DeFi Options: How They Work and Can They Reach the Size of the Futures Market?

What Are Options, and How Do They Work?

An option is a contract that gives the buyer the right to buy or sell an asset at a pre-agreed price. Exercising it is optional. For that right, the buyer pays the seller a premium.

There are two main types of options:

• call option (call) — the right to buy an asset at a certain price
• put option (put) — the right to sell an asset at a certain price.

Let’s say ETH is trading at $3,000. A trader believes the price could rise significantly over the next month, so they buy a call option that gives them the right to buy 1 ETH for $3,200. They pay a $150 premium for this contract. 

The $3,200 price in this contract is called the strike, and its end date is the expiration. A European option can be exercised only at expiration, while an American option can be exercised earlier.

If, by expiration, ETH is trading well above $3,200, the option can generate a profit. If the price stays below the strike, the buyer may choose not to exercise their right. For the seller, the logic is the opposite. They receive the premium upfront and take on the contract’s obligations. Now let’s see what the outcome from the example would look like at different ETH prices at expiration, excluding fees. 

So even if ETH goes up, the buyer won’t necessarily make a profit. To recoup the $150 spent and break even by expiration, the price must rise to at least $3,350. That’s the strike price plus the premium paid. If ETH stays below $3,200, there will be no option payout.

Before expiration, you can sell the option if the platform supports it and there is a buyer in the market. In that case, the final result will depend on the contract’s price at the time of sale, which can change right up until settlement. It is influenced, among other things, by the time remaining and the volatility expected by the market.

Platforms use different settlement methods at expiration. For example, Derive and Paradex use cash settlement, where the payout on an expiring option is credited in USDC, while Rysk uses physical settlement, with the underlying asset exchanged for funds at the strike price.

Onchain options work on the same logic. The difference is in the infrastructure — the blockchain is used to track positions, custody collateral, and run settlement. At the same time, the share of onchain operations varies across platforms. For example, Aevo can match buyers’ and sellers’ orders offchain, and then run final settlement onchain.

How to Read an Options Chain

On an options exchange screen, a trader usually sees an options chain for a single underlying asset. To choose a position, you need to compare several parameters:

• expiration — the contract’s end date
• strike — the price used to calculate the payout
• premium — the current price of the contract itself
• implied volatility (IV) — the market’s expected volatility that is priced into the option
• bid/ask and volume — the buy and sell prices, as well as the available size for a specific contract
• delta — the option’s sensitivity to moves in the underlying. It also helps estimate how far the strike is from the current price
• theta — shows how the option loses time value as expiration approaches
• vega — shows the premium’s sensitivity to changes in implied volatility

Another term a trader should know is “moneyness” (moneyness). It shows where the strike sits relative to the current price and is usually обозначается abbreviations:

• ITM means the option already has intrinsic value
• ATM is used when the strike is close to the current price
• OTM means there is no intrinsic value

For a call option, ITM corresponds to the asset price being above the strike, while for a put option it is below. For example, if ETH is trading at $3,000, then for a call option a $2,800 strike would be ITM, $3,000 would be ATM, and $3,200 would be OTM.

How Options Differ From Perpetual Futures

The outcome of futures trading primarily depends on price movement. If the asset rises, a long position makes a profit; if it falls, it takes a loss. Leverage increases both potential gains and possible losses relative to the posted collateral. If the margin is insufficient, the position may be liquidated.

Another key difference is the payout profile. A perpetual futures contract provides near-linear exposure, so all else being equal, the result is almost proportional to the move in the underlying asset. With an option, the relationship is non-linear, and the position’s sensitivity changes along with the asset price, time to expiry, and volatility. That means you need to account for more factors.

It is also important to consider:

• term — a perpetual futures contract has no fixed end date. A standard option remains valid until the date specified in the contract
• costs — an open position in a perpetual futures contract may incur funding rate payments. A buyer of a standard option pays a premium and, depending on the platform, fees
• risk — when buying a fully paid option, the buyer’s potential loss is limited to the premium and fees. When trading collateralized futures, the position can also be liquidated. Different risk terms apply to the option seller
• use cases — both instruments can be used for trading and hedging positions. Options also make it possible to build strategies around a sharp price move or changes in volatility.

There are also perpetual options. They do not have a standard expiration date, but the payout mechanics remain option-like. Holding such a position may require regular payments and sufficient collateral. For example, in Panoptic, the premium accrues for as long as the position remains open, and its size is tied to the activity of the pool on which the option is created.

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How Options DEXs Work

Futures DEXs made the first major step toward decentralizing the derivatives market. They showed that leveraged trading, margin, and liquidations can be moved on-chain while preserving the mechanics traders are used to.

With options, the task is more complex. For a single underlying asset, multiple strikes, expiration dates, and contract types exist at the same time, so liquidity is spread across many separate markets. 

Options DEXs still lack a widely accepted benchmark like Hyperliquid has become for the perpetual futures market, so projects combine different mechanisms.

Order book and RFQ

The order book is the most familiar model for traders. Buyers and sellers place orders for a chosen option, and the platform matches them by price. The problem is that every strike-and-expiry combination needs its own market. If the market for that contract is shallow, the spread widens, and executing a large trade becomes harder.

RFQ, or request for quote, solves this differently. The trader first sets the trade parameters, after which market makers provide a price. This is especially convenient for large or multi-leg positions, where it can be difficult to find a matching order in the book. 

Derive combines both approaches — the order book is used for continuous trading, and RFQ is used for on-demand trades.

Liquidity pools

Instead of constantly searching for a matching order, a pool of capital can serve as the liquidity source. Users deposit assets into it, and the protocol uses them to create and manage option positions under predefined rules. In this model, the option price and trade terms are largely determined by the system’s mechanics, not just by individual traders’ orders.

For example, Panoptic builds perpetual options on top of Uniswap’s concentrated liquidity. This approach reduces reliance on a single matching order, but it differs significantly from the classic exchange model.

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Vaults

Another option is automated vaults. In this case, the user deposits capital, and the protocol runs a predefined options strategy. The trader doesn’t need to manually choose each strike and expiry — these parameters are selected automatically.

A vault can regularly sell covered call options. The capital owner earns premiums, but during a sharp rally they risk missing out on part of the potential upside, and if the market drops, that payout only offsets part of the loss. Automated strategies of this type are available, for example, on Aevo.

Regardless of the execution method, the platform must ensure that the seller can meet the option’s obligations. With full collateralization, assets are reserved for a specific position. For example, for a covered call you can lock the underlying asset, and for a cash-secured put — stablecoins equal to the strike amount, as Rysk does.

A margin model lets you use capital more efficiently. The exchange assesses the risk of the entire account and determines whether there is sufficient collateral for open positions. With portfolio margin, the interaction between positions and its impact on overall risk is also taken into account.

As a result, the label “options DEX” can refer to quite different models. Before trading, it is important to understand where the platform sources liquidity, how pricing is formed, where collateral is held, and whether you can close a position before expiry.

What blockchain changes in how platforms operate

On a traditional exchange, a trader typically operates through a broker, while clearing infrastructure is responsible for execution. In blockchain protocols, some of these functions are handled by smart contracts. They can hold collateral and automatically settle an option.

In hybrid DEXs, these functions can be split across several layers:

• execution — an order book or RFQ matches opposing orders
• risk and margin — a separate engine calculates collateral requirements and the account state
• settlement — smart contracts hold collateral, track positions, and move funds once the trade is finalized

For example, on Aevo, the order book and risk engine run off-chain, while settlement happens on-chain. Derive uses a similar model, combining its own network and a settlement protocol with a CLOB.

Blockchain also makes it possible to turn a position into a programmable asset. For example, in Premia V3, long and short options are represented by ERC-1155 tokens. You can hold such a contract in a wallet, transfer it to another address, or use it in other DeFi logic.

This makes it possible to integrate options into other DeFi products, such as vault strategies, although the specific capabilities depend on the platform.

Even when connecting via a wallet, access to the platform may depend on jurisdiction. In addition, an exchange’s operation relies on services that process orders and on sources of price data.

Which DeFi Platforms Are Already Working With Options

Above, we’ve already mentioned Derive, Aevo, Panoptic, Paradex, and Rysk several times as examples of specific mechanisms. Here, we’ll bring them together and take a closer look at the approach each team is developing, and how these platforms differ from one another. 

Below, we’ll take a closer look at the differences between the platforms and the problems they are trying to solve.

Derive

Derive most closely resembles a full-fledged derivatives exchange. You can trade options, perpetual futures, and spot BTC, ETH, and altcoins. Large and complex trades can be executed via RFQ. Portfolio margin assesses risk across the entire account, so positions that partially offset each other may require less collateral. The platform also supports multiple collateral types.

Overall, Derive is suitable not only for buying individual options, but also for complex strategies and active position management.

Aevo

Aevo combines exchange trading and OTC deals. Options and perpetual futures positions are tracked within a single margin account. Orders are matched off-chain, while settlement happens on Aevo L2. For large altcoin options trades, a separate service, Aevo OTC, is available. It is used when the regular order book does not have enough liquidity for a large-size order.

The main interface is designed for actively traded contracts, while an OTC service is available for large trades or low-liquidity instruments.

Panoptic

Panoptic differs significantly from a classic options exchange. Contracts do not have a standard expiration date or the usual tenor grid. Options are built on top of Uniswap liquidity, and their parameters are tied to the price ranges of the AMM pool. Pricing is calculated algorithmically without an external price oracle. Call and put positions can be opened without separate approval. The premium accrues gradually as long as they remain active. Panoptic uses concentrated liquidity mechanics as the foundation for options trading, instead of porting the traditional exchange model onto the blockchain. 

Panoptic is currently running the second phase of Season 3 Pips, where 100 million points are distributed for activity, corresponding to 0.5% of the token supply. 

Paradex

Paradex brings multiple markets together in a single trading account. You can hold spot positions, perpetual futures, and options with shared margin. Daily, weekly, and monthly expiries are available, and settlement is in USDC using a 30-minute TWAP. Data on open positions, entry points, PnL, and liquidation levels is not published publicly. The project continues Season 3 XP and distributes 4 million XP weekly for activity. 

Paradex is more like an all-in-one derivatives terminal than a standalone options venue.

Rysk

Rysk focuses on selling fully collateralized options. The user selects an asset, tenor, and target price, after which an RFQ auction gathers quotes and shows the best premium. The payout hits the wallet immediately, while the collateral remains in the smart contract until expiry. This format eliminates liquidations and prevents third parties from rehypothecating funds. The platform supports ETH, BTC, HYPE, and other assets. Under the Points program, 1 million points are distributed every week for onchain and referral activity. 

Overall, Rysk is better suited for earning premium and managing portfolio yield than for continuous active options trading.

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Why is the Onchain Options Market Smaller than the Futures Market?

At the time of writing, DefiLlama estimated daily notional onchain options volume at roughly $241 million. For comparison, perp DEXs were posting around $28 billion.

Several factors are holding back the development of decentralized options trading platforms.

Liquidity is spread across a large number of contracts

A single asset can have one main perpetual futures market. In options, traders choose between different strikes, expiration dates, and two contract types — calls and puts. Even 10 strikes, five dates, and two types create 100 combinations for a single asset. As a result, liquidity is spread across many separate instruments, which makes it harder to build deep markets.

The options market for new assets develops more slowly

When a token is just launching, there is still little data on its potential volatility, and trading can be unstable. It is harder for an options seller to determine a fair contract price and hedge risks. That is why interest in such instruments may appear during a short-lived wave of demand for the asset, even though a full-fledged trading infrastructure has not had time to form yet.

Options are more complex for users

To open a position in perpetual futures, a trader needs to choose long or short and the position size. With an option, you also add the strike, expiration date, and premium, and the contract price depends on time to expiration and implied volatility. Even getting the direction right does not guarantee a profit, because the asset may not rise enough, or it may move too late.

Market making requires more complex infrastructure

A market maker needs to quote many strikes and expirations at the same time, recalculate the volatility surface, and hedge delta via the spot market or futures. Because of this, quotes on DeFi and centralized venues can differ significantly.

The industry is still looking for a model that makes trading efficient for market makers and easy to understand for users. In the perpetual futures segment, Hyperliquid became that benchmark, showing that an onchain order book can deliver a familiar exchange interface, high execution speed, and deep liquidity. After that, other projects got a clear reference point to compete against.

Options still do not have their own Hyperliquid — a platform that would set a clear standard for the market. That is why it is still unclear which model will prove the most sustainable.

Conclusions

For onchain options, a single workable model has yet to emerge. In the perpetual futures segment, a user-friendly trading format has already taken shape, with a familiar order book, margin, and fast execution. Options platforms still have several hard problems to solve at once — aggregating fragmented liquidity, giving market makers convenient hedging tools, and sparing users from having to understand all the internal mechanics.

That said, demand already exists. According to CryptoRank, the notional volume of onchain options in Q3 2026 reached about $7.5 billion, with roughly 88% coming from Derive. This level of concentration highlights not only one venue’s leadership, but also the market’s early stage — capital and liquidity are still gravitating to where trades are executed most predictably.

The next phase will likely begin once a model emerges that makes options in DeFi as familiar a tool as perpetual futures have become. The market needs a clear benchmark — a platform or protocol after which onchain options stop looking like a string of experiments and become a standalone segment of DeFi derivatives.