Crypto options player STS Digital has expanded its investment platform to include structured products, offering a new way to generate yield using cryptocurrencies. 

Kraken is set to be the first platform to integrate STS' structured products, according to an announcement on Wednesday. 

Structured products are pre-packaged, hybrid investment strategies that combine the earning potential of derivatives typically with the near-guaranteed returns of a fixed-income bond, creating unique payoff profiles. 

"In traditional finance, it's very common," STS Digital CEO Maxime Seiler told The Block. "Structured products, essentially, package up options and package up complex products into a simple investment product that gives you a defined payout at maturity."

Seiler offered the example of a "principal protected note," where an investor seeking long bitcoin exposure could lock in downside protection by, for instance, collecting bond premiums. "Your worst case scenario is you lose 20% of your capital if the market crashes, so 80% of your principal is protected," Seiler said.

"That could be one example. Or there are yield enhancement notes, where you can earn yield by selling options, and if the market doesn't move, you collect the premium," Seiler said, noting those premiums can range from "low single digit to triple digit annualized premiums," depending on how the products are set up.

STS' modular platform allows users to configure their own investment opportunities, choosing the underlying crypto derivative, its maturity, strike price, and desired payout structure. 

In general, the offering is geared towards banks, institutional investors, family offices, and high-net-worth individuals "seeking advanced, risk-managed exposure to digital assets," Seiler said.

Kraken, which is accessing the Structured Product platform via an API, will feature a subset of these products, with the target offering geared towards retail traders, according to Seiler. 

"It's not fully modulated. It's going to be a defined set of products and payoffs on their platform, and clients can subscribe into it," Seiler said, describing Kraken's offering. The exchange, which has been greatly expanding its derivatives business over the past several months, quietly rolled out its STS integration in select regions about a week and a half ago in a "soft beta launch" for testing. 

The Block reached out to Kraken for comment. 

STS supports over 400 cryptocurrencies across both its "vanilla" and "exotic" options offerings. Seiler noted the team is also planning to add support for tokenized equities, FX, and commodities this year, which can also serve as the basis for bespoke structured products. 

"The structured product platform is essentially an extension of our existing options platform, which allows to create investment products, design them, price them up in an automated way, and then trade them," Seiler said. 

The company is regulated in Bermuda as a custodian, derivatives exchange, and market maker, allowing it to operate as a so-called "principal dealer" in crypto options. Seiler noted that the firm now has about 60 employees, doubling its headcount in the past year, and is looking to hire an additional 20. 

In February, STS announced CMT Digital had led its recent $30 million strategic funding round, with backing from Kraken's parent company Payward and other investors.