Unchained - How Onchain Options Could Replace the Basis Trade as Crypto's Yield Strategy

Episode Date: April 14, 2026

The basis trade paid 15–30% near risk-free for years. Options couldn't compete. Then 10/10 happened. ======================================================== As Bitcoin's application layer, Citrea gives you access to the first trust-minimized BTC on a fully programmable platform and a native stablecoin for Bitcoin, ctUSD. You can now participate in Bitcoin capital markets with lending, privacy, payments, Bitcoin yield, trading and predictions. You get expanded Bitcoin utility without sacrificing its security. Citrea mainnet is live. Put your BTC to work at citrea.xyz/unchained.   Ether.fi is giving Unchained listeners 15% cashback on food and ride apps — and that's on top of the 3% you get on everything else.  Your bank is charging you to use your own money. Laura switched and loves her card! Go to ether.fi/unchained to claim your offer. ======================================================== For years, the basis trade and token-launch points farming crowded out options as a yield tool in crypto — not because options were inferior, but because the alternatives were simply too easy and too lucrative.  That changed on 10/10. With the basis trade effectively dead and altcoin valuations cratered, a window has opened for onchain options to compete for capital in a way they never could before.  Nick Forster, CEO of Derive (formerly Lyra), has been building toward this moment for five years. He joins LTR, venture investor at Cosmos, who has tracked the full graveyard of failed options DEXes — Opyn, HEGIC, Ribbon, Dopex, Strike — and still believes this time is different. The question isn't whether crypto options will scale. It's whether the infrastructure is finally ready. Host: ⁠⁠Laura Shin⁠⁠, Host / Unchained Guests: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Nick Forster, CEO and Founder, Derive ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠LTR, Venture Investor, Kosmos Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, everyone. Welcome to Unchained, your no hype resource for all things crypto. I'm your host, Laura Shin. Thanks for joining this live stream. Before we get started, a quick reminder, nothing you hear on Unchade and sophisticated advice. The show is for informational and entertainment purposes only, and my guest and I may hold assets discussed in the show. For more disclosures, visit Unchained Crypto.com. Bitcoin changed how money works. Citrea changes how Bitcoin scales. With a trust minimized BTC and a native stable coin, CTUSD, Citraia enables Bitcoin capital. markets with lending, privacy, Bitcoin yield, and more. Get started at Citraea.xyz slash unchained. EtherFi is giving Unchained listeners 15% cash back on food and ride apps, and that's on top of the 3%

you get on everything else. Your bank is charging you to use your own money. I switched. Go to Ether.Fi slash Unchained to claim your discount. Today's topic is Onchained derivatives. Here to discuss are Nick Forster, CEO and founder at Derive, and LTR Venture Investor at Cosmos. Welcome, Nick, and LTR. Thanks for having me on. Yeah, thanks for having me on. It's a pleasure.

Just a quick note that this interview was pre-recorded on Friday, April 10th, in case any news on this topic breaks between now and the day that we stream this. And I'm just saying that, just to explain why we are not covering that thing, whatever it might be, if such thing exists. All right, so as I mentioned,

we're here to discuss on-chain derivatives. Why don't we just start by, because there are some derivatives out there that are, you know, already kind of taking off in crypto. So maybe let's just talk about like all the different products that you would classify under that umbrella and then sort of where you put them in their development on chain. And Nick, why don't we start with you? Yeah, sure. So there are, you know, I guess derivatives is a broad category. but by and large, I would look at like the markets in crypto is beginning with spot trading, which is not a derivative, but it started in earnest on chain in what, like 2017, 2016, 2017 with Uniswap.

Perpetuals, which is, you know, everyone's familiar with now or most people are in crypto, which are kind of like the crypto equivalent of like dated futures. First got big in 2016 with Bitmax and then first really successful on on Shane attempt was D-Y-D-X, I think in 2020, and then really cracked in 2022, 2022, with hyperliquid continuing on into now. And then the next big bucket, which, you know, I'm biased, but is, I believe, is options. Of course, you can go, you know, much further than that into all the different corners of derivatives, but really they're just financial instruments whose value in some way depends on, you know, where the underlying spot value goes.

and so you can get into like interest rate derivatives and you know swaps and RWA derivatives and all these different types but ultimately you know it's a broad category but the main one that found a ton of traction today in crypto I would say is is predominantly just perps yeah LTR is there anything that you want to add um yeah I mean like I'd echo all of that I think we have seen like volatility like devol and stuff from from derivative has done pretty well. And then the one thing I would also say is that defy enables a lot of other stuff as far as like structured products options vaults on top of options. And then like even like unyswop v3 stuff, I would consider like an on chain derivative if you're doing some kind of strategies. But overall, like I would agree with Nick, like that the main thing

we've seen, you know, with hyperliquid and all these perp venues is that the people want perps. And you know, a lot of people think that kills options. But I think that's what we're here to discuss. Yeah. So, I mean, options have not really been huge, as you guys mentioned, especially on chain. And from what I've read, it seems like initially was kind of like a little bit more over the counter, which obviously is like slow and inefficient. But then derivatives, sorry, Derribit came on the scene. So talk a little bit about like how the arrival of Deribit changed, you know, what that looked like in crypto. Yeah, I think, you know, it provided a step up in liquidity across the board.

It was a way for a lot of the, you know, initially I think Deribit only had, you know, it had all of the prices and margin in Bitcoin itself, which is pretty unique for, you know, options exchanges. It creates some funky, interesting things with how the options are priced when you're paying in Bitcoin and that's kind of like the quote instrument. Like I think USDA was only added a couple of years ago on Deribut as an, as an instrument. But what it did was allow a lot of these sort of markets that were only serviced over the counter with written legal agreements, often via ISDA's, often not, kind of a global

marketplace. It allowed a lot of the risk that was accumulating between those trades to start to get offset, you know, more easily between market makers and dealers who are taking the other sides of these trades. And that was like kind of the heartbeat of a lot of the deribate flow, and it still is today alongside, you know, of course, the very traditional OG flow of, you know, Bitcoin miners buying puts, buying downside to protect against, you know, a precipitous drop in Bitcoin and their future earnings, which is kind of the bedrock of a lot of the early options activity. But Deribut kind of reduced the price of hedging by centralizing a lot of the risk and allowing for margin within the system. And I think that was, you know, very much the first step in the,

in the adoption of crypto options. but similar to what I described there with the seven-year timeline between the introduction of perps to crypto in 2016 to really hyper-liquid beginning to get serious traction in 20203 and 24. I think we're about seven years behind when Derib had started to do volume for the first time, too. And I think that market is about to get a lot bigger. And LTR, do you want to add anything on that? Yeah, I mean, like I think those are all salient points.

Like, yeah, Derbic came on the scene in 2016. And just like before that, there was nothing. You had to price like based off WIMs, based off gut feel. And so like it started with only European, which means like fixed expiries. And cash settlement was only in Bitcoin. So like I think the major things that Derbitt brought was like a real time order book. They actually used the central limit order book for market makers and that, you know, made prices not so opaque.

And it brought it more transparently, which I think is nice. And it was the first time we could make an IV surface for Bitcoin and actually like price it. And people could see that. And so I just. think that really led a lot of stuff, even perks, to be honest. I think we've seen that Derbett really led the game and a lot of pricing and a lot of risk in portfolio management. And so obviously, like, Derivet grew huge. And I just saw, I think, like, even in the last 24 hours, there was about $2.7 billion in open interest, which is a very similar number

to the number that was acquired for last year by Coinbase, $2.9 billion. And that was a was the biggest acquisition in crypto history. So like when you, you know, sort of think about kind of that milestone, like what, what was the significance of that moment to, to either of you? LTR, I'll let you go first in this one. Yeah, I just say like, I think it kind of shows that there's a whole other world out there. And, you know, I think a lot of people in CT are very siloed into the perps and stuff. And while I think perps are a fantastic instrument, especially for maybe a solo trader who's just more discretionary in trading their PA. There really is a whole other world out there, like Chicago, CBOE and stuff that's like moves money you can't imagine and doing all kinds of strategies that maybe aren't purely like I'm trying to make profits type.

And I think that's where options really shines, especially if you have BTC on your balance sheet or your DAT or whatever I might be. Seeing those numbers, I think surprises a lot of people. They're like, oh, my gosh, where's this coming from? But to people who have been around like, it's not too surprising. Like, you know, they did over $14 billion on March 27th alone. Like, there's been some crazy options. And then it also helps inform a lot of discussionary traders too. I know a lot of perps traders that use derivative data for like targets or seeing like

where we might go next just because it is informing a lot of flow. Yeah. And I think for me as well, it shows, one, it showed the maturity of the options marketing crypto to some degree. But two, I think it shows how difficult it is to actually replicate a network effect in options. It's much more sticky because you have, you know, very long onboarding cycles, a very high bar for institutions to use. And, you know, once they're onboarded, like to take incremental risk to go to another exchange. It also is just by the nature of the product where you are trading often like

six-month dated or 12-month-dated options. Once you have a trade expiring in a year, the market maker needs capital on that exchange for a year. And the trader has some capital and some positions on the exchange for a year. This is very difficult to wrestle someone away from an existing exchange for another exchange once all of that is set up, which is why a lot of the other sort of Asia-based centralized exchanges tried very hard to get into options in that period in 2020-2020 to 2024 and didn't make huge inroads into the Deribate market share because of those strong network effects. So I think what it signaled from Coinbase was like, hey, this is a valuable set of users that is going to be very difficult to replicate if we started, you know,

kind of on our own from square zero. And that, you know, big price was kind of indicative of, like, the difficulty of replicating that dynamic. Okay. So today, we're at this moment where clearly Deribet has kind of like, you know, proven what this world could look like off chain in a centralized exchange. And we've all seen like, okay, hyperliquid kind of has shown what it looks like on chain in the perps world. So, you know, when you sort of look at like where the rest of on chain derivatives go, like, I'm sure you're probably seeing glimmers of some sort of future. So, like, just explain. I imagine like, you know, we're just at some moment in time where it's going to be like, we're going to look back at that moment. Or maybe I'm

wrong. You tell me. So how would you characterize this current moment? Yeah, I think we're in the, I mean, I think we're in the early innings of like that sort of uptick in on chain options adoption following the off chain, like the 2023 moment for pubs. I think more and more, we see some of these big OTC takers and traders, at least looking to take less counter-party risk than they have in the past. I mean, you have like even, you know, blockbills, like big U.S. Chicago-based, reputable market-maker OTC desk, declaring bankruptcy out of nowhere like a month ago. Those risks are present no matter who you're dealing with. And anytime you as a big options trader or taker have to post your collateral to a market maker or in exchange, you're losing custody of your coins.

You also lose, particularly if it's OTC, the ability to use your collateral in other ways, like to get margin or to hedge your position or to trade around it. you know, unless you do, you know, a repeat trade without specific market maker. So we're seeing a lot more demand as these people get more comfortable coming on chain. I actually think Hyper Liquid is doing a really helpful job of like forcing a lot of big institutions to figure out how to trade on chain to do the, you know, the processes and the compliance. That's creating like a really nice tailwind for scaled teams on chain to sort of continue to onboard those firms once they've, you know, fully integrated.

on the PEP side with hyperliquil. So we're seeing that happening. And I think I'm really excited because the quality of assets and crypto is increasing, which is kind of what you need for options. You need people who are going to hold an asset for a long time, have specific opinions about where it's headed and, you know, like three to 12 month horizons, willing to put a lot of capital up front to trade around it,

whether they're selling covered coal to generate yield or like hedging to the downside. you can't really do that if you know you're just looking to flip the bag in a month or you're trading the latest narrative and the sort of trading cycles in crypto historically have just been so short term it's just very difficult to actually care about what's going to happen or put a position up for three months but as rwa start to really take root on chain i think the applications and the ability to create you know different financial products using options on top of these quality assets adds a whole new to mention two options as a tool that doesn't exist even in centralized exchanges or in brokerages, the top ones in the world, where your positions and your collateral is kind of forced to just

sit in your own interactive brokers or Robin Hood account. And at best, you get in Bacin's points for them lending it out on your behalf. No, yeah, I would totally agree. Like I think we're seeing a lot of the same rhetoric around perp dexas that we saw. You know, crypto option like Dexas, like part of my report that I wrote a while ago was like they've had a troubled history like a lot of people have PTSD like it's been pretty bad like all things considered and so there is this thing where it's like you know past performance is not indicative of future outcomes where just because they were bad in the past much like a lot of perp decks is where much like defy was et cetera et cetera means that somehow it won't be really valuable in the future yeah and actually can you tell some

of those stories the the graveyard of failed experiments yeah so like you know there were a ton There was open, Hegick, Hegick, Dopex, strike, like open. Originally got hit with like a CFTC fine. So this is partly like regulatory, which kind of is tough, like a lot of stuff back then, tornado cash. And the fine was huge. And they basically just had to shut down after that. Unfortunately, I believe a founder quit off the top of my head.

And then like similar stuff has into Hegick. Their risk management via smart contracts is not that good. So there's like a TV alt that spiral that happened. They lost like 80% I believe in the span of a couple. it's and then like obviously there's avo and that whole fiasco with ribbon back in the day that that really soured a lot of people I think that one was probably the largest that that really soured tastes dope x and strike had like a ton of security vulnerabilities within smart contracts that that made it kind of unsafe and so like de ribbit just ended up basically taking the pie they were just like

the only one that was still surviving partly because their centralization and they you know still control like 90 percent so um yeah Okay. Yeah. I mean, I agree with your earlier point that just because those failed, it doesn't mean like the category can't succeed at some point. Like clearly crypto has had many examples of, you know, different like subcategories that sort of went through the same kind of initial, you know, early Wild West phase, I guess you could say. So why do we now actually just talk. a little bit about derived directly, Nick, because obviously that's what you're working on. And like formally you, well, you had the name, is it Lyra or Lyra? Lyra. Lyra. Yeah.

So explain like, you know, what approach you're taking there and just generally like, you know, what it is that you feel that having options on chain offers that like an off chain option doesn't have. Yeah, totally. So we started Lyra in 2021. derive is just the rebranded version. It's all the same kind of underlying, you know, token and everything. And we've really been out of for the last five years.

The vision for Lyra, which remains the same today, is that options are the most flexible financial instrument, which makes, you know, you can create any sort of theoretical payoff out of a different combination of calls and puts. And to me, when thinking about, like, I've been in Defi since, you know, kind of like on the sidelines since 2016, or like following Ethereum, where you make capital programmable, like to me it made a lot of sense that options were kind of this during the complete derivative. And you could draw an analogy there. So being the most liquid source of options liquidity on a programmable money ledger

felt like a major, major opportunity. And I didn't think it would take this long, but I knew it would take a little while for that to start to come together. But the reason why I think, options are very valuable on chain is precisely because they're so difficult to understand. And I think a lot of people get this wrong. I think it's part of the reason people are so bearish on options in general. I think they're wrong.

Like, you know, people love to be contrarian until, you know, they love the idea of being contrarian until sometimes presents it with the opportunity to do so. But people say options are complicated. They're difficult. No one's going to take the time to understand them. To me, that's exactly what being programmable allows for. It allows for talented developers and teams to put together the options in the right way to deliver people the specific payoff or the specific trade that they want and get them the

most money for doing so. And I think that that can be repackaged in lots of different ways. Structured products is one of them. I think that Taylor made instruments for AI agents because they're exactly the kinds of users who aren't going to preference bluntness over precision or care much about complexity. And I think we're just really starting to come into a world where derive is becoming liquid enough to really support these use cases reliably for these integrators to build, you know, really high performance structure products or trading strategies or, you know, AI agents at scale 24-7 for really any asset, not just Ethan Bitcoin, but, you know, we'll certainly be looking at adding, you know, the whole suite of RWAs throughout this year. Okay, so I did also just want to ask something that I know this comes up pretty much for like, yeah, most, most defy projects. But, you know, obviously in finance, there's this element where privacy or secrecy can give an advantage.

So I just wondered, like, how that affects the public on-chain or sorry, the on-chain options market. Yeah, it's certainly going to be something that's an important feature to have. at sufficient scale. I don't think it's something the market is necessarily demanding of us yet. I think to some extent at our size and even at hyperliquid size to an extent like it's part of the spectacle in some ways. It makes the positions visible. It makes it interesting to talk about. But I think at sufficient institutional scale, it becomes, you know, mandatory. So it's something that like we're certainly looking into as well as a feature and I think some of the latest ZK tech makes this a lot more manageable and achievable than it once was.

I don't think this was something you could plausibly do a year or two ago. So not the top priority in terms of getting to the next level of scale for us, but certainly at sufficient scale, it will be. Okay. And then last bit, so I saw that you're on O.P. Can you just talk a little bit more about kind of the technical aspects of what it is that you're doing at Derive? Yeah. So the way Derive is architected, we have an off-chain auto book.

and integrated RFQ for price discovery. So if you want to buy 100 Bitcoin calls, you take either the orderbook liquidity or you ping the RFQ, get a quote that you like, accept it, and you know, you trade. And that is then sent through to the protocol for margin. So it remains self-custodial, settlement liquidations, and effectively clearing as well. So all of that logic from margining options lives on chain. It's verifiable. It's auditable in real time. And a lot of that logic is very sort of like compute-heavy mathematical. And so for us, we, when we launched in this version in early 2024, we have a OP stack app chain, which is sort of customized to handle that logic executing at scale trustlessly. So that's kind of the basic outline of the architecture.

Okay. And LTIR, I was going to ask you, you know, when you look at this space, kind of what are the main problems that you feel like really need to be resolved before we start to see it take off? I mean, like, I think within CT, it honestly perhaps doesn't matter as much for on-chain options. Like, I think the average retail participant or the average trader on perps and stuff is going to stay on purpose because it's mostly news driven. And like Nick said, like the information cycles are so short. that like options for more discretionary or more PA trading. I just don't think make a ton of sense. Where it does matter, I think is like foundations, DATs, they all need to be educated about this. And so they don't have to incur the same risk they do with perps. We saw in 1010.

Like, you know, I buildup can be, can be pretty bad, especially if you're running a large book or like if you're an employee and you're receiving a ton of tokens and you want to hedge them like options just can be a better instrument for that. So it's one part education for sure. But I think it's going to. to take a lot of GTM and penetration of like, hey, you know, you can trade 24-7, you know, you can see proof of reserves easily. Like, this is open and stuff like that to the outsiders,

to the people who already trade options or maybe have Bitcoin on their balance sheet or a normal company. So that's what I'd say. I think like a lot of people will always come back and say, like, oh, you know, options will never replace purpose of the average trader. And like, I just agree with that. Like, I'm not even trying to argue against that. It just matters to a different audience. Okay, so one thing I saw that variant wrote about what they saw some problems in this space, and one is one that they called bad order flow, which is about like, you know, you need to have good market makers, you need to attract them. And potentially they might just be more attracted to something like Deribut, you know, which is more centralized and where they're going to

probably just like have better tooling and other things. And I wondered, you know, if you, if you see that as a problem. And if so, you know, how you think that on-chain offerings can resolve that. Yeah, you just need differentiated order flow, like real organic users of options. You need that to get market makers over the line. That begets more, you know, liquidity, which makes it easier to attract that next level of organic order flow. I think part of the reason we've managed to scale up recently is we've done a couple of, you know, foundational deals for liquidity, you know, with Falcon X, for example. That has allowed us to build out differentiated order flow, particularly starting with hyper liquid options since we're the most venue,

liquid venue globally for those. And that onboarded a whole, you know, kind of forced a whole new group of market makers to take note and to start getting integrated with derive in order to sort of interface with that flow. And that's what they need to see is just more of that organic usage. It's kind of why Ribbon managed to make it work way back in 2018, 2019. Not the greatest product, in my opinion, for the users, but it was great for onboarding liquidity because they offered market makers very cheap volatility in massive size.

I think they had like 300 million in the vaults at the peak. And that's really the carrot that you need to start to develop, you know, two-way order flow over time because and to build those network effects. You've got to go find those pockets of users who, for whatever reason, aren't comfortable trading on Deribit. And that class is actually starting to grow at the moment. So in a moment, we're going to talk a little bit more about options, but first we're going to take a quick word from the sponsors who make this show possible. Bitcoin changed how money works. Satrea changes how Bitcoin scales. Satrea uses Bitcoin as both the settlement and data availability layer.

Bitcoin's application layer, Citraea enables the first trust-minimized BTC on a fully programmable platform, and a native stable coin for Bitcoin, CTUSD. Citraea offers Bitcoin capital markets with lending, privacy, payments, Bitcoin yield, trading, and predictions. Citraea expands Bitcoin's utility without sacrificing its security. Citraea Mainnet is live. Get started at Citraea. XYZ slash Unchained.

Etherfi is giving Unchained listeners 15% cash back on ride shares, groceries, and restaurants right now, which honestly is kind of wild for a card like this. On top of that, I'm getting 3% cash back on every single transaction, using my actual crypto, no conversion fees, no nonsense. My bank never once did that. And it goes beyond just spending. You can borrow against your holdings at 4% or less, which is super useful if you don't want to sell your assets.

can also earn on all major assets up to 8% APY just by holding. And moving money is just easy. No hidden transfer fees, no friction. It just works globally. If you want to check it out, go to ether. comfI slash unchanged to claim your offer. That's ether.fi slash unchained. Back to my conversation with Nick and LTR. You know, so one thing I heard you talk about, Nick, was that you feel like there's this relationship between on-chain derivatives and Defy Yield, and you wrote a piece called Yield McGinnon. So tell us a little bit about your theory there. Yeah. So I, you know, we originally tried to make options and selling options competitive in 2024. And so a lot of this insight was driven by that experience of trying to get, you know,

some of the big funds in the space to sell options, which is what happens at scale in traditional finance for 15, 20% yield in USD terms, obviously with some financial risk there to where the price goes. And it was impossible. Like it was actually like just impossible to make any headway. The reason why is because either the basis trade, which they could lever up, was yielding 15 to 30% almost risk free, like certainly delta neutral. Or they had the ability to do a deal with a team that was going to launch a token and needed TVL, where they, you know, commit 50 million in TVL for six months. They get, you know, the 10 to 20 million dollars worth of that team's token, which they can either hedge out through pre-market perps or, you know,

using Pendle on the points markets. And that really was, you know, both the basis trade in crypto from 2020 to 2024, 2025, and then the sort of points farming meta, with, you know, token launches made it almost impossible to actually deliver options as a competitive yield product in the five themes and projects and products were built around these sources of yield. So the basis trade or offshoots of the basis trade slash taking the advantage of some of these token launches. What happened on 1010 was kind of the best thing that could have been, you know, could have happened to us in some ways in terms of the market. structure. And that was, effectively, it was the final nail in the coffin for the basis trade,

you know, which was already in decline really over the course of 2025. But then also, it really hit a lot of the valuations for a lot of these alts in crypto, which, as I said, a lot of these funds had built all of their returns around. We're still seeing, in my opinion, a lot of the, you know, a lot of the funds shutting down, particularly the Delta Neutral runs right now, it is capital outflow from the space, it's because a lot of them were built around those two strategies. And, you know, people have been unable to compete in the new environment. So I think, like, really for the surviving crypto teams, and we've seen Athena, I think a couple days ago, announced that they're pivoting their strategy from just the basis trade

to starting to incorporate, you know, a whole wider range of strategies. I haven't done too much research into that. But I think it's indicative of where the space is going. People need to find yield, you know, from other places that are sustainable, more evergreen and kind of require a little more financial risk than, you know, most of the teams and the funds in this space have been used to it for the last four or five years. And that makes options more competitive. It's the end state for a lot of the yield generation and traditional finance outside of, you know, like credit and lending. And there's a reason for it. It's because it's tailorable and

bespoke. And it creates, you know, kind of, it's no longer crowded out by those dynamics that we're describing. LTR, what do you think? I mean, I think Nick has done formal research than I have on the Yield McGatim, but I would just say it as like that one tweet that's like, you know, why would you be in defy and earn 1% low T bills and lose your money once a year pretty much? It's like right now especially when rates are higher, it's just like, you know, I can earn in a money market on UBS with full FDIC versus like get one shot, you know,

pretty much time and time again. I mean, unfortunately, we saw this with drift like they had a great. yield product that most of Solana, you know, D5 ran through. And so there's just a lot of systemic. You know, I think we even saw in 1010 with a lot of these D5 protocols is they're all looping. They're all borrowing. They're all overcladding with each other. And that just creates like an intertwined mess that when something does happen, everything else suffers. And I think like options provide a lot of insulation from that for one for both counterparties. They can be far more siloed with specific cladization and whatnot. So I would totally agree with Nick here.

Okay. So, yeah, I mean, we're, you know, obviously a very sort of, what's the word, different or interesting crypto market. You know, it was like we had this bull market. And I think because of regulatory stuff and just a lot of validation that people were seeing from TradFi and other things, I think, it's not even I think. I know, because I had so many people on the show who said this will be. the first time that the crypto four-year cycle is going to be dead and it's just going to be, I don't think they use the word super cycle. They basically said, like, this is not, you know, just going to be the typical trend that it's been. Obviously, they were wrong about that, which is okay. But I do think that despite that, everybody knows that in a way it doesn't matter where the market is right now because every single indicator shows that this is not only here to stay, but that both TradFi and Crypto and Fintech are all wanting to compete in the same space.

So in that regard, it's sort of like kind of when the real race begins or something like that is maybe how to think about it. So, you know, when you look at that and you kind of imagine what this world could look like when you are really, using all the different tools on chain, you know, what are the different types of products that you feel like could or should be built or features that they should have that, you know, we haven't really either seen or that haven't found kind of like, you know, the right features to really take off? Yeah, I mean, I can start. I think, you know, our vision and our goal is to trade any asset in any way at any time. And so like it's not just trade any asset like up or down. I think you can create, you know, like what Athena did for the basis trade specifically, I think

you can tokenize pretty much any trade that you want to or like strategy that people use on repeat. So there's this, you know, common one on Robin Hood called the wheel strategy, where you sell puts until you get assigned on the downside on like Tesla, for example, then you buy Tesla kind of at the lows and then you sell calls to the upside. People want to do this. It costs tons in execution. It's a very popular retail strategy. I don't know if it's profitable. A lot of these strategies maybe aren't profitable for some, but if you have some sort of directional edge or you have a specific lien to, you know, or insight into how a stock trades, maybe it's the best way to express that opinion. You can tokenize that. You can do it on repeat. It's one click.

You know, for us, I think, we're interested in, like, how you can take the options and the strategies that we build to stabilize, you know, other sorts of, you know, looping and all of these other risks in the system. For example, you can hedge, you know, some of these Bitcoin collateralized lending markets to the downside by owning, you know, Bitcoin 40K puts that expire in a year. Like, these are the kinds of, like, you know, seamless financial integrations that require some degree of program. programmability that I think don't exist anywhere in traditional finance. I think at the end state, we will have like this sort of payoff factory that you can really build and create, you know, these sorts of structures for yield generation,

hedging or speculation in a really, really tailored way using not only, you know, specifically tokenized trades, but also drawing on AI to an extent to craft and implement these strategies. It becomes a lot easier to, you know, use options if you can say,

hey, like I think, you know, not only I think this, you know, Bitcoin's going up. I think Bitcoin is specifically going to between 80 and 90K, you know, in the next two months. And, you know, you can go away and implement that strategy with one click via options and make more money than you would and have less exposure to, you know, scamwicks or, you know, market dynamics than you would if you were to do that in any other way. So I think it's just like that extreme range of integratability and bespoke customization of those strategies that we will offer that will be very difficult to replicate out of like a Robin Hood brokerage account. And I think that and those products, those yield products, those hedging products can then be reused in other parts of the system as a stabilizer or as a evergreen source of yield. LTR. Yeah, I would agree with all those. I think like the composability there is going to make things a lot of fun and really cool.

Like I think we're going to see some some crazy bundles that we can do or some crazy structured, you know, trades that we can make, especially because we can just go across platform or we can, you know, put rappers on things and trade them. I think one of the main things that we're going to need to do is like capture the tokenization wave of like stocks and stuff because I think that's really what's going to, you know, bring this from from one to end rather than zero to one is like we are going to have these tokenized stocks. You know, we already do Black Rock, Franklin, Templeton. and they're all tokenizing either their treasuries, their stocks, et cetera. But the problem right now is they're very siloed.

Like it's pretty much the same tradfai experience. You have to KYC. You can't bring it anywhere. You can't really transfer. But I think like options have really good advantage where they don't necessarily need to have the underlying quite in the same fashion. So I think like being able to hedge 24-7 on, you know, stocks, just like we've seen on trade XYZ with perps, will be huge for options.

And I'm pretty excited for that. Yeah. I mean, on one of the. other shows that we have here, bits and bibs, they were talking about how RWAs in some way can break Ethereum or break DFI, like break composability. But I think you're right. Like if the option is just the under, it's, it has some underlying. Actually, I'd love to hear you talk through that. You know, do you, do you see ways in which, because it isn't, you know, fully just permissionless and decentralized, that there are sort of like edge.

cases that create issues for it to be fully on chain and truly be defy? Yeah, I mean, there's a couple of things, right? Like a lot of the RWs we've seen in the past have unfortunately been like like Junstein SPVs that you're, you know, you're not really owning anything and you can get rugs. Like Anthropic has a deal where like if they find out that, you know, that you're selling stock, they can basically just zero it because it's technically a private company. And a lot of companies have those terms.

So like I'm, I'm very cautious with anything that's trying to do like private markets, especially right now. just because those can be zeroed pretty quickly. But with public stuff, I think, you know, Robin Hood is already live with like some tokenized stocks in Europe pretty much. And like, yes, are those like somewhat kind of suss because they're kind of rappers and like they got in trouble with open AI and a lot of other companies? Yes. But on the other hand, I think it's just like an inevitability that we're going to have tokenized stocks and we already do. The key thing is just about like accessibility and openness now.

And that's kind of what I'm looking for is like how can we open and make. these accessible without necessarily having the same cumbersome K.C. There's some interesting stuff. You know, ZKTLS for K for KYC, et cetera, et cetera. Or like Cracken has this thing where, you know, you can link your on-chain wallet to your Cracken account. So you can kind of trade centralized but on chain and that's kind of cool. But beyond that like super state from Leshner is doing some interesting things where it's like a fund and you don't, you're basically signing up to agree that maybe you don't own the asset specifically, but you're more like taking part of like an ETF or something like that. I think that. I think that you're,

think there's a lot of interesting workarounds. I mean, I think we have some of the brightest minds in that within DFI. And so I'm excited to see what happens. Yeah, I mean, I would just say, like, we already, this is the same problem that USDA or USDT has. I expect it will be solved comprehensively for stocks. And there are a lot of great teams, you know, fully focused on solving that. So, you know, maybe it's a, it's a consideration in the next six months if you're looking to get into out of UA's, but structurally over the next five years, I think it's, you know, we can assume that those assets are going to be live, liquid, and on-chain and, you know, rogable, not rogable to the extent that, you know, whatever circle or USDT is. And I wanted to ask, so I think

on derive, like most of the options are still Bitcoin and Ether, is that accurate? So what, what is, you know, keeping derived from getting to a place where it can be so many of, you other assets and really, you know, build a long tail. Yeah, there's one more upgrade that we are working on. It's not quite public just yet, although that's a bit of a public leak of that, those plants, but it'll be totally compatible for anyone who's building on us with what we already have. That will allow us to seriously take on that market and make a big push in there. So a lot of our engineering efforts are around that. It requires some tweaks to the architecture, some isolated risk components to really make it sturdy,

resilient, particularly for the longer tail of assets. And then, you know, just making sure we line up the liquidity with some of the partners we have onboarding at the moment. We want to do it once and do it right. We have no plans to just launch something. We know that, like, options tend to lag perps as well. And so perp RWAs are taking on off right now. We expect to, you know, kind of measure twice and cut once

and really launch and get that going. I am excited, though. I think, as I said, we've always been built from day one to be a fintech, not just a, you know, on-chain crypto-native team or structure. And I think that the architecture that we build lends itself really, really nicely to these RWAs. And, you know, we're excited to take them on because, as I said, I think the people will hold these RWAs are a much more natural users of options anyway than, you know, good chunks of the crypto-Twitter, you know, market today.

Okay. And actually, one other thing, so I think you mentioned the partnership with Athena earlier. And I meant to ask, so, you know, there you'll get access to, you know, a large amount of TBL, you know, large user base. But I, so I think like, you know, if I think about Athena's business, the model depends on the funding rates being in being positive. So how does it work if the funding rates go negative in terms of, you know, what derive and Athena are doing? Yeah, we don't have like a formal, like, kind of initiative where we're working with them directly on liquidity at the moment. So in terms of funding rates going negative, it doesn't really impact us or with them with, you know, a good working relationship with them. But I think they're kind of, as I said, re-architecting their stack now in real time to go away.

from the basis trade. But I think if the basis is negative, you know, their approach to date has just been flipping into, you know, the treasuries that they're done with BlackRock. So I would expect that to continue with negative funding. And, you know, I haven't looked too deeply into the new announcement, but it looks like, you know, diversifying and potentially taking on a little more risk and going up the risk curve a little bit in order to deliver their users a bit more yield. Okay. By the way, this, I took a risk and I asked the question. that Claude selected, and clearly it's based on a fiction. So we're going to cut that question. This is why I always literally write all my own scripts. I don't rely on the AI. And for good

reason, I just discovered. Okay, we're going to skip that one. So Nick, earlier you talked about how you felt like AI agents were perfect for options on chain. And I'd love to hear you kind of explain more why you see them as being such a good fit. Yeah. Because I think a lot of traders have good intuitions around what is going to happen to a stock, like that or to an asset. Like I think people, you know, if you've ever had an opinion where you think like, hey, like if if Trump does this, then I think Bitcoin goes to, you know, the 76K to 80k range in two weeks. And if he doesn't do this, I think the bottom falls out and it goes straight through 50K.

Like if you were thinking about like, okay, how would I express that opinion for a lot of traders, even at the top levels of finance, which is why JP Morgan's structured products desk still exist, it's kind of hard to think about how to build that trade and express that view both from a capital efficiency perspective as well as from a maximizing your payout perspective. And I think AI agents, right, like that is not an issue for them. They can take that opinion and translate it very cleanly into the right structure,

which might be like buying a call spread in Bitcoin as well as pairing it with, you know, a ratio put spread to the downside. Very difficult to come up with on your own and is a big blocker for a lot of people trying to access options in general, even, again, people who have, you know, a decade of experience in finance. That problem gets completely solved with agents, right? Like, particularly if you have an agent and I don't pretend to know more about this stuff than, you know, kind of most of your sort of layman tech Twitter, but I expect

structurally, agents to become more sophisticated over the next five years. Those are exactly the kinds of issues that they'll be perfectly suited for, like being able to take all of the ingredients, survey the whole range of financial assets that they have at their disposal, whether it's prediction markets, binary options on prediction markets, perpetuals, spot, lending, or options. I think, you know, like they'll select the tools which kind of achieves their, you know, objective function most cleanly and most efficiently. I think a lot of the time, options will be that tool.

So I'm pretty excited. I think we're trying to make our stack as integratable and agent-friendly as possible. And that is a, I think, thematic tailwind, not just for options, but for composable defy in general over the next five years. LTR. Yeah, I would agree. I also think, like, you can just make people more literate. Like, let's say if you don't know anything about options, but, you know, you suddenly received

a large locked investment of some token and like you're like hey claude like how can I hedge this and protect my downside without like basically naked put or selling outright and like it could just be like oh hey you know you can do this kind of thing and this is how you would set it up via drive or whatever it is and like I think that is just a big unlock I mean once you see payoffs and once you see your PNL at different price points like then options become very very clear and very digestible to people and I think that's what's missing from a lot of like, first of all, options products, but just literacy in general. I think there are some interesting options apps that are working on stuff like that that's more forward facing,

but I think AI can really disperse that out to a lot of people and help them with stuff. Okay. All right. So, you know, my thinking is like we sort of, so we saw that hyperliquid took off, you know, amongst basically crypto degen's. And then now we're seeing that Treadfi is like, hey, hey. So, you know, it sort of feels like, you know, we're going to see some kind of similar trajectory, I would imagine here. So, you know, I know we even still just have to get past that first hurdle, but I'd be curious to hear, you know, how you think about bringing institutions to options on chain. Is there kind of like a specific pitch that you would have to them? or like, is there a specific problem that you think it solves for them that they currently,

you know, can't do in their, you know, traditional systems? How do you, how do either of you think about this? Yeah, for me, I think we, one of the big blockers we've had to institutional adoption is to some extent like custody. It blocks a lot of institutions from, like, within their mandate being able to come and trade on chain. We've actually developed, like, I think a unique product. where we work with some of the big custodians,

the qualified custodians, tokenize their balances with a partner called Strands, who tokenize the balance in, say, your Bitcoin account, whether it's Bitcoin or USDC, and then those tokens, those funds are segregated. They can't be double pledged. It's in qualified custody. And they can be used on drive as collateral.

And so, like, that's the kind of thing where it gets institutions a lot more comfortable with trading. And at that point, you kind of have this pitch for us where you can trade, you know, the most liquid hive options in the market. Very competitive, competitive with Deribit on Bitcoin and ETH for big block trades and, you know, for smaller sizes as well, with lower fees and we're more responsive. So you have a, you know, a custom kind of collateral or trades you want to put on. We have one guy who, you know, one fund who asked us to list Cardano options via the RFQ. And they're going to do, you know, 50 to 100 million a month in volume.

and we've done that and we're kind of I think the fastest moving team in options so at the moment that's our pitch is like hey you get the lowest fees on the market best execution on the market and the widest range of assets to trade as well as your funds in you know in qualified custody and so like that all up is a you know a product that a lot of people like it then also removes a lot of the credit risk and some of the you know potential exposure that they they might have to different venues in the market too. Yeah, I would echo those. I think, like, um, trust is obviously a huge one.

I think like a lot of institutions are still very wary of the Codas law in a regime that we do have in on, like in on chain in general, especially with DFI and especially with DX's. Um, so like that is a big one. A second big one is obviously like reporting and like stuff like that. I mean, if you are like a publicly traded company, et cetera, like it might be a little harder to maybe show your proof of assets or maybe show your trades. Obviously to us, it isn't because we're very change. literate, but for like SEC reporting or investor letters, it might be a little different.

I think a general, like what Nick said, like in the end, though, especially as Dex's improve and improve, like it becomes a win-win if you can get over those hurdles. I mean, you get a wider cost of assets, you get 24-7 access, you get composability, and fees are far, far cheaper than they would be in a centralized counterpart because there isn't that monopoly. And on-chain is truly a free market. So, yeah, I would agree with that. So, you know, as you look at where this sector is right now and, you know, what steps are needed to get it to, you know, become as big as some of the other parts of the crypto defy world, what are the major milestones you're looking at, whether it's, you know, volume or certain technical hurdles or, you know, whatever it might be.

Like, what are you, you know, looking to hit and where do you think we could go from there? Yeah, I think from us, we've gone from like 0.1% of Deribitz average daily volume like six months ago to, I think two and a half to three in March. I think we can get that, you know, we're trying to get that to 10 to 15, you know, the next six to 12 months. And we think we have a path to do that. I think at that point we become just like a globally competitive options venue across the board. And with some of the integrations we're kind of working on at the moment, we would expect our liquidity to be, you know, are like very, very consistent at major sizes, like almost instant. And as I said, you know, 24-7.

And at that point, it opens up a lot of those use cases I described where you can then, you know, for us, I think the biggest last piece of our vision to watch for is, you know, other teams starting to hit scale, integrating with derive and offering the options in specific ways. So whether that's a retail trading interface, that's much more easily to digest, focusing on shorter dated options or a large distributor doing, you know, structured products and then kind of crafting them, building them, using the building blocks and distributing them.

Or, you know, like an AI first agent, you know, kind of team offering an interface to go construct those payoffs. Like those are the integrations, I think we want to focus on in the back half of the year as well as some other ones with, you know, some bigger names in this, you know, kind of globally. Like that's how we want to get distribution. I think that would be a big marker of both maturity, the liquidity in our system to support those sorts of integrations and also the path forward because that is really how you scale. Like it's not going to be the derived team, you know, building retail trading UI and then going

on TikTok and trying to get people to come and trade or, you know, like marketing specific structure products for, you know, Indian equities to, you know, people locally in India. Like that's a global thing. And I think, you know, similar to how hyperliquid are doing HH. IP3, and that really is kind of the transition from them to just a, you know, a perp-dex to a, you know, a much broader liquidity network. I think that's where we can get to this year. And that's what, you know, for us, and like for me, I think we're looking at doing. I guess that's a very derived specific answer and not so much about the sector. So I apologize for that. It's fine. It's, I mean,

it's what you're focused on? So it makes sense. LTR. What, what about you? What do you feel like you would want to really see this sector hit to see it take off. Yeah, I would just say like RWA options going live for for tokenized stocks. I think like I would actually like to see like the CME launch 24-7 crypto options. Sorry, I have a new puppy in the background if you can hear him. But. And then like I think another thing is like a major traditional institution like someone in Tradfi like actually publicly disclosing like on chain options activity. Like oh hey, even if that's Deribit like oh hey, we're using.

derivative right now to hedge our BTC balance or something like that. I think that could be pretty big. Other than that, just like the normal things, you know, lots of volume one bill volume monthly like over time and like would be really nice. And then yeah, I'd say that's it. Like I mean, as far as the regulatory side, I'd love to see a safe harbor. You know, I think we're making some some bounds on the perp side. And the good thing about options is I think they're a little bit more digestible to maybe the older people that might be at the SEC. And so like it could it could have some, some leverage, I would say, in like, the regulatory hearings and whatnot. So it'd be cool to get some sort of genius clarity act for on-chain options just to help

the space out. But that's kind of what I'm looking for. Yeah. Random question that just came to mind. Like, is there any world where it would make sense to have it be a defy mullet style type of thing where like derive could be the back end of something either on Coinbase or Deribit or like, you know, like the more. deal or I'm not sure even if that makes any sense?

I think definitely makes a lot of sense. Yeah, those are exactly the kinds of integrations we're hoping to support. And it would it be, and is that specifically just because of the long tail type of thing that you can have on defy that maybe is harder to do at a centralized company? Mm-hmm. And the, and the self-custodial execution of like structured product strategies, for example, that we've already had live and built on on derived, but again, struggle to gain traction in the old environment when we're really pushing them and launching them.

So whether it's us directly or, you know, a centralized exchange kind of curating those strategies, I think it remains to be seen. But yeah, I think it's the long tail. It's the ability to surface those, you know, yield generating and protective strategies kind of cleanly in a one-click interface. Yeah. And presumably then there's also the the potential for something that's akin to an HIP3 as well. Oh, okay, right. So, yeah, it all, of course, the money Legos. It's just, yeah, just apply it everywhere.

All right, well, I look forward to seeing how all of this kind of gets built out, because even if, yeah, we're in this bear market and, you know, the options space so far on chain has been kind of, you know, maybe not super successful yet, I have no doubt that it's going to be someday. So anyway, all right, well, it's been super fun chatting with you both. Thanks so much for coming on and chained. Thanks, thank you so much for having me. Next up, we have bits and bits and bit.

So stick around and the crew, Austin, Rom, and Chris will be discussing all kinds of things. So stick around after this short break.