The end of the "easy money" era: How will crypto options uphold the banner of returns in 2026?

Author: @intern_cc, Crypto KOL

Compiled by: Felix, PANews

Crypto options are expected to become a landmark financial instrument by 2026, thanks to the convergence of three major trends: traditional DeFi yields being squeezed by the "yield apocalypse," the emergence of a new generation of simplified "entry-level products" that abstract options into a one-click trading interface, and Coinbase's $2.9 billion acquisition of Deribit gaining 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 of TradFi options before their popularity on Robinhood.

Polymarket processed $9 billion in trades in 2024 by repackaging binary options and leveraging excellent marketing strategies. If the retail market's demand for probabilistic betting is confirmed, can DeFi options achieve a similar structural transformation? 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 may explode in 2026, one must first grasp what is fading away.

Over the past five years, the crypto ecosystem has thrived, with market analysts retrospectively calling it the golden age of "lazy yields," where participants could achieve significant risk-adjusted high returns with almost no complex operations or active management. The typical representatives are not complex options strategies but rather simple and crude arbitrage methods such as token issuance mining, looping strategies, and basis trading of perpetual contracts.

Basis trading is at the core of crypto yields. Its mechanism seems simple but is not: due to a structural long bias among retail investors, longs must pay costs to shorts through funding rates to maintain positions. By buying spot and shorting perpetual contracts, savvy participants build delta-neutral positions unaffected by price fluctuations while earning annualized returns of 20% to 30%.

However, there is no such thing as a free lunch. With the approval of Bitcoin spot ETFs, the entry of traditional financial institutions has brought industrial-scale efficiency. Authorized participants and hedge funds have begun executing these trades with billions of dollars, compressing spreads to Treasury rates plus a thin risk premium. By the end of 2025, this "bubble" will have dissipated.

The "Graveyard" of DeFi Options Protocols

Hegic launched in 2020, innovating with pool-to-pool mechanics, but closed twice early due to code errors and game theory flaws.
Ribbon's market cap fell from a peak of $300 million, primarily due to the market crash in 2022 and a subsequent strategic shift to Aevo, with only about $2.7 million left exploited by hackers in 2025.
Dopex introduced concentrated liquidity options but ultimately collapsed due to the lack of competitiveness in the options products generated by its model, inefficient capital utilization, and unsustainable token economics in a brutal macro bear market.
Opyn shifted to infrastructure after realizing that options trading was still dominated by institutions, abandoning retail.

The failure patterns are highly consistent: ambitious protocols struggle to achieve both liquidity launch and simplified user experience simultaneously.

The Paradox of Complexity

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

Perpetual contracts seem simple, but their mechanics are extremely complex. Each time the market crashes, people get forcibly liquidated or automatically deleveraged, and even large traders may not fully understand how perpetual contracts operate.

In contrast, options do not face these issues at all. Buying a call option limits risk to the option premium, with maximum loss determined before entry. However, perpetual contracts dominate simply because "sliding to 10x leverage" is always easier than "calculating delta-adjusted risk exposure."

The Mental Trap of Perpetual Contracts

Perpetual contracts force you to bear cross-price spreads and pay fees twice on each trade.

Even for hedged positions, they can lead to total loss.

They are path-dependent; you cannot just "set and forget" after building a position.

But even if you believe that short-term retail directional capital flows will still go into perpetual contracts, options can still dominate market share in most on-chain native finance. They are more flexible and powerful tools for hedging risks and generating yields.

Looking ahead to the next five years, on-chain infrastructure will gradually evolve into backend infrastructure for distribution, covering a broader scope than traditional finance.

Today's innovative vaults, such as Rysk and Derive, represent the initial wave of this transformation, offering structured products that go beyond basic leverage or lending pools. Savvy asset allocators will need richer tools for risk management, volatility operations, and portfolio yields to fully leverage the decentralized ecosystem.

Traditional Finance Proves Retail's Love for Options

The 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 transformation that peaked in October 2019 when Charles Schwab, TD Ameritrade, and Interactive Brokers all eliminated commissions within days.

The impact has been significant:

The share of U.S. retail options trading volume soared from 34% at the end of 2019 to 45% to 48% in 2023.
In 2024, the annual total of options contracts cleared by the U.S. Office of the Comptroller of the Currency (OCC) reached a record 12.2 billion, marking a record for the fifth consecutive year.
In 2020, meme stocks accounted for 21.4% of total options trading volume.

The Explosive Growth of Zero-Day-to-Expiration Options (0DTE)

0DTE demonstrates retail's interest in short-term, high-convexity bets. The trading volume of 0DTE options as a percentage of S&P 500 options trading volume grew from 5% in 2016 to 51% in Q4 2024, with an average daily trading volume exceeding 1.5 million contracts.

Its appeal is evident: lower capital input, no overnight risk, built-in leverage of over 50 times, and same-day feedback loops, which industry insiders refer to as "dopamine trading."

Convexity and Clear Risks

The non-linear payoff structure of options attracts directional traders seeking asymmetric returns. Buyers of call options may only need to bear a $500 option premium but could potentially gain over $5,000. Spread trading allows for more precise strategy adjustments: maximum loss and maximum profit can be clearly defined before entry.

Entry-Level Products and Infrastructure

Abstraction as a Solution

The new generation of protocols addresses complexity by completely hiding options behind simple interfaces, referred to in the industry as "dopamine applications."

Euphoria secured $7.5 million in seed funding with a radically simplified vision: "You just look at the chart, see the price line move, and then click the box in the grid where you think the price will go next." No order types, no margin management, no Greek letters—just execute the correct directional bet on the CLOB.

Built on MegaETH's sub-millisecond infrastructure.

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

Polymarket processed 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.

These two platforms structurally resemble binary options, but the concept of "prediction" transforms the stigma of gambling into collective wisdom.

As Interactive Brokers explicitly acknowledges, their prediction contracts are "binary options 'prediction markets.'"

The experience is that retail does not want complex financial tools; they want simple, clear, and outcome-oriented probabilistic bets.

The State of DeFi Options in 2025

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

Early frameworks exposed numerous issues: liquidity was dispersed across different expiration dates, oracle-dependent settlements increased delays and manipulation risks, and fully collateralized vaults limited scalability. This prompted a shift towards liquidity pool models, perpetual options structures, and more efficient margin systems.

Current participants in DeFi options are primarily retail investors seeking yield rather than institutions looking for hedging. Users view options as passive income tools, selling covered call options to earn premiums rather than as volatility transfer tools. As market volatility increases, vault depositors face adverse selection risks due to a lack of hedging tools, leading to persistent underperformance and outflows of TVL.

Protocol architectures have surpassed traditional expiration-based models, giving rise to new paradigms in pricing, liquidity, and more.

Rysk

Rysk applies traditional options selling mechanisms to DeFi through on-chain primitives, supporting covered call options and cash-secured put options. Users can directly deposit collateral into smart contracts to establish individual positions and customize strike prices and expiration dates. Trades are executed through a real-time pricing mechanism, with counterparties providing competitive quotes via fast on-chain auctions, enabling instant confirmation and upfront collection of option premiums.

Returns follow the standard structure of covered call options:

If the price at expiration is below the strike price: the option expires worthless, and the seller retains the collateral + option premium.
If the price at expiration is equal to or above the strike price: the collateral is physically delivered at the strike price, the seller retains the option premium but forfeits upside gains.

A similar structure applies to cash-secured put options, with physical delivery automatically completed on-chain.

Rysk's target users are those seeking sustainable, non-inflationary yield from option premiums, with each position fully collateralized, no counterparty risk, and deterministic on-chain settlement. It supports various asset collaterals, such as ETH, BTC, LST, and LRT, making it suitable for managing volatile assets for DAOs, treasuries, funds, and institutions.

The average position size on the Rysk platform reaches five figures, indicating institutional-level capital involvement.

Derive.xyz

Derive (formerly Lyra) has transitioned from its pioneering AMM architecture to a gas-free central limit order book with on-chain settlement. The protocol offers fully collateralized European options with a dynamic volatility surface and settlement based on a 30-minute TWAP.

Key Innovations:

Real-time volatility surface pricing via external feeds
30-minute TWAP oracles reduce expiration manipulation risk
Integrated perpetual markets for continuous delta hedging
Supports yield-bearing collateral (e.g., wstETH) and composite margin to enhance capital efficiency
Execution quality: competitive compared to smaller CeFi venues

GammaSwap

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

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

This mechanism transforms impermanent loss into tradable option yields:

Traders borrow LP tokens at a specified loan-to-value ratio
As the price of the liquidity pool fluctuates, the value of the collateral changes relative to the borrowed amount
Profit and loss are proportional to realized volatility
Dynamic funding rates are linked to AMM utilization

Position Types:

Straddle Options: Delta neutral (50:50), purely capturing volatility
Long Options: Collateral biased towards more volatile assets (similar to call options)
Short Options: Collateral biased towards more stable assets (similar to put options)

This mechanism completely eliminates reliance on oracles by deriving all prices from the endogenous AMM state.

Panoptic

Perpetual oracle-free options on Uniswap.

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

Core Insight: Positions in Uniswap v3 within specific price ranges behave similarly to a short option portfolio, with delta values changing as prices fluctuate. Panoptic formalizes this concept by allowing traders to deposit collateral and select liquidity ranges to establish perpetual option positions.

Key Features:

Valuation without oracles: All positions are priced using internal quotes and liquidity data from Uniswap
Perpetual exposure: Options are held indefinitely, with a continuous stream of option premiums rather than discrete expiration dates
Composability: Built on Uniswap and integrated with lending, structured yield, and hedging protocols

Comparison with CeFi:

The gap with centralized exchanges remains significant. Deribit dominates globally, with over $3 billion in daily open contracts.

Several structural factors contribute to this disparity:

Depth and Liquidity

CeFi concentrates liquidity on standardized contracts with tightly spaced strike prices, supporting tens of millions of orders per strike price. DeFi liquidity remains fragmented across protocols, strike prices, and expiration dates, with each protocol operating independent liquidity pools that cannot share margin.

Execution Quality: Deribit and CME offer near-instant order book execution. AMM-based models like Derive provide tighter spreads for liquid, at-the-money options, but execution quality declines 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 by strategy or liquidity pool.

However, DeFi options have unique advantages: permissionless access, on-chain transparency, and composability with a broader DeFi tech stack. As capital efficiency improves and protocols eliminate fragmentation by removing expiration dates, this gap will narrow.

Institutional Positioning

Coinbase-Deribit Superstack:

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

Vertical Integration: Spot Bitcoin held on Coinbase can be used as collateral for options trading on Deribit.
Cross-Margining: In fragmented DeFi, funds are dispersed across various protocols. On Coinbase/Deribit, funds are concentrated in one pool.
Full Lifecycle Control: By acquiring Echo, Coinbase controls issuance => spot trading => derivatives trading.

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

Buy put options to hedge downside risk, locking in a minimum value for capital assets.
Sell covered call options to hedge idle assets, creating a systematic income stream.
Tokenize risk positions by packaging option exposure into ERC-20 tokens.

These strategies transform volatile token holdings into more stable, risk-adjusted reserves, which is crucial for institutional adoption of DAO funds.

LP Strategy Optimization

LP scalable toolkits transform passive liquidity into active hedging or yield-enhancing strategies:

Options as dynamic hedging tools: LPs in Uniswap v3/v4 can reduce impermanent loss by buying put options or constructing delta-neutral spreads. GammaSwap and Panoptic allow liquidity to be used as collateral for continuous option yields, offsetting AMM risk exposure.
Options as yield overlays: Vaults can automatically execute covered call and cash-secured put strategies against LP or spot positions.
Delta-targeted strategies: Panoptic's perpetual options allow for delta-neutral, short, or long exposure by adjusting strike prices and durations.

Composable Structured Products

Vault Integration: Automated vaults package short-term volatility strategies into tokenized yield tools, similar to structured on-chain notes.
Multi-leg Options: Protocols like Cega design path-dependent yields (dual currency notes, auto-redeem options) with on-chain transparency.
Cross-Protocol Combinations: Combine option yields with lending, re-staking, or redemption rights to create hybrid risk tools.

Outlook

The options market will not evolve into a single category. It will evolve into two distinct tiers, each serving different user demographics and offering entirely different products.

First Tier: Abstract Options for Retail

The success of Polymarket demonstrates that retail does not reject options but rather complexity. The $9 billion in trading volume does not come from traders who understand implied volatility but from users who see a problem, choose a position, and click a button.

Euphoria and similar dopamine applications will drive the development of this theory. The option mechanism operates invisibly beneath the click trading interface. No Greek letters, no expiration dates, no margin calculations—just price targets on a grid. The product is the option.

User experience is akin to gaming.

This tier will capture the trading volume currently monopolized by perpetual contracts: short-term, high-frequency, dopamine-driven directional bets. The competitive advantage lies not in financial engineering but in UX design, mobile-first interfaces, and sub-second feedback. The winners in this tier will resemble consumer applications rather than trading platforms.

Second Tier: DeFi Options as Institutional Infrastructure

Protocols like Derive and Rysk will not compete for retail. 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 tier requires sophisticated technology. Portfolio margining, cross-collateralization, pricing systems, dynamic volatility surfaces, and other features may not be utilized by retail investors but are essential for institutional investors.

Today's vault providers are the early infrastructure at the institutional level.

On-chain asset allocators need the full expressive power of options: clear hedging strategies, yield overlays, delta-neutral strategies, and composable structured products.

Leverage sliders and simple lending markets will not suffice.

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