- Onchain crypto options platforms are picking up steam.
- The October 10 crash made crypto options strategies viable as a way to generate yield.
- Builders say they can provide more features than their centralised rivals.
The October 10 crypto market crash wiped out $19 billion of perpetual futures leverage and triggered a near 50% collapse of cryptocurrencies’ total value.
However, one part of the industry seems to have benefited from market contraction: onchain crypto options trading platforms.
“It’s one of the best things that’s happened for us,” Nick Forster, CEO and co-founder of onchain options app Derive, told DL News. “It laid bare that perps aren’t the be-all and end-all in terms of financial instruments.”
Finally, after years of failed attempts, options contracts for assets like Bitcoin and Ethereum that are created and traded directly on the blockchain, are gaining steam.
Premiums trading volume for so-called onchain crypto options soared to over $51 million so far in March — the best month on record, according to data from DefiLlama.
That’s despite waning interest in Bitcoin futures trading generally, which is down some 56% from its October peak, according to Coinglass data.
Previously, fledgling perp exchanges dominated the onchain yield generation market, according to Forster. Traders looking for low risk gains piled into these exchanges to earn token airdrops, making up to 20% annually.
But after October 10, market conditions tightened, making it harder for traders to generate the kind of profits they previously had through such strategies.
“It made options viable as a yield generation source in crypto for the first time,” Forster said. “It’s ultimately why it’s so big in traditional finance — you can generate yield in a very structured and tailored way with any form of collateral.”
Tough nut to crack
Options contracts are a kind of financial derivative that lets traders place bullish or bearish bets on financial assets. They’re already a significant part of the crypto trading market, accounting for over $41 billion worth of open interest, according to Coinglass.
Proponents argue that remaking the crypto options market on blockchain rails will increase transparency, lower barriers to entry and reduce custodial risk.
Yet despite the purported benefits, onchain options have been a tough nut to crack.
Numerous attempts have fizzled out over the years as technical limitations, a lack of interest, and fierce competition weighed on their viability.
Another factor driving the recent success is crypto’s adoption among traditional financial players.
Institutions have piled into crypto exchange-traded funds since the first US Bitcoin ETFs were approved in 2024. Many of the biggest wealth managers have begun advising clients on small allocations to Bitcoin, while Blackrock CEO Larry Fink has championed the industry on the world stage.
Wall Street firms are much more at home trading options, which are widely used to hedge trades across traditional financial markets. So interest in trading them is growing as the crypto market becomes more institutionalised.
Rethinking options
So far, most of the success has been captured by Derive, which has been working on its app since 2021. But others, such as the newly-launched derivatives app Kyan, could also help bring more attention to onchain options.
A rethinking of how onchain options work, paired with additional features unavailable on centralised counterparts, is helping apps like Derive and Kyan to compete.
“We’ve now moved into this era where the market participants no longer care as much about 100% decentralisation,” Cozy, a pseudonymous founding contributor at Kyan, told DL News. “They want something that’s onchain for transparency, but they’re willing to accept trade-offs for performance.”
By leaning into this hybrid approach, both Kyan and Derive say they have been able to make themselves competitive with centralised options trading venues.
“When you’re able to provide the same experience that people get on Deribit or Binance or, OKX trading options, you’re able to close that gap,” Cozy said.
Deribit is currently the biggest crypto options trading platform accounting for over 80% of all crypto options trading volume. US exchange Coinbase acquired it for $2.9 billion in August.
Building an options market onchain also opens the door for new features.
A big unlock offered by Derive and Kyan is called portfolio margin, which means calculating the amount of collateral a trader needs based on all their open trades instead of each individually, making options trading more efficient.
“We’re able to provide additional legs. We’re able to provide capital efficiency through portfolio margin. We’re able to provide perps and options in one place so you don’t have to switch between tabs to try to hedge out of position,” Cozy said.
David vs Goliath
Still, options likely won’t overtake perpetual futures, or perps, which are by far the most popular way for traders to speculate on crypto.
Perps are simpler to understand than options, but open up traders to the risk of getting liquidated.
Kyan’s strategy is to help guide traders through using options to make them more attractive to those who would otherwise trade with perps.
“You have to create stepping stones and easy tools if you want [retail traders] to participate,” Cozy said. “We’ve tried to make a more seamless user experience, while providing not just the same tools, but more advanced tools than are offered on the traditional exchanges.”
To be sure, Deribit’s position in the market is still strong. Open interest on the platform sits at over $35 billion compared to Derive’s $2 billion.
But Derive is edging into the incumbent’s market, according to Forster.
FalconX, a crypto prime brokerage, has been partnered with Deribit to provide asset custody and credit services since 2024. In October, the firm announced it had also partnered with Derive to provide market making services.
“There’s a lot of dealers looking for a new venue, which is great,” Forster said, speaking of Deribit. “On the taker side as well, a lot of their clientele in Asia aren’t necessarily comfortable with Coinbase.”
“Those two things create an opportunity for someone to come in.”
Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at tim@dlnews.com.
