This piece pulls directly from conversations and notes from some of the teams pushing this category forward, including Nick Forster (Derive), Clouted/Econ Degen (ETH Strategy), Dan (Rysk Finance) and the team at D2 Finance.
I might be one of the last people who should be writing about options.
And that’s partly why I wanted to tackle this.
Thankfully, I’m leaving most of this to the people actually building it.
Options in DeFi have been “the next big thing” for as long as I’ve been around. There’s been no shortage of funding, no shortage of teams, and no shortage of attempts to bring them onchain. I personally spent a lot of time and money believing the Dopex team (later Stryke) would crack this problem.
Real ones from the Dopex trenches may remember this one
Some got close. Most didn’t. A few, like Ribbon (now Aevo), had moments where it felt like we were getting there, but it never quite stuck.
For a long time, options felt more like a tool for traders than something that could become a real, scalable source of yield for the broader DeFi user base.
That might be changing.
Over the past year, and especially more recently, a few teams have started to find something that looks a lot closer to product market fit. Protocols like Derive and Rysk Finance are beginning to show what it looks like when options aren’t just a trading primitive, but a yield primitive. Something that can actually sit alongside lending, perps, and staking as a core building block of DeFi.
And I think part of the reason this is finally happening comes down to a pretty simple shift in the market.
For years, DeFi was filled with what were effectively “easy” yield sources. Airdrop farming, points programs, and various incentive schemes where the yield was driven more by emissions than anything structural.
Alongside that, you had more legitimate strategies like basis trades and perp funding. Those aren’t fake yield, they’re real, market-driven opportunities. But they can be cyclical. They show up in certain conditions, usually in strong bull markets, and then compress or disappear entirely when the market structure shifts.
The end result is the same. The easy, repeatable yield that defined large parts of DeFi over the last cycle has become much harder to find.
That world is largely behind us now, as Nick Forster wrote in his piece “Yieldmageddon.” In fact, reading that was one of the biggest influences for writing this piece.
Excerpt from Nick’s Yieldmaggedon piece
As those opportunities have faded, users and protocols have been pushed up the risk curve, often into things that are less transparent and harder to reason about.
Options are a bit different.
At their core, options yield is not a loophole or a temporary inefficiency. It’s a transfer of risk. You are getting paid to take on volatility that someone else doesn’t want. And that dynamic doesn’t disappear as the market matures or as more capital flows in.
To me, options yield is scalable.
And in traditional finance, this has been one of the most durable and scalable sources of yield for decades.
The real question is whether DeFi is finally ready for it.
This piece is an attempt to explore that. Looking at a few of the teams building at the frontier of onchain options, how they’re thinking about yield, how they’re packaging it, and why this category might finally be living up to what it was always supposed to become.
Derive
We recently had Nick Forster on the podcast, where we talked through the long road to product market fit with Derive and its recent growth.
Even after 60+ minutes on our podcast, there were still a few things I wanted drill into further. So I sent Nick a message on Telegram, which ended up kicking off this entire piece.
I asked a very simple, open-ended question:
“Where is DeFi yield from options going, what is this going to look like? Curious if you’ve had any further insights since you wrote that piece last year, or if the picture has become even clearer.”
Here’s how he responded:
It takes many months / years to integrate a tradfi options offering into a frontend. With DeFi it can be as simple as an API.
“Options yield is going to be increasingly productized as: 1) yield from unsustainable sources continues to stay dead 2) crypto consolidates around fewer, higher quality assets and 3) liquidity for onchain continues to improve.
The success of HYPE options on Derive isn't a surprise to me. HYPE holders are sophisticated and long term - they want to build strategies around their position, not trade in and out on 1-2 week timeframes. You need that holder profile for options markets to actually work.
The same is true for tokenized equities. And the ease of building accessible yield products via options is going to be a real structural advantage for DeFi over traditional incumbents - one I don't think is fully appreciated yet…It takes many months / years to integrate a tradfi options offering into a frontend. With DeFi it can be as simple as an API.”
ETH Strategy
I’ve long been fascinated with what the ETH Strategy team is building.
They’ve taken the idea of a digital asset treasury company and brought it fully onchain. That unlocks a lot of DeFi composability, including the ability to tap directly into onchain options. Harvesting yield from ETH’s natural volatility makes a lot of sense, if it can be productized in the right way.
I asked the ETH Strategy team a similar set of questions that I asked Nick Forster:
“How are you tapping into options to generate yield onchain for DeFi, and what exactly are you building?”
And more broadly:
“Where do you see this evolution of onchain options going?”
Finance is risk transformation, and risk transformation is where real, non-zero-sum value gets created. Options premiums are the cleanest expression of that value because they isolate the price of risk from maturity transformation, accrual accounting, and bundled cash flows.
“Options yields are the most fundamentally sustainable exogenous yield in finance. Everything above the risk-free rate is an implied options premium on something, whether default risk on a corporate bond, prepayment risk on an MBS, or liquidity risk on private credit. Finance is risk transformation, and risk transformation is where real, non-zero-sum value gets created. Options premiums are the cleanest expression of that value because they isolate the price of risk from maturity transformation, accrual accounting, and bundled cash flows. You're paid exactly what the market thinks the risk is worth at the moment you sell it. That's why options yields don't need growth, emissions, or narrative to sustain themselves.
DeFi is still maturing into pricing this properly. When stablecoin contracts pay 3% while carrying smart contract, oracle, and regulatory risk that treasuries don't, the market is telling you it hasn't yet learned to price the implied options embedded in those positions. As the space matures and rights start getting priced correctly, options pricing will naturally come to dictate the majority of yield formation in DeFi.”
And more specifically, what is ETH Strategy?
“ETH Strategy has created something genuinely new: a bond fully backed by ETH, the way treasuries are backed by the US government, corporate bonds by corporate balance sheets, and MBS by mortgages. But where every other bond relies on an issuer's future revenue to service the coupon, this one has no issuer standing behind it at all. The yield is paid through a free call option on ETH embedded in the bond, which the holder monetizes by arbitraging options premiums. It's a bond that creates its own interest, extracting yield directly from ETH's volatility rather than borrowing it from someone's promise to pay. All it requires is that ETH remains valuable and volatile. The collateral and the coupon are the same asset expressing itself in two dimensions, price and volatility, and the bond captures both.”
Econ Degen also weighed in with his thoughts:
“Options in DeFi are primed to surge. From TradFi we know that as an asset class they are highly versatile, useful for many types of hedging and an overall important part of the finance industry. As DeFi matures as a space more sophisticated investors will look for risk management strategies, and options will have to play a major role in this. One of the issues with options, however, is that demand is relatively straightforward, supply is more difficult.
ETH Strategy brings a natural supplier of options into the DeFi market. Trading valuable long dated calls for leverage at favorable rates, it makes the options market PvE rather than PvP for new participants. We're essentially giving cheap options to the market. We believe that our soon-to-be launched permissionless bonds (with an embedded option) will be the push that is required for options to go fully mainstream.”
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Rysk
Rysk is a protocol that DeFi Dad and I have recently become pretty enamored with. As soon as you open the interface, it just clicks, you don’t even need to understand options to use it. In fact, the word “option” doesn’t appear anywhere in the UI, and that’s by design.
Cash secured put options for HYPE - yields highlighted in red box
I asked Dan the founder of Rysk:
“How Rysk packages onchain options yield in DeFi and their unique approach to solving this problem”.
And
“Where he sees the options yield space going over the next few years, how big the opportunity could be, and what Rysk Finance is doing to help accelerate it”.
The protocol is designed for asset holders, not just options traders. Someone who wants to earn income on assets they already hold. Someone who wants to accumulate an asset at a better price while earning yield on stablecoins. That is the user Rysk is built for. Every position is fully onchain, collateralized, and structured by the user on their own terms. Rysk makes volatility income accessible as a native DeFi primitive.
“The primary use case for options is income. Covered calls and cash secured puts are some of the most widely used strategies in traditional markets to generate income from volatility, but DeFi historically packaged options as trading tools. Rysk takes the opposite approach. Options are the mechanism. Income is the product. The protocol is designed for asset holders, not just options traders. Someone who wants to earn income on assets they already hold. Someone who wants to accumulate an asset at a better price while earning yield on stablecoins. That is the user Rysk is built for. Every position is fully onchain, collateralized, and structured by the user on their own terms. Rysk makes volatility income accessible as a native DeFi primitive.
Our core product, Rysk V12, was the first to bring options strategies to Hyperliquid, launching early on HyperEVM and scaling alongside the ecosystem. The same logic extends across asset classes. Any asset onchain can become a source of income, whether it is a crypto native asset, a yield bearing token, a commodity, or a tokenized stock. Positions are executed onchain through an RFQ engine where users define strikes, expiries, and collateral and receive instant quotes in return. This keeps positions fully customizable while maintaining a simple user experience.”
How big is the opportunity and how is Rysk helping accelerate it?
“Volatility income is one of the most proven income strategies in finance. It powers multi billion dollar categories in traditional markets and has long been one of the largest institutional strategies in crypto OTC markets. Onchain, it was largely missing. Rysk made it accessible, and the category is only beginning to emerge. We are accelerating this on two fronts. On the protocol side, we are expanding the product with more assets, more volatility income strategies, new primitives such as Hyperliquid HIP4 that broaden the range of payoff structures available onchain, and structured products on top.
On the distribution side, institutions and sophisticated allocators are starting to use Rysk as a base layer, and that is what Rysk Premium is built for. It opens the protocol as infrastructure, introducing a vault layer that lets funds, treasuries, and allocators run custom volatility income strategies with the compliance, customization, and structuring flexibility they require. The first pilot is already live with HyperionDeFi, a publicly listed company, and we are onboarding additional institutions while extending the infrastructure into a permissionless environment where protocols and allocators can build on top of Rysk.
The endgame is Rysk as the default volatility income infrastructure of DeFi, from individual users running strategies on Rysk V12 to institutions and protocols building on Rysk Premium.”
D2 Finance
D2 Finance has made it onto my radar only recently. They have been utilizing options on Derive since 2023 and their performance speaks for itself.
Alpha Strategies (HYPE++) is their flagship product
I asked them to share a little bit about:
“What they do with onchain options?”
And
“A bit more about why they are excited for HIP-4”
HIP-4 is the piece I’m most excited about in the DeFi options stack right now. Collateralized outcome contracts running natively on HyperCore with unified margin against perps is something no isolated prediction-market venue can replicate.
“D2 runs an institutional multi-strategy options book across Hyperliquid (perps + HIP-3 MM via d2HLP ( coming soon), Derive, and Flowdesk OTC for size that doesn’t fit on-screen.
HYPE++ is the flagship, 28 epochs live, 200% cumulative, 96% win rate, 0% monthly drawdown trading on Derive since 2023 ( 300M/400M notional )
Returns are stacked: base yield from put strips, vol arb / dispersion as the alpha layer, event-driven on top. Internal crossing between our own vaults (Central Book, live 2+ years) keeps spread cost at zero for directionally matched flow.”
OK what can you tell us about your HIP-4 strategy?
“HIP-4 is the piece I’m most excited about in the DeFi options stack right now. Collateralized outcome contracts running natively on HyperCore with unified margin against perps is something no isolated prediction-market venue can replicate.
The arb surface is the interesting bit: perp (continuous payoff) vs HIP-4 outcome (bounded, binary-ish) on the same underlying, and cross-instrument RV between HIP-3 perps and HIP-4 digitals on correlated events.
These are the multi-instrument combinations investment banks have historically charged institutional clients real fees to construct. HIP-4 makes them composable on-chain.
Our plan is to have d2HLP HIP-4 ready from day one on mainnet, as a third return layer on top of HIP-3 MM and the HYPE put carry. Risk models and execution layer are being built to treat outcome contracts as main instruments ( e.g. vs STRC) of the strategy.”
How I’m Thinking About This
The thing I keep coming back to is how much this raises the bar for yield in DeFi.
If options yield really starts to get productized at scale, then a lot of what we currently consider “good yield” just doesn’t hold up the same way anymore. You’re competing with a structurally different source of return, one that’s tied directly to volatility rather than incentives or temporary market conditions.
That shift matters and I’d argue it’s happening already.
I also think this is a big moment for Hyperliquid.
What D2 pointed out around the relationship between HIP-3 and HIP-4 is especially interesting. You now have perps and outcome-based contracts living on the same system, with shared collateral and margin. That opens up a much richer surface area for market makers and sophisticated players to operate across.
It’s not hard to imagine how teams like D2, and others building similar infrastructure, can extract meaningful edge from that kind of setup. In a lot of ways, this feels like a market maker’s dream.
On the other side, I think a lot of the value will accrue to the teams that can actually package this into something usable.
Not everyone is going to run multi-leg options strategies or think in terms of volatility surfaces. But if that complexity can be abstracted away and delivered as a clean yield product, that’s where things get interesting. Vaults, structured products, and protocols that sit on top of this stack are probably where most users will interact.
So naturally, I’m paying close attention to the teams building in this direction.
Protocols like Derive, Rysk Finance, the work being done at ETH Strategy, and players like D2 Finance all stand out for different reasons. If options continue to grow as a category, it’s hard to imagine these types of teams not being part of that expansion.
I’m also not ignoring the more obvious angle here.
In past cycles, the biggest returns didn’t just come from using a product, they came from being early to the underlying ecosystem. Whether that’s tokens, early usage, or just understanding where the puck is going.
I’m not saying that’s guaranteed here. But it’s not hard to draw parallels.
At the same time, this is still early.
Options are complex. Liquidity is still improving. A lot of these systems haven’t been fully stress tested across market cycles.
And let’s not forget, we’re in a bear market right now. This is usually the best time to build conviction and spot the trends that will become the foundation of the next cycle. And there will be another cycle.
So for now, I’m treating this as something to study closely, participate in lightly, and try to understand from first principles.
Because if this plays out the way it could, options won’t just be another strategy sitting on the edges of DeFi.
They’ll be one of the core ways yield gets generated.
DISCLAIMER: Nothing written in The Edge Newsletter or said on The Edge Podcast is a recommendation to buy or sell tokens or securities. This content is for educational and entertainment purposes only. Nothing shared here is financial advice. Any views expressed in our content are solely the opinion of that writer, host, or guest. Always do your own research. DeFi Dad, Nomatic, and guests may have positions in the assets or other matters discussed in this content. DeFi Dad and Nomatic hold ETH.
