significantly expanded the customization possibilities of structured products. It's now feasible to design highly personalized financial instruments that cater to an investor's specific needs and risk tolerance. For example, through Fig Investment’s structuring engine, you can customize a structured product tailored to your goals within seconds instead of days. In addition, all composing instruments of a structured product is shown in real time, providing transparency and peace of mind for the investors.

However, it's vital to note that while structured products offer the potential for enhanced returns and diversified risk, they also carry inherent complexities and risks. Professional advice is indispensable before delving into this sphere of investing.

Final Thoughts

Structured products have emerged as a crucial component in the toolkit of the modern investor. Thanks to advancements in technology, these instruments have become more accessible and customizable than ever before. By understanding their function and importance, you can leverage their potential to optimize your investment portfolio. At Fig Investments, we are more excited than ever to merge technology and finance to bring you the next generation of investment products.

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Remember that none of the information presented on this letter and blog are investment advice or solicitation of any kind. Fig Investments currently is not offering any investment products. You should do your independent due diligence before investing money into any asset. Please see Fig Investments’ disclosures here.