Written by: Delphi Digital

Compiled by: AididiaoJP, Foresight News

The scale of the cryptocurrency options market far exceeds most people's understanding. The trading volume of cryptocurrency derivatives on the Chicago Mercantile Exchange (CME) is up 46% from last year's record high. Institutional investors need clear risk management tools to hedge large positions, and options are the only cryptocurrency tools that can provide this function.

Reshaping the Landscape

By mid-2025, the total amount of open contracts for Bitcoin options reached $65 billion, surpassing futures open contracts for the first time. Futures are leveraged instruments, while options allow funds to set a loss cap on their $500 million Bitcoin holdings by paying a premium. This turning point indicates that tools with risk definition functions are gradually replacing purely leveraged tools.

This growth is primarily concentrated on two platforms. Deribit has long been the mainstream platform for cryptocurrency options trading, and after being acquired by Coinbase for $2.9 billion in 2025, it received institutional-level endorsement. Meanwhile, after IBIT options were launched at the end of 2024, they brought traditional financial capital into this field. The options market is rapidly expanding, but the vast majority of trades still need to be completed through intermediaries.

On-chain Options Are Still in Their Infancy

The market share of decentralized derivatives has surged from 2% to over 10% in two years. Hyperliquid has demonstrated that decentralized exchanges (DEXs) can compete with centralized exchanges in terms of speed and transparency. However, on-chain options have yet to see similar representative projects emerge.

@DeriveXYZ is currently the leading on-chain options protocol, with a nominal options trading volume exceeding $700 million in the past 30 days. The protocol was launched in August 2021 under the name Lyra as an options automated market maker (AMM), and after undergoing a bear market, it was fully restructured in 2023, now built on its own OP Stack Layer 2 with a gas-free central limit order book.

This reconstruction fundamentally changed the pricing mechanism. Market makers quote directly on the order book, narrowing spreads and providing more accurate pricing, thus supporting larger-scale trading. Traders can enjoy zero gas fees and sub-second execution speeds.

Its portfolio margin system has also attracted institutional attention. The system assesses overall position risk through scenario analysis. For example, if a trader simultaneously holds a long call option and a short put option for the same underlying asset, the system does not charge margin for each leg separately.

The collateral required for hedged positions is lower than the simple sum of individual components, which aligns with the general logic of traditional financial derivatives trading desks. Derive also provides perpetual contracts and lending services on the same Layer 2, and supports cross-product cross-margining.

@KyanExchange is moving towards the same direction in a different way. The platform combines an order book matching engine with on-chain portfolio margin, facilitating multi-leg operations in a single atomic trade. Traders can deploy iron condor strategies with just a few clicks.

The clearing mechanism adopted by Kyan is also different from most DeFi protocols. When the margin threshold is breached, the platform does not liquidate the entire account, but instead partially closes positions, only liquidating the minimum positions necessary to restore the account to meet margin requirements. Kyan is currently in the Arbitrum testing phase, with mainnet launch imminent.

Who Needs Options?

Asset management companies building structured products urgently need the clearly defined risk-return structure provided by options. Take JPMorgan's stock premium yield ETF as an example; this fund is built on a covered call strategy and is one of the largest actively managed funds globally. The overall managed scale of derivative-based income products has exceeded $100 billion. As more institutional funds enter the on-chain space, corresponding hedging demands will also migrate.

Currently, an increasing number of institutional investors hold or plan to allocate digital assets in the short term. The open contracts for IBIT options have surpassed those of the gold ETF GLD. In 2025, CME handled a nominal trading volume of $3 trillion in cryptocurrency derivatives.

The Timing Is Maturing

Most early on-chain options protocols failed to survive, mainly due to regulatory uncertainty. For instance, Opyn was penalized by the CFTC for operating a derivatives exchange without a license. At the time, the team could not predict whether the product would be deemed illegal in the next quarter during development.

This situation is improving. In September 2025, the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) jointly issued a statement allowing regulated exchanges to conduct spot cryptocurrency asset trading. The "CLARITY Act" has passed the House of Representatives and aims to place the digital commodities spot market under CFTC oversight. The Senate version is still under negotiation and currently on hold. The CME Group will launch 24/7 cryptocurrency options trading on May 29. Although this does not guarantee that on-chain protocols will necessarily prevail, the overall environment has undergone a significant change.

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