.png%3Falt%3Dmedia%26token%3D6ba8dd01-2e6a-40ba-9c40-67b16dd0c94a)
.png%3Falt%3Dmedia%26token%3D6ba8dd01-2e6a-40ba-9c40-67b16dd0c94a)
Fixed Coupon Notes (FCN)
Earn daily fixed coupons on USDC with up to 50% downside protection
FCN is an exotic structured product with both equity and bond-like characteristics. Investors earn daily fixed coupons on their deposits until the FCN expires or matures. At expiry, the initial deposit and coupons for the entire 28 days are returned to investors if none of the FCN's underlying assets drops beyond the predetermined knock-In level of 50% or more.
FCNs are valuable investments for traders seeking superior fixed yields and lower risk.
The user deposits USDC into the FCN vault. Olive then auctions the FCN vault to the highest bidding market maker. The coupon earned is added to the vault at expiry, thereby increasing the vault NAV. If you don’t make a withdrawal request, the principal and the coupon are automatically reinvested for auto-compounding in the next cycle.
Principal Risk: It’s the risk of losing some or all of your investment. If the market experiences a significant downturn (≥ 50% decline), investors may lose some portion of their initial investment. However, they will still earn the coupon for the entire 28 days, thereby cushioning the downside.
Credit Risk: It is the potential expected losses that would arise in case of a default by a market maker. To mitigate this, Olive only trades with market makers who have passed KYC/AML checks and have a history of creditworthiness.
Smart Contract Risk: There is a risk of smart contract failure in the underlying vault or the protocols we work with. Olive has undergone an audit by PeckShield to mitigate smart contract risk.
For each scenario below, assume the following:
- $1000 initial investment in the FCN vault
- 28-day investment duration
- Two underlying crypto assets = ETH, BTC
- 80% APY (Compounded Annual Yield)
- = 60.24% APR (Non-Compounding Annual Yield)
- = 5.02% yield every month (60.24% / 12 months)
- = 0.179% yield every day (5.02% / 28 days)
- = $1.79 yield per day (0.179% * $1000 deposit)
- Knock-in (KI) barrier level is 50%
- Knock-out (KO) barrier is 130%
What happens in this example scenario?
- FCN start date = July 29, 2022
- No knock-out or knock-in events; therefore, the FCN reaches its full 28-day duration and expires as normal
- The spot price of all underlying assets closed above 100%
- None of the assets exceeded the Knock-out (KO) Barrier at 130% or fell below the Knock-in (KI) Barrier at 50%
What is the payoff for the investor?
- Profit = daily coupon for all 28 days = $1.79 * 28 = $50.1
- Principal = $1000 returned
- Total payoff = $1,050.1 after 28 days
- ROI = $1050.1/$1000 = 5.01% in 28 days or 68.34% APY
What happens in this example scenario?
- FCN start date = July 29, 2022
- No knock-out or knock-in events; therefore, the FCN reaches its full 28-day duration and expires as normal
- The spot price of all underlying assets closed below 100%
- None of the assets exceeded the Knock-out (KO) Barrier at 130% or fell below the Knock-in (KI) Barrier at 50%
What is the payoff for the investor?
- Profit = daily coupon for all 28 days = $1.79 * 28 = $50.1
- Principal = $1000 returned
- Total payoff = $1,050.1 after 28 days
- ROI = $1050.1/$1000 = 5.01% in 28 days or 68.34% APY
What happens in this example scenario?
- FCN start date = July 29, 2022
- Knock-out happens on the 20th day and expires the product
What is the payoff for the investor?
- Profit = daily coupon for all 20 days = $1.79 * 20 = $35.8
- Principal = $1000 returned
- Total payoff = $1,035.8 after 20 days
- ROI = $1,035.8/$1000 = 3.58% yield in 20 days or 25.28% APY
What happens in this example scenario?
- FCN start date = July 29, 2022
- Knock-in event occurs on the 20th day
- The knock-in event does not cause vaults to expire immediately, unlike knock-outs
What is the payoff for the investor?
Because this vault has experienced a knock-in event during its lifetime, the principal returned when the vault expires is calculated using a formula based on the worst-performing asset on the final day. The best part is that even in this worst-case scenario, the investor will be better off than directly investing in BTC or ETH. The coupons earned on the FCN over 28 days will cushion the drawdown.
On Day 28, we see that ETH (49%) is the worst performing vs BTC (54%).
- Profit = daily coupon for 28 days = $1.79 * 28 = $50.1
- Principal = $1000 initial deposit x min(100%,49%) = $1000 x 49% = $490 returned
- Total payoff = $540.1 after 28 days
- ROI = $540.1/$1000 = -45.9% yield in 28 days
What happens in this example scenario?
- FCN start date = July 29, 2022
- Knock-in event occurs on the 12th day
- The knock-in event does not cause vaults to expire immediately, unlike knock-outs
What is the payoff for the investor?
Because this vault has experienced a knock-in event during its lifetime, the principal returned when the vault expires is calculated using a formula based on the worst-performing asset on the final day. Even though ETH hit KI during the cycle, BTC was the worst-performing asset on the final day. On Day 28, we see that BTC (61%) is the worst performing vs ETH (71%).
- Profit = daily coupon for 28 days = $1.79 * 28 = $50.1
- Principal = $1000 initial deposit x min(100%,61%) = $1000 x 61% = $610 returned
- Total payoff = $660.1 after 30 days
- ROI = $660.1/$1000 = -33.9% yield in 28 days
What happens in this example scenario?
- FCN start date = July 29, 2022
- Knock-in event occurs on the 10th day, and the knock-out event occurs on the 24th day
- The knock-in event does not cause the vaults to expire, but the knock-out event on day 24 will cause the vault to expire immediately
What is the payoff for the investor?
Even though the vault experienced a knock-in event during its lifetime, it only expires earlier than normal due to the knock-out event, and investors are paid out immediately.
- Profit = daily coupon for 24 days = $1.79 * 24 = $43
- Principal = $1000 returned
- Total payoff = $1043 after 24 days
- ROI = $1043/$1000 = 4.3% yield in 24 days or 43.1% APY
What happens in this example scenario?
- FCN start date = July 29, 2022
- Even though the vault experienced a knock-in event during the cycle, ETH and BTC ended above the spot price on the final day. So, investors will receive their entire capital back plus the fixed coupon for 28 days.
What is the payoff for the investor?
- Profit = daily coupon for all 28 days = $1.79 * 28 = $50.1
- Principal = $1000 returned
- Total payoff = $1,050.1 after 28 days
- ROI = $1050.1/$1000 = 5.01% in 28 days or 68.34% APY
The fee structure consists of a 2% management fee charged on a prorated basis and a 10% performance fee which is charged only if the cycle is profitable.
Example
Suppose you invested 10,000 USDC in the FCN. The management fee is charged annually on a pro-rata basis @ 2%, i.e. 2% / 52 Weeks = 10,000 USDC x 0.02/52 = 3.84 USDC. Suppose the strategy generates 40% APY, meaning 10,000 USDC will become 14,000 USDC. An annual pro-rata performance fee of 10% will be charged on the gains, which is 4,000 GLP x 10%, i.e., 400 USDC.
Therefore, the net gain made by the users is 14,000 - 3.84 - 400 = 13,596.16 USDC, which is ~ 35.96% APY net of fees.
Last modified 2mo ago