Meet the project bringing TradFi’s ‘degen products’ to Solana

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I was on a Google Meet with Benedikt Schuppli when the co-founder and CEO of Obligate began screen-sharing his email inbox.

“Can you see this?,” he asked, pulling up an email from a Swiss bank with a large graphic advertising a 175% participation rate for a financial product. “If this wasn’t a Swiss bank you’d be thinking, ‘Well, that’s obviously some type of scam. Someone’s trying to sell me 175% yield.’”

The Swiss bank was offering Schuppli a structured product, a financial instrument that the CEO called the “degen products of TradFi” — and he’s now trying to bring it to crypto with his new startup Margarita Finance.

The basic premise of Margarita is that users can easily mix their yield appetite and risk tolerance like a cocktail. Schuppli hopes the project’s blockchain backing can cut out intermediaries that drive up costs and let a new market segment tap into structured products, which offer the sort of risk curve that DeFi users tend to like.

Structured products are pre-packaged investments that involve a bond and a call option typically on a basket of assets or an index. Structured products don’t lose their principal investment if the optioned assets fall in value because of the bond’s appreciation in value, so they theoretically present less risk than just trading options.

Traditional structured products have lots of middlemen that charge fees, and these fees are passed onto investors, Schuppli said. With Margarita, he said, his team has created a “fully programmable digital asset” that makes fee structures less opaque.

Margarita currently lets users invest a minimum of 10 USDC with an option on the price of SOL. Investors can set their preferred yield and maturity date, and they’re then offered a structured product, the return of which depends on if SOL’s price falls below a given barrier. The options are priced by Bermuda-based STS digital and come with a “whole-ass legal documentation” that Schuppli, a lawyer by training, pointed out to me.

Margarita Finance is being developed within Obligate, an on-chain bond platform built on Polygon. The goal is to spin Margarita into a DAO once its network and token are launched. Of Obligate’s 15 employees, five are currently working on Margarita. Building Margarita on Solana was much easier than in an Ethereum-compatible environment due to Solana’s token-2022 standard, Schuppli said.

Margarita announced $1 million in pre-seed funding two weeks ago, and it is in the process of raising seed funding, Schuppli said. The project also received a grant from the Solana Foundation.

Margarita isn’t the first crypto outfit to try out structured products, but it does think it can be the most straightforward to use.

“They’ve been very clunky and very technical,” Schuppli said of some other structured product implementations. “DeFi and financial products oftentimes are created by people with a technical bias.”

We’ll see if that’s enough of an improvement for Margarita to make onchain structured products a thing — and whether the degen products of TradFi are degen enough for DeFi.

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