The era of "lying down and earning" has ended. How will crypto options take on the banner of 2026's returns?

Author: @intern_cc, Crypto KOL

Translation: Felix, PANews

Crypto options are expected to become a flagship financial instrument by 2026, driven by the convergence of three major trends: traditional DeFi yields are being squeezed by the “yield apocalypse,” a new generation of simplified “entry-level products” abstracts options into one-click trading interfaces, and Coinbase’s $2.9 billion acquisition of Deribit signals institutional recognition.

Although on-chain options currently account for only a small portion of crypto derivatives trading volume, perpetual contracts still dominate the market. This gap mirrors the situation in TradFi before options became mainstream on Robinhood.

Polymarket, by repackaging binary options and leveraging excellent marketing, handled $9 billion in trades in 2024. If retail demand for probabilistic bets proves true, can DeFi options achieve a similar structural shift? When infrastructure and yield dynamics finally align, execution will determine whether options break through bottlenecks or remain niche tools.

The End of Passive Income

To understand why crypto options might explode in 2026, first understand: what is dying?

Over the past five years, the crypto ecosystem has flourished, with market analysts retrospectively calling it the golden age of “lazy yields,” where participants could earn significant risk-adjusted high returns with minimal complex operations or active management. Typical examples are not complex options strategies but simple arbitrage methods like token issuance mining, cyclic strategies, and perpetual contract basis trading.

Basis trading is at the core of crypto yields. Its mechanism appears simple but is actually complex: retail traders tend to have a long bias, requiring longs to pay costs via funding rates to maintain their positions. By buying spot and shorting perpetual contracts, savvy participants build delta-neutral positions unaffected by price swings, earning annualized yields of 20% to 30%.

However, there are no free lunches. With Bitcoin spot ETFs approved, traditional financial institutions’ entry has brought industrial-scale efficiency. Authorized participants and hedge funds now execute these trades with billions, compressing spreads to Treasury yields plus a slim risk premium. By the end of 2025, this “bubble” will have dissipated.

The “Cemetery” of DeFi Options Protocols

• Hegic launched in 2020, innovating with pool-to-pool design, but was closed twice early on due to code errors and game theory flaws.
• Ribbon’s market cap fell from a peak of $300 million, mainly due to the 2022 market crash and subsequent strategic migration to Aevo, with only about $2.7 million remaining in 2025 after being exploited by hackers.
• Dopex introduced centralized liquidity options, but due to uncompetitive models, low capital efficiency, and unsustainable token economics in the harsh macro bear market, it eventually collapsed.
• Opyn shifted focus to infrastructure after realizing options trading remains dominated by institutions, abandoning retail.

Failure modes are highly consistent: ambitious protocols struggle to simultaneously bootstrap liquidity and simplify user experience.

The Paradox of Complexity

Ironically, theoretically safer and more user-intent-aligned options are less popular than riskier, more complex perpetual contracts.

Perpetual contracts seem simple but are extremely complex in mechanism. Every market crash forces liquidation or automatic deleveraging, and even large traders may not fully understand how perpetual contracts work.

In contrast, options do not face these issues. Buying a call option limits risk to the premium paid, with maximum loss known upfront. Yet perpetual contracts dominate simply because “leveraging 10x” is always easier than calculating delta-adjusted risk exposure.

The Traps of Perpetual Contracts

Perpetuals force you to bear cross spreads and pay fees twice per trade.

Even hedged positions can wipe out your capital.

They are path-dependent—you can’t just set and forget.

But even if you believe short-term retail capital flows will continue into perpetuals, options can still dominate most native on-chain financial markets. They are more flexible and powerful tools for hedging risks and generating yields.

Looking ahead five years, on-chain infrastructure will evolve into a back-end layer of distribution, covering a broader scope than traditional finance.

Innovative vaults like Rysk and Derive represent the initial wave of this shift, offering structured products beyond basic leverage or lending pools. Savvy asset allocators will need richer tools for risk management, volatility trading, and portfolio yields to fully leverage decentralized ecosystems.

Traditional Finance Proves Retailers Love Options

Robinhood Revolution

The surge in retail options trading in traditional finance provides a roadmap. Robinhood launched commission-free options trading in December 2017, sparking an industry revolution, climaxing in October 2019 when Charles Schwab, E*TRADE, and Interactive Brokers all quickly eliminated commissions.

The impact has been significant:

• US retail options trading volume share rose from 34% at the end of 2019 to 45-48% in 2023
• In 2024, the total annual options contracts cleared by OCC reached a record 12.2 billion, the fifth consecutive record
• In 2020, meme stocks accounted for 21.4% of total options trading volume

Explosive Growth of 0DTE Options

0DTE (Zero Days to Expiration) options show retail interest in short-term, high convexity bets. The share of S&P 500 options volume from 0DTE grew from 5% in 2016 to 51% in Q4 2024, with daily trading exceeding 1.5 million contracts.

Its appeal is clear: lower capital, no overnight risk, leverage over 50x, and same-day feedback loops, dubbed “dopamine trading” by insiders.

Convexity and Clear Risks

Options’ nonlinear payoff structures attract directional traders seeking asymmetric returns. Buyers of calls may only pay $500 in premiums but stand to gain over $5,000. Spread trading allows more precise strategy adjustments: maximum loss and profit are known before entering.

( Entry-Level Products and Infrastructure

Abstraction as a Solution

Next-gen protocols hide options’ complexity through simple interfaces, called “dopamine apps” in the industry.

Euphoria raised $7.5 million in seed funding with a radical simplification: “You just look at the chart, see the price line moving, then click on the grid square where you think the price will hit next.” No order types, no margin management, no Greeks—just execute directional bets on a CLOB.

Built on MegaETH’s sub-millisecond infrastructure.

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The explosion of prediction markets confirms the value of simplified strategies:

• Polymarket handled over $9 billion in trades in 2024, with peak monthly active traders reaching 314,500.
• Kalshi’s weekly trading volume has stabilized above $1 billion.

Both platforms are structurally similar to binary options, but the concept of “prediction” turns the stigma of gambling into collective intelligence.

As Interactive Brokers explicitly states, their prediction contracts are “binary options ‘prediction markets.’”

Experience shows: retail traders don’t want complex financial instruments—they want simple, clear probabilistic bets with transparent outcomes.

( Status of DeFi Options in 2025

By the end of 2025, the DeFi options ecosystem is transitioning from experimental designs to more mature, composable market structures.

Early frameworks revealed many issues: liquidity dispersed across different maturities, reliance on oracles for settlement increased latency and manipulation risks, fully collateralized vaults limited scalability. This has driven shifts toward liquidity pool models, perpetual options structures, and more efficient margin systems.

Current DeFi options participants are mainly yield-seeking retail traders, not hedging institutions. Users view options as passive income tools, selling covered calls for premiums rather than as volatility transfer instruments. When market volatility rises, the lack of hedging tools exposes vault depositors to adverse selection, leading to poor performance and TVL outflows.

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Protocol architectures have evolved beyond traditional expiry-based models, giving rise to new paradigms in pricing, liquidity, and more.

Rysk

Rysk applies traditional options selling mechanisms via on-chain primitives, supporting covered calls and cash-secured puts. Users deposit collateral directly into smart contracts to establish individual positions, customizing strike prices and expiry dates. Trades are executed via real-time orderbook inquiries, with counterparties providing competitive quotes through rapid on-chain auctions, enabling instant confirmation and upfront premium collection.

Returns follow standard covered call structures:

• If price at expiry < strike: option expires worthless, seller keeps collateral + premium
• If price at expiry ≥ strike: physical delivery at strike, seller keeps premium but forfeits upside gains

Similar structures apply to cash-secured puts, with automatic on-chain physical settlement.

Rysk targets users seeking sustainable, non-inflationary yields from option premiums, with fully collateralized positions, no counterparty risk, and deterministic on-chain settlement. It supports multiple collateral assets like ETH, BTC, LST, and LRT, suitable for DAOs, treasuries, funds, and institutions managing volatile assets.

Average position size on Rysk exceeds five figures, indicating institutional-level capital deployment.

Derive.xyz

Derive (formerly Lyra) has transitioned from its pioneering AMM architecture to a gasless centralized limit order book with on-chain settlement. It offers fully collateralized European options with dynamic volatility surfaces and 30-minute TWAP-based settlement.

Key innovations:

• Real-time volatility surface pricing via external feeds
• 30-minute TWAP oracle reduces expiry manipulation risk
• Integration with perpetual markets for continuous delta hedging
• Support for yield collateral (wstETH, etc.) and portfolio margining for capital efficiency
• Competitive execution quality compared to smaller CeFi venues

GammaSwap

GammaSwap introduces non-synthetic perpetual options built on AMM liquidity.

It does not rely on oracles or fixed expiry dates but generates continuous volatility exposure by borrowing liquidity from AMMs like Uniswap V2.

This mechanism converts impermanent loss into tradable option yields:

• Traders borrow LP tokens at specified loan-to-value ratios
• As pool prices fluctuate, collateral value relative to borrowed amount also changes
• P&L is proportional to realized volatility
• Dynamic funding rates are linked to AMM utilization

Position types:

• Straddle: delta-neutral (50:50), purely capturing volatility
• Long options: collateral biased toward more volatile assets (like calls)
• Short options: collateral biased toward more stable assets (like puts)

This mechanism derives all prices from the endogenous AMM state, eliminating oracle dependence.

Panoptic

Perpetual, oracle-free options on Uniswap.

Panoptic represents a fundamental shift: perpetual, oracle-free options built on Uniswap v3 concentrated liquidity. Any LP position can be interpreted as a combination of long and short options, with fees representing a continuous stream of option premiums.

Core insight: Uniswap v3 positions within specific price ranges behave like a short option portfolio, with delta changing as prices move. Panoptic formalizes this by allowing traders to deposit collateral and select liquidity ranges to establish perpetual option positions.

Key features:

• No oracle valuation: all positions priced using Uniswap’s internal quotes and liquidity data
• Perpetual exposure: options held indefinitely, premiums flow continuously, not at discrete expiry
• Composability: built on Uniswap, integrated with lending, structured yields, and hedging protocols

( Comparison with CeFi:

The gap remains significant. Deribit dominates globally, with daily open interest exceeding $3 billion.

Several structural factors cause this disparity:

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Depth and Liquidity

CeFi concentrates liquidity in standardized contracts, with tight strike intervals and orderbooks supporting tens of millions of dollars per strike. DeFi liquidity remains fragmented across protocols, strikes, and maturities, each running independent pools without shared margin.

Execution quality: Deribit and CME offer near-instant orderbook execution. AMM-based models like Derive provide tighter spreads for high-liquidity, near-at-the-money options, but execution quality drops for large orders and deep out-of-the-money strikes.

Margin efficiency: CeFi platforms allow cross-margining across instruments; most DeFi protocols still isolate collateral per strategy or pool.

However, DeFi options have unique advantages: permissionless access, on-chain transparency, and composability with broader DeFi tech. As capital efficiency improves and protocols eliminate expiry to reduce fragmentation, this gap will narrow.

Institutional Positioning

Coinbase-Deribit super-stack:

Coinbase’s $2.9 billion acquisition of Deribit enables strategic integration across the entire crypto capital stack:

• Vertical integration: spot Bitcoin held on Coinbase can be used as collateral on Deribit
• Cross-margining: in fragmented DeFi, funds are dispersed; on Coinbase/Deribit, funds are pooled
• Full lifecycle control: via acquisition of Echo, Coinbase controls issuance → spot trading → derivatives

For DAOs and native crypto institutions, options provide effective risk management:

• Buying puts to hedge downside, locking in minimum asset value
• Selling covered calls to monetize idle assets, creating systematic income streams
• Tokenizing risk positions as ERC-20 tokens for portfolio management

These strategies convert volatile token holdings into more stable, risk-adjusted reserves, crucial for institutional DAO funding.

LP Strategy Optimization

LPs can leverage tools to turn passive liquidity into active hedging or yield-enhancement:

• Options as dynamic hedging: LPs in Uniswap v3/v4 can buy puts or build delta-neutral spreads to reduce impermanent loss. GammaSwap and Panoptic enable liquidity as collateral for continuous option yields, offsetting AMM risk exposure.
• Options as yield overlays: vaults can automatically execute covered calls or cash-secured puts on LP or spot positions.
• Delta-targeted strategies: Panoptic’s perpetual options allow adjusting strike and expiry to achieve delta-neutral, short, or long exposures.

Composable Structured Products

• Vault integration: automated vaults bundle short-term volatility strategies into tokenized yield tools, akin to structured on-chain notes.
• Multi-leg options: protocols like Cega design path-dependent yields (dual-currency notes, auto-redemption options) with on-chain transparency.
• Cross-protocol combos: combining option yields with lending, re-staking, or redemption rights to create hybrid risk tools.

( Outlook

Options markets will not evolve into a single category. Instead, they will develop into two distinct tiers, each serving different user groups with different products.

First Tier: Abstracted Options for Retail

The success of Polymarket proves retail does not reject options but rejects complexity. The $9 billion in trading volume is not from traders understanding implied volatility but from users seeing a problem, taking a stance, and clicking a button.

Euphoria and similar dopamine apps will advance this idea. Options mechanisms run invisibly beneath a simple trading interface. No Greeks, no expiry, no margin calculations—only price targets on a grid. The product is the option.

User experience resembles a game.

This layer will capture the trading volume currently monopolized by perpetuals: short-term, high-frequency, dopamine-driven directional bets. Competitive advantage lies not in financial engineering but in UX design, mobile-first interfaces, and sub-second feedback. Winners here will be more like consumer apps than trading platforms.

Second Tier: DeFi Options as Institutional Infrastructure

Protocols like Derive and Rysk will not compete for retail traders. They will serve entirely different markets: DAOs managing eight-figure treasuries, funds seeking uncorrelated yields, LPs hedging impermanent loss, and asset allocators building structured products.

This layer demands sophisticated technology: portfolio margining, cross-collateralization, inquiry systems, dynamic volatility surfaces. Retail investors may not need these features, but for institutions, they are essential.

Today’s vault providers are early-stage institutional infrastructure.

On-chain asset allocators require full expression of options: explicit hedging, yield overlays, delta-neutral strategies, composable structured products.

Leverage sliders and simple lending markets cannot meet these needs.

Related: Prediction markets—are they an extension of binary options?