## New Pattern in Crypto Derivatives: How Options Challenge the Dominance of Perpetual Contracts

If 2024 belongs to perpetual contracts, will 2026 be the era of options? The answer to this question might come sooner than expected.

Many market observers have noticed an interesting phenomenon: **What are options**? Simply put, they are financial instruments that give the holder the right, but not the obligation, to buy or sell an asset at a specific price at a future date. Compared to perpetual contracts, which often leverage 10x and can be liquidated at any moment, options have bounded risk—the maximum loss is known at the moment of purchase.

But why do most retail traders still play with perpetual contracts?

## After Passive Income Fades, Where Is the New Exit?

In the past five years, the crypto ecosystem experienced a golden period of "lazy gains." As long as you participated in token mining, basis trading, or arbitrage strategies, you could earn annualized returns of 20%-30% with almost no active management. The core secret was: because retail investors were structurally bullish, longs had to pay funding rates to shorts. Clever arbitrageurs bought spot and shorted perpetuals to earn this fee steadily.

This good time came to an abrupt end in 2024.

After spot ETFs were approved, traditional financial institutions poured in billions of dollars, compressing the spread from 20%-30% to just a yield above government bonds. By the end of 2025, this "money printing machine" had completely shut down. Retail traders who once earned millions monthly from basis trading suddenly found themselves unemployed.

The market desperately needs new sources of income. And options, just in time, stepped in.

## Why Are Perpetual Contracts More Popular but Riskier Than Options?

There is a very interesting paradox here.

In theory, options should be simpler and safer than perpetual contracts. Buying a call option caps your maximum loss to the premium paid, and it won't suddenly liquidate you, pose overnight risks, or explode due to gap moves. But in reality, perpetual contracts still dominate.

Why? Because leveraging 10x is much easier than calculating risk exposure.

Perpetual contract mechanisms seem straightforward but hide deadly risks:
- **Cross-margin trap**: a liquidation of one position can wipe out the entire account
- **Path dependency**: you can't just open a position and forget it; you must constantly monitor funding rates and warning levels
- **Double fees**: opening costs, closing costs, and sometimes additional fees
- **Forced liquidation**: during market crashes, ruthless liquidations can catch even large traders off guard

In contrast, options are "foolproof"—maximum loss is transparent, risk is bounded, and there's no need to watch the market constantly. But retail traders just don't like to use them.

## Traditional Finance Has Already Given Us the Answer

Looking back at the history of the US stock market reveals similar turning points.

In December 2017, Robinhood launched commission-free options trading, sparking an industry revolution. Within two years, major US brokerages followed suit and eliminated commissions. The result?

Retail options trading share soared from 34% in 2019 to 45%-48% in 2023. By 2024, the total annual options contract volume in the US reached a record-breaking 12.2 billion contracts, setting new records for five consecutive years.

Even more crazy is the explosion of 0DTE options (zero days to expiration). These options, held for only a few hours and seeking high convexity, jumped from 5% in 2016 to 51% in Q4 2024. Daily trading volume exceeds 1.5 million contracts.

Why are retail traders so obsessed with 0DTE? Because they require low capital, have no overnight risk, feature built-in leverage of over 50x, and can see feedback within the same day. Industry insiders jokingly call this "dopamine trading."

The market's explosive growth further confirms this logic. Polymarket processed $9 billion in trades in 2024, with peak monthly active users exceeding 310,000. These platforms are essentially variants of binary options, just packaged as "collective intelligence." The result? They attract retail traders like crazy.

## Why Are Options Not Yet Popular in Crypto?

The history of DeFi options is a story of failure.

Early protocols like Hegic, Ribbon, Dopex, and Opyn all fell into the same trap: ambitious teams struggled to simultaneously solve liquidity onboarding and user experience simplification.

Ribbon's market cap fell from $300 million to just $2.7 million; Dopex collapsed due to unsustainable economic models; Opyn eventually abandoned retail users and shifted focus to infrastructure.

The key reason is **complexity**. DeFi options protocols have fragmented liquidity across different expiry dates, rely on oracles that increase manipulation risk, and fully collateralized pools limit scalability. More critically, users simply don't understand these products.

But the situation is changing.

## How the New Generation of Options Products Lower the Barrier

Between 2024 and 2025, a new wave of protocols is solving the complexity problem by **completely hiding the options mechanism**.

Euphoria raised $7.5 million in seed funding, with the core idea summarized as: "Look at the chart, find the range where you think the price will touch, and just click." No need for order types, Greeks, or margin calculations—the entire options mechanism runs in the background. The product is essentially a gamified interface.

This approach has been validated by Polymarket. The $9 billion in trading volume didn't come from quant experts understanding implied volatility but from ordinary users. They just want to quickly assess the probability of an event and place bets.

## Institutional-Grade Options Infrastructure Is Maturing

Meanwhile, another track is quietly heating up—**DeFi options for institutions**.

Protocols like Rysk bring traditional options selling strategies on-chain. Users can directly stake assets, customize strike prices and expiry dates, and obtain competitive quotes via on-chain auctions. The entire process is transparent on-chain, with no counterparty risk, and supports multiple collateral types (ETH, BTC, LST, etc.). DAOs and institutional funds can generate continuous income streams by selling covered calls without worrying about scams.

Derive (formerly Lyra) has upgraded from an AMM architecture to a centralized limit order book, supporting fully collateralized European options, dynamic volatility surfaces, and 30-minute TWAP settlements, with execution quality comparable to small CeFi venues.

GammaSwap takes a different route—non-synthetic perpetual options based on Uniswap liquidity. It extracts volatility premiums from AMM impermanent loss, eliminating oracle dependence. Traders can construct straddles (delta-neutral), long, or short positions.

Panoptic's most radical innovation: perpetual, oracle-free options with concentrated liquidity on Uniswap v3. Any LP position can be understood as a combination of options, with fees flowing as continuous option premiums. All pricing relies solely on Uniswap's internal data, with no external oracles needed.

All these protocols target the same user base—DAOs managing eight-figure treasuries, funds seeking non-correlated yields, LPs hedging impermanent loss, and asset allocators building structured products. They need a complete financial toolkit, not a gambling interface.

## What Does Coinbase's Acquisition of Deribit Signify?

In 2024, Coinbase acquired Deribit for $2.9 billion, signaling an important message: **Institutions are taking crypto options seriously**.

Deribit is the world's largest crypto options exchange, with daily open interest exceeding $3 billion. Coinbase's goal is clear—build a complete capital stack: assets held in Coinbase custody can be used directly as collateral for Deribit options trading, enabling cross-margining and centralized fund management instead of fragmented capital.

This vertical integration is hard to replicate in DeFi because liquidity is inherently dispersed. But it also means that the opportunity for DeFi options is here—if they can solve liquidity fragmentation, they can challenge CeFi's dominance.

## The Future of Options Will Split Into Two Worlds

A crucial shift in understanding is needed: the options market won't be a single entity but will evolve into two entirely different tiers.

**First Tier: Consumer-Grade Options**

Abstracted options products aimed at retail. Polymarket has already proven that retail traders aren't averse to options—they dislike complexity. When options mechanisms are hidden behind gamified interfaces, retail flock in. The competitive advantage here isn't financial engineering but UX design, mobile-first experience, and millisecond feedback. Winners will resemble consumer apps more than trading platforms. This tier will absorb the current short-term, high-frequency, dopamine-driven trading volume monopolized by perpetuals.

**Second Tier: Institutional Infrastructure**

Protocols like Derive and Rysk won't compete with retail but will serve DAOs managing eight-figure treasuries, funds seeking non-correlated yields, and LPs hedging impermanent loss. This layer requires portfolio margining, cross-collateralization, quoting systems, and dynamic volatility surfaces. These features are unnecessary for retail but essential for institutions.

On-chain asset allocators need the full expression of options—explicit hedging strategies, yield stacking, delta-neutral positions, and composable structured products. Simple lending markets and leverage sliders are nowhere near enough.

## Conclusion

Whether options will truly rise in 2026 depends on two variables: the maturity of infrastructure and the genuine demand from retail.

Polymarket and Kalshi have already sent signals—retail traders crave simplified probabilistic bets. New-generation DeFi options protocols are addressing liquidity fragmentation and complexity. Institutional acceptance is also on the horizon (Coinbase-Deribit case).

When these factors align, the transition of options from niche tools to mainstream financial instruments could happen much faster than expected. By then, looking back at 2025, we might be surprised why perpetual contracts could dominate for so long.