Can On-Chain Options Replicate the Rise of Perpetual Contracts?

With a decade-long path established for perpetual contracts, how far can on-chain options go starting from 0.2%?

Written by: Gino Matos

Compiled by: Saoirse, Foresight News

Today, Bitcoin holders looking to reduce downside risk typically have to choose between selling their assets or shorting perpetual futures contracts. However, both options incur capital costs and face the risk of forced liquidation. On-chain options provide a third path: by paying a fixed premium, holders can continue to own Bitcoin while transferring the risk of a price crash to counterparties willing to price it.

The crypto industry has built a mature market that facilitates asset holding and directional bets using leverage, yet the market for managing position risk has not been fully developed.

The options exchange Deribit holds an 85% market share in Bitcoin and Ethereum options. According to data from Coinbase (which completed its acquisition of Deribit in August of the same year), Deribit’s options trading volume reached $2.5 billion in the past 24 hours, with an open interest of $27.3 billion.

The on-chain market presents a different picture. OAK Research estimated in March 2026 that the trading volume of on-chain options was only 0.2% of that of on-chain perpetual futures.

Spot and perpetual futures have already provided tools for crypto investors: directly holding BTC or ETH, or establishing leveraged directional positions using borrowed funds. Options can achieve what the first two cannot—investors can choose which risks to retain and which to transfer.

Long-term holders can buy put options to hedge against price crashes without selling their assets; institutional funds can buy call options to set a maximum loss limit for new long positions; traders can buy straddles to profit from market volatility; asset management treasury holding long-term idle assets can sell covered call options to earn income.

Options transform the previously binary risks of either losing or gaining into standardized trading instruments with pricing, expiration dates, and counterparties to take on the risk.

How a Mature Options Market Can Attract Incremental Capital

In an environment lacking a complete options market, the only way to reduce risk is generally to sell spot or short perpetual contracts. Both actions either lead to capital flowing out of the market or increase leverage that can easily trigger liquidation. Buying put options allows investors to continue holding assets while paying others to take on some of the downside risk.

This way, even if the market experiences a pullback, capital remains in the market; investors continue to hold asset exposure while the downside risk is priced by other participants.

Options market makers will follow price movements, trading the underlying asset or corresponding futures to manage their directional exposure, which directly links the liquidity of the options market to that of the spot and perpetual markets.

As hedging costs decrease, market makers can offer narrower spreads on options quotes; smaller bid-ask spreads will attract more trading volume, further driving more hedging orders back to the spot and perpetual contract markets.

The activity level of spot trading depends on investors' willingness to hold coins, while perpetual contract trading largely relies on one-sided market bets. Options can attract a wider variety of capital: when volatility pricing is distorted, hedging costs are high, or event risks have trading value, volatility funds, market-neutral trading teams, insurance institutions, premium sellers, arbitrage teams, and structured product issuers will choose to enter the market. Even when the market is sideways or declining, these trading opportunities still exist.

On-chain options can price uncertainties related to different strike prices and expiration dates, intuitively reflecting the costs investors are willing to pay for hedging, the concentrated ranges of bullish demand, and the time nodes when the market expects significant volatility.

This makes options a forward-looking indicator, capable of reflecting the uncertainties in the crypto market rather than merely reflecting the asset price at a specific moment.

Why On-Chain Options Need the Existing Infrastructure of Perpetual Contracts

DeFiLlama's "2025 DeFi Industry Report" shows that the weekly trading volume of DeFi perpetual contracts will reach $250 billion to $300 billion in 2025, far exceeding the approximately $50 billion scale in 2024; the open interest is expected to nearly double, approaching $90 billion.

The new generation of perpetual contract platforms has already built exchange-level matching systems, deep order books, unified collateral systems, and institutional-level risk control systems on-chain.

When traders buy options, market makers typically trade the underlying asset or perpetual contracts to hedge their directional exposure as prices fluctuate. Research on market structure indicates that the bid-ask spread for options directly depends on how easy it is for market makers to implement hedging in the underlying market. Perpetual contracts can serve as a hedging vehicle, making on-chain options feasible.

DeFiLlama's options data panel shows that the open interest on the on-chain options platform Derive has surpassed $1.2 billion; in March 2026, the trading volume of on-chain options premiums hit a new high, exceeding $51 million.

In comparison to the average daily trading volume of approximately $21.4 billion for on-chain perpetual contracts, the DeFi options market remains small. OAK Research estimates that the trading volume of options during the same period accounted for only 0.2% of perpetual contract trading volume.

What Transformations Can the Flourishing On-Chain Options Bring?

Protective put options allow long-term holders to maintain their positions during market downturns without panic selling, locking in their maximum downside loss.

Covered call funding pools enable holders to earn income from their long-held assets; cash-secured put options allow asset management treasuries to earn income by buying assets at lower prices when they fall to target levels.

Liquidation will no longer be the only way to mitigate downside risk in DeFi; investors can establish clear risk protection through options before receiving margin call notifications.

A paper on on-chain options published in 2026 proposed that automated market makers have revolutionized decentralized spot trading, but the options field has yet to develop a mature universal standard. The paper pointed out that a complete options infrastructure relies on high-frequency price oracles and stable, reliable liquidation engines, which most public chains currently lack.

A recent report on on-chain options by Block Scholes noted that the early development of the industry has been hindered by a lack of liquidity, difficulty in hedging, low willingness of market makers to participate, and poor user experience.

The report also mentioned that new generation infrastructures such as central limit order books and inquiry systems are helping market makers to more stably quote options for various strike prices and expiration dates.

A more realistic development path is to rely on funding pools and structured products to shield complex underlying logic: Bitcoin positions with downside protection, fixed-income notes, embedded insurance tools, allowing ordinary users to avoid complex pricing themselves.

Market makers' hedging operations can both dampen market volatility and potentially amplify fluctuations. If a large number of traders concentrate on the same strike price, market makers holding negative gamma exposure will need to sell assets when prices drop and buy assets when prices rise, further amplifying existing market fluctuations.

What Barriers Must On-Chain Options Overcome to Achieve Scalable Development?

Optimistic Scenario: Continuous improvement in perpetual contract liquidity, portfolio margin systems, and market maker participation will allow the market to maintain narrow options quotes across a wide range of strike prices and expiration dates.

Various funds, asset management treasuries, and hedge traders will begin to adopt on-chain options as widely as they currently use Deribit. During periods of significant market volatility, investors will continue to hold assets while transferring downside risk to others. DeFi will have native hedging tools, volatility trading products, and insurance-like derivatives, allowing investors to manage risk without selling the underlying assets.

Pessimistic Scenario: The complexity of options remains high for an extended period, bid-ask spreads continue to widen, and liquidity cannot concentrate. The markets for strike prices and expiration dates across different public chains and trading platforms are fragmented; market makers are constrained by limited hedging conditions, leading to conservative quotes.

On-chain options remain a niche tool for professional trading teams, while the vast majority of users continue to rely on existing risk management methods: relying on perpetual contracts or directly selling spot during volatility spikes.

Perpetual contracts enable crypto leverage to circulate on-chain, while options are expected to allow risk to flow freely on-chain as well.