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

Key Takeaways

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  Onchain options follow the perpetuals adoption curve

  “Similar to what I described there with the seven 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 seven years behind when Deribit started to do volume for the first time too. And I think that market is about to get a lot bigger. I think we're in the early innings of, like, that sort of uptick in on chain options adoption following off chain, like the 2023 moment for pubs.”

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  Options exchanges benefit from strong network effects

  “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. 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 centralized exchanges tried very hard to get into options and didn't make huge inroads into the market share.”

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  Deribit established the first crypto volatility surface

  “The major things that Deribit 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. I think that really led the game in a lot of pricing and a lot of risk in portfolio management.”

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  Counterparty risk drives shift toward onchain derivatives

  “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, block fills, 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 business can reduce that risk, you're going to try to do it.”

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  Capital stickiness makes options markets hard to disrupt

  “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, you know, like, a lot of the other sort of Asia based centralized exchanges tried very hard to get into options and didn't make huge inroads.”

Episode Description

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