Why Onchain Options Are a Perfect Fit for AI Agents

Transcript

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 Unchained is investment advice. This show is for informational and entertainment purposes only, and my guest and I may hold assets discussed in the show. For more disclosures, visit unchainedcrypto.com. Bitcoin changed how money works. Satria changes how Bitcoin scales. With a trust minimized BTC and a native stablecoin CTUSD, Satria enables Bitcoin capital markets with lending, privacy, Bitcoin yields, and more. Get started at satria.xyz/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/unchained to claim your discount. Today's topic is on-chain derivatives. Here to discuss are Nick Forster, CEO and founder at Deribit, and LTR, venture 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 if such thing exists. All right, so as I mentioned, we're here to discuss on-chain derivatives. Um why don't we just start by kind of cuz there are some derivatives out there that are, you know, already kind of um 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 um on-chain. And Nick, why don't we start with you?

Yeah, sure. So, there are, you know, I I guess derivatives is a broad category, um but by and large uh I would look at like the markets in crypto as is beginning with with spot trading, which is not a derivative, but it started in, you know, in earnest on-chain in what like 2017 uh 2016 2017 with Uniswap. Um perpetuals, uh which is, you know, everyone's familiar with now and or most people are in crypto, which are kind of like the crypto equivalent of of like dated futures, um first got big in 2016 with BitMEX, and then first really uh successful on on-chain attempt was dYdX, I think in 2020, um and then really cracked in 2022 2023 with Hyperliquid um continuing on into now. Um

And then the next big bucket, which, you know, I'm biased for, is I believe is is options. Um 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 um whose value uh in some way depends on, you know, where the underlying spot value goes. Um and so you can get into like interest rate derivatives and, you know, uh swaps and RWA derivatives and all these different types, but ultimately um you know, it's a it's a broad category, but the the main one that's 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. Uh I think we have seen like volatility like DVOL and stuff from from Deribit has done pretty well. Uh and then the one thing I would also say is that like uh DeFi enables a lot of other stuff as far as like structured products, options vaults on top of options, and then like even like Uniswap 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 the 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. Um and from what I've read, it seems like initially it was kind of like a little bit more over-the-counter, um which obviously is like slow and inefficient. Um but then derivatives came or sorry, Deribit 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, um I think, you know, it it provided a a step up in in liquidity across the board. It was a way for a lot of the, you know, initially I think Deribit only had, you know, all it had all the prices and margin in Bitcoin

itself, um which is pretty unique for, you know, uh options exchanges. It created some funky, interesting things with how the options are priced when you're paying in Bitcoin, um and that's kind of like the quote instrument. Like I think USDC was only added a couple years ago on Deribit as an as an instrument. But what it did was um allow a lot of these sort of markets that were only serviced over-the-counter with written legal agreements, um often via ISDA's, often not, um 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 were taking the other sides of these trades. And that was like kind of the heartbeat of a lot of the

Deribit flow, um and it's still is today, um alongside, you know, of course, the the very traditional OG flow of um you know, Bitcoin miners uh buying puts, buying downside um to protect against, you know, a precipitous drop in Bitcoin and and their future earnings, um which is kind of the bedrock of a lot of the early options activity. Um but Deribit kind of reduced the price of hedging by centralizing a lot of the the risk and allowing for margin within the system, um and I think that was, you know, very much the first step in the in the adoption of of crypto options, um but, you know, similar to what I described there with the 7-year timeline between the introduction of perps to crypto in 2016 to really

Hyperliquid beginning to get serious traction in 2023 and 2024, I think we're about 7 years behind when Deribit started to do volume for the first time, too. Um 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 I think those are all uh salient points. Like, yeah, Deribit came on the scene 2016, and just like before that, there were there was nothing. Uh you had to price like based off whims, based off gut feel. Um so like it it started with only European, which means like fixed expiries, uh and cash settlement was only in Bitcoin. So like I think the major things that Deribit brought was like a real-time order book. Uh they actually used a 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. Um and it was the first time we could make an IV surface for Bitcoin and actually like price it, um and people could see that, and so I think that really led a lot of stuff, even perps, to be honest. Like I think we've seen that Deribit really led the game in a lot of pricing and a lot of risk and portfolio management, so. And um so obviously like Deribit grew huge, and um I just saw, I think, like even in the last 24 hours, um there was about 2.7 billion dollars in open interest, which um is very similar number to the number that was acquired for last year by Coinbase, uh 2.9 billion dollars, and that 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 on this one. Yeah, I'd just say like I think it kind of shows that there's a whole 'nother world out there. You know, I think a lot of people in CT are very siloed into the the perps and stuff, and and while I think perps are a fantastic instrument, especially for maybe a solo trader who's just more discretionary in trading their PA, um there really is a whole 'nother 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. Uh and then I think that's where options really shines, especially if you have BTC on your balance sheet or your DAT or whatever it might be. Um seeing those numbers, I think, surprises a lot of people. They're like, "Oh my gosh, where's this coming from?" Um but to people who've been around, like it's not too surprising. Like, you know, they did over 14 billion on March 27th alone. Like, uh there's been some crazy options, and then it also helps inform a lot of discretionary traders, too. I know a lot of perp traders that use Deribit data um for like targets or seeing like where we might go next, just cuz it is informing a lot of flow.

Yeah, and um I think for me as well, it shows it one, it showed uh the maturity of of the options market in crypto to some degree, um but two, I think it shows how difficult it is to actually replicate a network effect in options. Um it's 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. Um it also is just by the nature of the product where you are trading often like 6-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, um and the trader has some capital

and some positions on the exchange for a year. So, it's very difficult to wrestle wrestle someone away um from an existing exchange for another exchange once all of that is set up, which is why, you know, like a lot of the other sort of Asia-based centralized exchanges tried very hard to get into options um in that period in like 2022 2020 to 2024, and uh didn't make huge inroads into the Deribit market share because of those strong network effects. So, I think what it signaled from Coinbase was like, "Hey, like 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." Um and that, you know, big price was kind of indicative of like the

difficulty of replicating that dynamic. Okay, so today um we're at this moment where clearly Deribit 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, um, 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 I imagine like 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. >> [laughter] >> Or maybe I'm wrong. You 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 perps. I think more and more, we see some of these big OTC takers and traders at least looking to take less counterparty risk than they have in the past. I mean, you have like even, you know, Blockfills like big US-based 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 an 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 with that specific market maker. So, we're seeing a lot more demand as these people get more comfortable coming on-chain. I actually think Hyperliquid 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 scale teams on-chain to sort of continue to onboard those firms once they've, you know, fully integrated on the perp side with Hyperliquid. So, we're seeing that happening. And I think I'm really excited because the quality of assets in 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 3 to 12-month horizons, willing to put capital up front to trade around it, whether that's selling covered calls to generate yield or like hedging to the downside. You can't really do that if, you know,

you're just looking to flip a 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 3 months. But as RWAs 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 dimension to options as a tool that doesn't exist even in centralized exchanges or in brokerages, you know, the top ones in the world where, you know, your positions and your collateral is kind of forced to just sit in your own Interactive Brokers or Robinhood account. And, at best, you get basis points for for them lending it out

on your behalf. No, yeah. I would totally agree. Like I think I think we're seeing a lot of the same rhetoric around perp DEXes that we saw. Um, you know, crypto option like DEXes 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. Um, 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 DEXes were much like DeFi was, etc. etc. means that somehow it won't be really valuable in the future.

Um, 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, Hegic Hegic 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 happened to Hegic. Their their risk management via smart contracts was not that good. So, there was like a TVL test battle that happened. They lost like 80% I believe in in the span of of a couple bits. And then like obviously there's Aevo 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 taste. Dopex and Strike had like a ton of security vulnerabilities within smart contracts that that made it kind of unsafe. And so like Deribit 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%. So, um yeah. Okay. Yeah, I mean, um, 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, um, has had many examples of, um, you know, different like subcategories that, uh, sort of went through the same kind of initial, um, you know, early wild west phase I guess you could say. Um, so why don't we now actually just talk, um, a little bit about Derived directly, Nick, because obviously that's what you're working on. And and like formally you, um, well, you had the name is it Lyra or Lyra? Lyra. Lyra. Yeah. So, so explain like, you know, what approach you're taking there and just generally like, you know, what it is that you feel that, um, having options on-chain offers that like an off-chain option doesn't have.

Yeah, totally. Um, so we started Lyra in 2021. Derived is just the rebranded version. It's all the same kind of underlying, um, you know, token and everything. Um, and we've really been been out of the last 5 years. The vision for Lyra, which remains the same today, is that options are the most flexible, uh, 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 would make capital programmable, like to me it made a lot of sense that options were kind of this Turing complete, uh, derivative and, you

know, you could draw an analogy there. So, being the most liquid source of options liquidity on a, you know, programmable money ledger, um, felt like a a major major opportunity. Um, and I didn't think it would, you know, take this long, but I knew it would take a little while, for 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. Um, 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, um, until sometimes presented with the opportunity to to 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. Um, and I think that can be repackaged in lots of different ways. Structured products is one of them. I think they're tailor-made instruments for AI agents because they're exactly the kinds of users who aren't going to, you know, preference bluntness over precision or care much about complexity.

And I think we're just really starting to come into a world where Derived is becoming liquid enough to really support these use cases reliably for these integrators to build, you know, really high-performance structured products or trading strategies or, you know, AI agents at scale 24/7 for really any asset, not just ETH and Bitcoin, but, you know, we'll we'll certainly be looking at adding, you know, the sweet whole suite of RWAs throughout this year. Okay. So, I did also just want to ask, um, something that I know this comes up pretty much for like, yeah, most most, DeFi projects. But, you know, obviously in finance there's this element where

privacy or secrecy can give an advantage. So, I just wondered like, um, how that affects the public on-chain or sorry, the the on-chain options market? Yeah, um, it's certainly going to be something that's an important feature to have at 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, um, it's part of the, you know, the spectacle in some ways. Um, it makes the positions visible.

Um, it makes it interesting to talk about. Um, but I think at sufficient institutional scale it becomes, you know, um, mandatory. So, it's something that like we're certainly looking into as well, um, as as a feature. And I think some of the latest CK tech makes this a lot more manageable and achievable than it than it once was. I don't think this was something you could plausibly do, uh, a year or two ago. So, um, 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, um, so I saw that you're on OP. Can you just talk a little bit more about kind of the technical aspects of what it is that you're doing at Derived? Yeah, so the way Derived is architected, we have an

off-chain order book and integrated RFQ to for price discovery. So, if you want to buy 100 Bitcoin calls, you take either the order book liquidity or you ping the RFQ, get a quote that you like, um accept it, and you know, you trade. And uh that is then sent through to the protocol um for margin, uh so it remains self-custodial settlement uh liquidations, and effectively clearing as well. So, all of that logic um for margining options lives on chain. Um it's viable, it's auditable in real time. Um and a lot of that logic is very sort of like compute-heavy, mathematical. Um and so for us, we when we launched in uh this version in early 2024,

uh we have a OP stack app chain um which is sort of customized to handle that logic um executing at scale uh trustlessly. So, that's kind of the basic outline of the architecture. Okay. And LTR, 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. Um like I think the average retail participant or the average trader on perps and stuff is going to stay on perps cuz it's it's mostly news-driven.

And like Nick said, like the the 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 10/10 like, you know, OI build-up can be can be pretty bad, especially if you're you're running a large book or like if you're an employee and you're you're receiving a ton of tokens and you want to hedge them like um options just can be a better instrument for that. So, it's one part education, for sure. Um but I think it's going to take a lot of GTM and penetration of like, "Hey, you know, you can trade 24/7, you know, you can see

perp reserves easily. Like this is open and and stuff like that." To the outsiders, to the people who already trade options or maybe have Bitcoin on their balance sheet in a normal company. Um 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 will never replace perps for the average trader." And like I just agree with that. Like I'm not even trying to argue against that. Um it it just matters to a different audience. Okay. So, one thing I saw that Variant wrote about what they saw as some problems in this space, and one is um one that they called bad order flow, which is about like, you know, you need to have good market makers, so you need to attract them. And potentially, they might just be more attracted to

something like Deribit, you know, which is more centralized and where they're going to uh probably just like have better tooling and 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 um on-chain offerings can uh resolve that. Yeah, you just need um differentiated order flow, like real organic users of options. You need that um 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 um you know, foundational deals for

liquidity, um you know, with FalconX, for example. That has allowed us to build out a differentiated order flow, um particularly starting with hyperliquid options, since we're the most venue liquid venue globally for those. Um and uh that onboarded a a whole, you know, kind of forced the whole new um 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 um is just more of that organic usage. Um it's kind of why Ribbon managed to make it work way back in 2018 in 2019.

Um 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 um in massive size. I think they had like 300 million in the vaults at the peak. Um and that's really the carrot that you need to start to develop um you know, two-way order flow over time because once you build those network effects, you've got to go find those pockets of users who um for whatever reason uncomfortable trading on Deribit. Um and that class is 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.

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to claim your offer. That's ether.fi/unchained. Back to my conversation with Nick and LTR. >> [snorts] >> Uh you know, so one thing I heard you talk about, Nick, was um that you feel like there's this relationship between on-chain derivatives and DeFi yields, and you wrote a piece called Yield Maggeddon. So, tell us a little bit about your theory there. Yeah, so I, you know, we originally tried to make options in selling options competitive in 2024. And so, a lot of this insight was driven by that experience of trying to get, you know, bigger some of the big funds in the space to sell options, which is what happens at scale in traditional, you know, finance for, you know, 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, um which they could lever up, was yielding 15 to 30% almost risk-free, like certainly delta-neutral. Um or they had the ability to do a deal with a team that was going to launch a token and needed TVL, um where they, you know, commit 50 million in TVL for 6 months, they get, you know, uh 10 to 20 million dollars worth of that team's token, which they can either hedge out through pre-market perps or um you know, using Pendle on the on the points markets. Uh 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 in almost impossible uh to actually deliver options as a competitive yield product in DeFi teams and projects uh and products were built around these sources of yield. So, the basis trade or offshoots of the basis trade {slash} um taking advantage of of some of these token launches. What happened on 10/10 was kind of the best thing that could have been, you know, could have happened to us in in some ways in terms of the market structure. Um and that was

effectively it was the final nail in the coffin for the basis trade, um you know, which was already in decline really over the course of 2025. Uh 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 ones, right now. It is capital outflow from the space. It's because a lot of them were built around those two strategies. Um and, you know, people have been unable to compete in the new environment. Um so, I think like really for the surviving crypto teams, and we've seen Athena, I think, a couple days ago announce um that they're pivoting their strategy from just the

basis trade to starting to incorporate um you know, a whole wider range of 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 um you know, from other places that are sustainable, more evergreen, and kind of require a little more uh financial risk than, you know, most of the teams and the funds in this space have been used to up for the last 4 or 5 years. Um and that makes options more competitive. It's the end state for a lot of the yield generation in traditional finance outside of, you know, like credit and lending. Um and there's a reason for it. It's because it's tailorable and bespoke. Um and it creates, you know, kind of it it's no longer crowded out um by those dynamics uh that we were describing.

LTR, what do you think? I [laughter] mean, I I think Nick has done far more research than I have on the Yield Maggeddon, but I would just say it is like that one tweet that's like, you know, why would you be in DeFi and earn 1% below T-bills and lose your money once a year, pretty much? It's like right now especially, um 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 that most of Solana, you know, DeFi 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 DeFi protocols is they're

all looping, they're all borrowing, they're all over collating with each other and that just creates like an intertwined mess that when something does happen, everything else suffers. Um and I think like options provide a lot of insulation from that for one, uh for both counterparties. Uh they can be far more siloed with specific collateralization and whatnot. So, I would totally agree with Nick here. Okay. So, yeah, I mean, we're in you know, obviously a very sort of um 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 um just a lot of validation that people were seeing from TradFi and other things. I think um it's not even I think, I know cuz I had so many people on the show who said this will be the first time that the crypto 4-year cycle is going to be dead and it's just going to be I don't I don't think they use the word super cycle. Um 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. Um but I do think that um 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 um kind of when the real race begins or something like that is maybe how to think about it. So, um you know, when you look at that and um you kind of imagine what this world could look like when when you are really using all the

different tools on chain, um you know, what are the different types of products that you feel like could or should be built or uh features that they should have that um you know, we haven't really either seen or that um haven't found kind of like, you know, the 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. Um and so, like it's not just trade any asset like up or down. Um I think you can create, you know, like what Athena did for the basis trade specifically, I think you can tokenize

um pretty much any trade that you want to uh or like strategy that people use on repeat. So, there's this, you know, common one on Robinhood called the wheel strategy um 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. Um It's a very popular retail strategy. I you know, I don't know if it's profitable. A lot of these strate- these maybe are unprofitable for, you know, some, but if you have some sort of directional edge or you have a specific lean to, you know, or insight into how a stock trades, maybe it's the best way to express that opinion. Um you can tokenize that, you can do it on repeat,

it's one click. Um 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. Um 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. Um like these are the kinds of like, you know, seamless financial integrations that require some degree of 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 um 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 um 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 um you know, not only I think this, you know, Bitcoin's going up, I think Bitcoin is specifically going to between 80 and 90K um you know, in in the next 2 months." And you know, the you know, you can go away and implement that strategy with one click um via options and make more money than you would and have less exposure to, you know, scam wicks or or, you know, uh market dynamics than you would if you were to do that in any

other way. Um so, I think it's just like that extreme range of integratability um and uh you know, bespoke customization of those strategies that we will offer um that will be very difficult to replicate out of like a Robinhood brokerage account. Um and I think of 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, you know, evergreen source of 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 cuz

we can just go cross-platform or we can, you know, put wrappers on things and trade them. Um I think one of the main things that we're going to need to do is like capture the 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 N rather than zero to one is like we are going to have these tokenized stocks, you know, we already do. BlackRock, Franklin Templeton, they're all tokenizing either their treasuries, their stocks, etc. But the problem right now is they're very siloed. Like it's pretty much the same TradFi experience. You have to KYC, you can't bring it anywhere. You can't really transfer, but I think like options have a really good advantage where they they don't necessarily need to to have the underlying quite in the same fashion.

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

it to be fully on chain and and truly be DeFi? Yeah, I mean, there's a couple things, right? Like a lot of the RWAs we've seen in the past have unfortunately been like Liechtenstein SPVs that you're you're not you're not really owning anything and you can get rugged. Like um Enzoic has a deal where like if they find out that, you know, that you're selling stock, they can basically just zero it cuz 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, uh just cuz those can be zeroed pretty quickly. But with with public stuff, I think, you know, Robinhood is already live um with like some tokenized stocks in Europe pretty much. And like, yes, are those like somewhat kind of sus because they're

kind of wrappers and like they got in trouble with OpenAI and a lot of other companies. Yes, but uh on the other hand, I think it's just like an inevitability that we're going to have tokenized stocks and we already do. Um the key thing is just about like accessibility and openness now. Um and 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 KYC. Like there's some interesting stuff, you know, ZK TLS for for KYC etc. etc. Or like Kraken has this thing where, you know, you can link your on-chain wallet to your Kraken account and so you can kind of trade centralized but on chain and that's kind of cool. Um but beyond that, like Superstate from Lexer 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, um but you're you're more like taking part of like an ETF or something like that. Um I think there's a lot of interesting workarounds. I mean, I think we have some of the the brightest minds in that with within DeFi and so, um I'm excited to see what happens. Next. >> Yeah, I mean, I I would just say like we already this is the same problem that USDC or USDT has. Um I expect it will be solved comprehensively for for stocks and there a lot of great teams, you know, fully focused on on solving that. Um so, you know, maybe it's it's a it's a consideration in the next 6 months if you're looking to get into RWAs, but structurally over over the next 5 years, I I think it's uh you know, we can

assume that those assets are going to be live, liquid, and on chain. Uh and, you know, ruggable not ruggable to the extent that uh 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, um keeping Derive from getting to a place where it can be so many other assets and and really, you know, build a long tail? Yeah, there's one more upgrade um that we are we are working on. It's not quite public just yet, although that's a public leak of that those plans, but it'll be totally compatible for anyone who's building on us with with what we already have. Um that will allow us to seriously take on that market um and and

make a big push in that. So, um we're a lot of our engineering efforts are around that. It requires some some tweaks to the architecture, some isolated risk components to really make it sturdy and resilient, particularly for the longer tail of assets. Um and then uh you know, just making sure we line up the liquidity with some of the partners we have on boarding at the moment. Um we want to do it once and do it right. Uh we have no plans to to just launch something. Um We know that like options tend to lag perps as well. And so perp RWAs are taking on off right now. Um we expect to you know, kind of measure twice and cut once and and really launch get that going. I am excited though. I think as I said, this is we've always been built from day one to be a fintech um not just

a you know, on-chain crypto native uh team or structure. Uh and I think that the architecture that we built lends itself really really nicely to these RWAs and um you know, we're excited to take them on because as I said, I think the people who hold these RWAs are a much more natural users of options anyway than you know, good chunks of of of of the crypto Twitter uh you know, market today. Um so Nick, earlier you talked about how you felt like AI agents were perfect for options um on-chain. And I'd love to hear you kind of explain more why you see them as being such a good fit.

Yeah. Um 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 if Trump does this, then I think Bitcoin goes to you know, the 76K to 80K range in in 2 weeks. Uh and if he doesn't do this, I think the bottom falls out and it goes straight to 50K. Like if you were thinking about like how okay, how would I express that opinion? For a lot of traders even at the top levels of finance, which is why you know, JP Morgan structured products desk like still exist, it's kind of hard to like think about how to build that trade and express that view

both from a capital efficiency perspective as well as from a maximizing your payoff perspective. Um 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 you know, buying a call spread um you know, in Bitcoin as well as pairing it with you know, a ratio put spread to the downside. Like very difficult to come up with on your own and is a big blocker for a lot of people trying to access um options in general even again, people who are have you know, a decade of experience in finance. Um that problem gets completely solved um with agents right? Like if particularly if you have an agent and I don't pretend to know more about this stuff uh than you know, kind of most of

your sort of layman tech Twitter, but I expect structurally um agents to become more sophisticated over the next 5 years. Like those are exactly the kinds of issues that they'll be perfectly suited for. Um like being able to take all of the ingredients, survey you know, the whole range of financial assets that they have you know, at their disposal whether it's prediction markets, binary options on prediction markets, perpetuals, spot, lending or options, um I think you know, like they'll select the tools which kind of achieves the you know, objective function most cleanly and most efficiently. And I think a lot of the time options will be that tool. Um so I'm pretty excited. I think we're trying to make our stack as integratable and agent friendly as possible. Um and that

is a sort of I think thematic tailwind um not just for options, but for composable DeFi in general over the next 5 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 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. Uh and like it could just be like oh hey, you know, you can do this kind of um thing and this is how you would set it up via derive 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 P&L 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. Um 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 it can really disperse that out to a lot of people and help them with stuff. Okay. All right. So um you know, my thinking is like we sort of so we saw that hyperliquid took off um you know, amongst basically crypto degens. And then now we're seeing that TradFi is like hey hey.

>> [laughter] >> So you know, it sort of feels like um you know, we're we're going to see some kind of similar trajectory I would imagine here. Um so it you know, I 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. Um 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 um you know, can't can't do in their uh you know, traditional systems. How do you how how do either of you think about this?

Yeah, for for me, I think we one of the big blockers we've had to institutional adoption is to some extent like custody. Um it blocks a lot of institutions from like within their mandate being able to come and trade on-chain. Um we've actually developed like I think a a unique uh product where uh we work with some of the big custodians, the qualified custodians um tokenized their balances with a partner called Strands who you know, tokenize the balance in say your BitGo account um whether it's Bitcoin or USDC and then those tokens, you know, those funds are you know, segregated, they can't be double pledged, it's in you know, qualified custody um and they can be used on derive as as collateral. Um and so like that's the kind of thing where

uh it gets institutions a lot more comfortable with trading and and at that point you kind of have this this pitch for us where you can trade you know, the most liquid high options in the market very competitive um competitive with Deribit on 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 if you have a you know, a custom kind of uh collateral or trades you want to put on, we have a one guy who you know, one fund who asked us to list collateral options via the RFQ um and they're going to do you know, 50 to 100 million a month in volume uh and we've done that. And we're you know, 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 um to trade as well as your funds in you know, in qualified custody. Um and so like that all up is a you know, a a product that a lot of people like. It then also removes um a lot of the credit risk and some of the you know, uh potential uh exposure that they they might have to to different venues in the market too. Yeah, I would echo those. I think like um trust is obviously huge one. I think like a lot of institutions are still very wary of the code is law in our regime that we do have in on like in on-chain in general especially with DeFi and especially with DEXs. 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 etc. 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 cuz we're very chain literate, but um for like SEC reporting or or investor letters, it might be a little different. Um I think a general like what Nick said like in the end though, especially as DEXs improve and improve like it becomes a win-win if you can get over these 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 um yeah, I would I would agree with that.

So um you know, as you look at where this sector is right now and you know, what steps are needed to get it to um you know, become as big as some of the other parts of the crypto DeFi world, what are the major milestones you're looking at whether it's you know, volume or certain technical hurdles or um 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 um from us we've gone from like 0.1% of Deribit's average daily volume like 6 months ago to um I think 2 and 1/2 to 3 in March. Um I think we can get that you know, we're trying to get that to 10 to 15 in you know, the next 6 to 12 months. Um we think we have a path

to do that. Um I think at that point we become just like a globally competitive options venue um across the board. Um and with some of the integrations we're kind of working on at the moment, we would expect our liquidity to be you know, like very very consistent at major sizes like almost instant. Um and as I said, you know, 24/7. Uh and at that point it opens up a lot of those use cases I described um 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 Deribit and offering the options in specific ways.

So whether that's a retail trading interface um that's much more easily to easy to digest focusing on shorter-dated options or a large distributor doing you know, structured products um 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, uh kind of team uh offering an interface to to go construct those payoffs. Like those are the integrations I think we want to focus on in the back off of the year um 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 um marker of of both maturity um 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 the derive team, you know, building uh you retail trading UI and then going on Tik Tok and trying to get people to come and trade or, you know, like marketing specific structured products for, you know, Indian equities to, you know, people locally in India. Like that's a a global thing and I think, you know, it's similar to how Hyperliquid are doing HIP-3. Um and that really is kind of the 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

um that's what, you know, for us and like for me I think what we're looking at doing. Um I I guess that's a very derive specific answer and not 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 uh crypto options. Sorry, I have a new puppy in the background if you can hear him but um 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 it's Deribit, like oh hey, we're using Deribit right now to to hedge our BTC balance or something like that. I think that could be pretty big. Um other than that, just like the the normal things, you know, lots of volume, one bill volume monthly like over time and like would be really nice. Um and then yeah, I'd I'd say that's it. Like I mean as far as the regulatory side, I'd love to see a safe harbor. Um you know, I think we're 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 um the regulatory hearings and

whatnot. So it'd be cool to get some sort of genius clarity act for on-chain options just, you know, help the space out but that's kind of what I'm looking for. Yeah, random question that just came to mind. Um like is there any world where it would make sense to have it be a DeFi 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 Morpho deal or I'm not sure even if that makes any sense. I think definitely makes a lot of sense.

Um you know, those are exactly 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 DeFi that maybe it's harder to do at a centralized company? Mhm. And the and the self-custodial execution of like structured product strategies, for example, that we've already had live and built on on derive but again struggled to gain traction in the old environment when we were really pushing them and launching them. So whether it's us directly or, you know, a centralized exchange kind of curating those strategies, um I think it's you know, it remains to be seen but uh yeah, I think uh it's the long tail, it's the ability to surface those, you know,

yield generating uh and, you know, protective strategies um kind of cleanly in in in a one-click interface. Yeah, and presumably then um there's also the potential for something that's akin to an HIP-3 as well. Oh okay, right. Yeah, it all Of course. The the money legos. It's just yeah. Just apply it everywhere. All right. Well, um I look forward to seeing how all of this kind of gets built out because even if um yeah, we're in this bear market and um you know, the options space so far on chain has been kind of um you know, maybe not not super successful yet. Um I have no doubt 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 Unchained. Yeah, thank you so much for having me. Next up we have Bits and Bites. So stick around and the crew, Austin, Ram and Chris will will um be discussing all kinds of things. So stick around after this short break. >> [music]

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