A (3:09)

Yeah, ltr. Is there anything that you want to add?

B (3:13)

Yeah, I mean, like, I'd echo all of that. I think we have seen like volatility, like DVAL and stuff from. From Derbit has done pretty well. And then the one thing I would also say is that like DEFI enables a lot of other stuff as far as like structured products, options, vaults, on top of options, and then like even like Uniswap V3 stuff. I would consider like an on chain derivative if you're doing some kind of strategies. But overall, like, I would agree with Nick, like, the main thing we've seen, you know, with Hyper liquid and all these PER venues is that the people want perps. And, you know, a lot of people think that kills options, but I think that's what we're here to discuss.

A (3:44)

Yeah, so I mean, options have not really been huge, as you guys mentioned, especially on chain. And from what I've read, it seems like initially it was kind of like a little bit more over the counter, which obviously is like slow and inefficient. But then derivatives or, sorry, Deribit came on the scene. So talk a little bit about how the arrival of Deribit changed what that looked like in crypto.

C (4:13)

Yeah, I think it provided a step up in liquidity across the board. It was a way for a lot of the. Initially, I think Deribit only had. It had all of the prices and margin in Bitcoin itself, which is pretty unique for options exchanges. It creates some funky interesting things with how the options are priced when you're paying in Bitcoin. And that's kind of like the quote instrument. Like, I think USDC was only added a couple of years ago on Deribit as an. As an instrument. But what it did was allow a lot of these sort of markets that were only serviced over the counter with written legal agreements, often via isd, often not kind of a global marketplace. It allowed a lot of the risk that was accumulating between those trades to start to get offset, you know, more easily between market makers and dealers who are taking the other sides of these trades. And that was like kind of the heartbeat of a lot of the Deribit flow, and it still is today, alongside, you know, of course, the very traditional OG flow of, you know, bitcoin miners buying puts, buying downside, to protect against, you know, a precipitous drop in bitcoin and their future earnings, which is kind of the bedrock of a lot of the early options activity. But Deribit kind of reduced the price of hedging by centralizing a lot of the risk and allowing for margin within the system. And I think that was very much the first step in the adoption of crypto options. But similar to what I described there, with the seven year timeline between the introduction of perps to crypto in 2016 to really hyperliquid, beginning to get serious traction in 2023 and 2024, I think we're about seven years behind when Deribit started to do volume for the first time too. And I think that market is about to get a lot bigger.

A (6:03)

And ltr, do you want to add anything on that?

B (6:05)

Yeah, I mean, I think those are all salient points. Deribit came on the scene in 2016 and just like before that, there was nothing you had to price based off whims, based off gut feel. So it started with only European, which means fixed expiries and cash settlement was only in bitcoin. So I think the major things that Deribit brought was a real time order book. They actually used a central limit order book for market makers, and that made prices not so opaque and it brought it more transparently, which I think is nice. And it was the first time we could make an IV surface for bitcoin and actually price it. And people could see that. And so I think that really led a lot of stuff, even perps, to be honest. I think we've seen that drivet really led the game in a lot of pricing and a lot of risk and portfolio management. So.

A (6:51)

And so obviously, like Deribit grew huge. And I just saw, I think like even in the last 24 hours, there was about $2.7 billion in open interest, which is a very similar number to the number that was acquired for last year by Coinbase, $2.9 billion. And that was the biggest acquisition in crypto history. So like when you, you know, sort of think about kind of that milestone, like what, what was the significance of that moment to, to either of you?

C (7:24)

Ltr, I'll let you go first in this one.

B (7:26)

Yeah, I just say like, I think it kind of shows that there's a whole nother world out there. You know, I think a lot of people in CT are very siloed into the, the perps and stuff. And while I think perps are a fantastic instrument, especially for maybe a solo trader who's just more discretionary in trading their pa, there really is a whole other world out there like Chicago, CBOE and stuff that's like moves money you can't imagine and doing all kinds of strategies that maybe aren't purely like I'm trying to make profits type. And I think that's where options really shines. Especially if you have BTC on your balance sheet or your DAT or whatever it might be. Seeing those numbers I think surprises a lot of people. They're like oh my gosh, where's this coming from? But to people have been around like it's not too surprising. Like you know, they did over 14 billion on March 27th alone. Like there's been some crazy options. And then it also helps inform a lot of discretionary traders too. I know a lot of perpetrators that use derivative data for like targets or seeing like where we might go next just because it is informing a lot of flow.

C (8:26)

Yeah. And I think for me as well it shows it. One, it showed the maturity of the options market in crypto to some degree. But two, I think it shows how difficult it is to actually replicate a network effect in options. It's, it's much more sticky because you have, you know, very long onboarding cycles, a very high bar for institutions to use and you know, once they're onboarded like to take incremental risk to go to another exchange. It also is just by the nature of the product where you are trading often like 6 month dated or 12 month dated options. Once you have a trade expiring in a year, the market maker needs capital on that exchange for a year and the trader has some capital and some positions on the exchange for a year. This is very difficult to wrestle someone away from an existing exchange for another exchange once all of that is set up. Which is why a lot of the other sort of Asia based centralized exchanges tried very hard to get into options in that period in 2020-2024 and didn't make huge inroads into the deribit market share because of those strong network effects. So I think we, it signaled from Coinbase was like hey, like this is a valuable set of users that is going to be very difficult to replicate if we started, you know, kind of on our own from square zero. And that, you know, big price was kind of indicative of like the difficulty of replicating that dynamic.

A (9:54)

Okay, so today we're at this moment where clearly Deribit has kind of like, you know, proven what this world could look like off chain in a centralized exchange. And we've all seen like okay, Hyper Liquid kind of has shown what it looks like on chain in the perps world. So you know, when you sort of look at like where the rest of on chain derivatives go, like I'm sure you're probably seeing glimmers of some sort of future. So like, just explain. I imagine like, like you know, we're just at some moment in time where it's going to be like we're going to look back at that moment or maybe I'm wrong. You tell me. So how would you characterize this current moment?

C (10:41)

Yeah, I think we're in the, I mean I think we're in the early innings of like that sort of uptick in on chain options adoption following the off chain like the 20, 23 moment for pubs. I think more and more we see some of these big OTC takers and traders at least looking to take less counterparty risk than they have in the past. I mean you have like even you know, block fills like a big US based, Chicago based, reputable market maker OTC desk declaring bankruptcy out of nowhere like a month ago. Those risks are present no matter who you're dealing with. And anytime you as a big options trader or taker have to post your collateral to a market maker or an exchange, you're losing custody of your coins. You also lose, particularly if it's otc, the ability to use your collateral in other ways like to get margin or to hedge your position or to trade around it, you know, unless you do, you know, a repeat trade with that specific market maker. So we're seeing a lot more demand as these people get more comfortable coming on chain. I actually think Hyper Liquid is doing a really helpful job of like for forcing a lot of big institutions to figure out how to trade on chain to do the, you know, the processes and the compliance that's creating like a really nice tailwind for scaled teams on chain to sort of continue to onboard those firms once they've, you know, fully integrated on the perp side with Hyper liquid. So we're seeing that happening and I think I'm really excited because the quality of assets in crypto is increasing, which is kind of what you need for options. You need people who are going to hold an asset for a long time, have specific opinions about where it's headed and you know, like three to 12 month horizons willing to put a lot of capital up front to trade around it. Whether they're selling covered calls to generate yield or like hedging to the downside. You can't really do that if you know you're just looking to flip a bag in a month or you're trading the latest narrative and the sort of trading cycles in crypto historically we've just been so short term, it's just very difficult to actually care about what's going to happen or put a position up for three months. But as rwas start to really take root on chain, I think the applications and the ability to create, you know, different financial products using options on top of these quality assets adds a whole new dimension to options as a tool that doesn't exist even in centralized exchanges or in brokerages, you know, the top ones in the world where you know your positions and your collateral is kind of forced to just sit in your own interactive brokers or Robinhood account. And at best you get basis points for them lending it out on your behalf.

B (13:22)

No, yeah, I would totally agree. I think we're seeing a lot of the same rhetoric around perp Dexs that we saw. You know, crypto option, like dex is like part of my report that I wrote a while ago was like they've had a troubled history. Like a lot of people have ptsd. Like it's been pretty bad, like all things considered. And so there is this thing where it's like past performance is not indicative of future outcomes, where just because they were bad in the past, much like a lot of perp Dexes were, much like defi was, et cetera, et cetera, means that somehow it won't be really valuable in the future.

A (13:53)

Yeah. And can you tell some of those stories? The graveyard of failed experiments.

C (13:58)

Yeah.

B (13:59)

So there were a ton. There was open Hejic, Hedgic, dopak strike, like open originally got hit with like a CFTC fine. So this is partly like regulatory, which kind of is tough. Like a lot of stuff back then tornado cash. And the fine was huge. And they basically just had to shut down after that. Unfortunately, I believe a founder quit off the top of my head. And then like similar stuff happens to hegic Their. Their risk management via smart contracts is not that good. So there's like a TVL death spiral that happened. They lost, like, 80%, I believe, in. In the span of. Of a couple.

C (14:30)

It's. It's.

B (14:30)

And then, like, obviously there's evo and that whole fiasco with ribbon back in the day that. That really soured a lot of people. I think that one was probably the largest that. That really soured tastes. Dopex and Strike had like, a ton of security vulnerabilities within smart contracts that. That made it kind of unsafe. And so, like, Deribit just ended up basically taking the buy. They were just, like, the only one that was still surviving, partly because of their centralization, and they, you know, still control, like, 90%. So.

A (14:59)

Yeah, okay. Yeah. I mean, I agree with your earlier point that just because those failed, it doesn't mean, like, the category can't succeed at some point. Like, clearly, crypto has had many examples of different subcategories that sort of went through the same kind of initial early Wild west phase, I guess you could say. So why don't we now actually just talk a little bit about Derive directly, Nick, because obviously that's what you're working on. And like, formerly you. Well, you had the name. Is it Lyra or Lira?

C (15:40)

Lyra.

A (15:41)

Lyra, yeah. So explain like, you know, what approach you're taking there and just generally, like, you know what it is that you feel that having options on chain offers that like an off chain option doesn't have.

C (15:55)

Yeah, totally. So we started Lyra in 2021. Derive is just the rebranded version. It's all the same kind of underlying token and everything. And we've really been at it for the last five years. The vision for Lyra, which remains the same today, is that options are the most flexible financial instrument, which makes you can create any sort of theoretical payoff out of a different combination of calls and puts. And to me, when thinking about, like, I've been in Defi since, you know, kind of like on the sidelines since 2016, or like, following Ethereum, where you have make capital programmable, like, to me, it made a lot of sense that options were kind of this during the complete derivative. And, you know, you could draw an analogy there. So being the most liquid source of options, liquidity on a programmable money ledger felt like a major, major opportunity. And I didn't think it would take this long, but I knew it would take a little while for that to start to come together. But the reason why I think options are very valuable on chain is precisely because they're so difficult to understand. And I think a lot of people get this wrong. I think it's part of the reason people are so bearish on options in general. And I think they're wrong. People love to be contrarian until they love the idea of being contrarian until sometimes presented with the opportunity to, to, to do so. But people say options are complicated, they're difficult, no one's going to take the time to understand them. To me that's exactly what being programmable allows for. It allows for talented developers and teams to put together the options in the right way to deliver people the specific payoff or the specific trade that they want and get them the most money for doing so. And I think that that can be repackaged in lots of different ways. Structured products is one of them. I think they're tailor made instruments for AI agents because they're exactly the kinds of users who aren't going to preference bluntness over precision or care much about complexity. And I think we're just really starting to come into a world where derive is becoming liquid enough to really support these use cases reliably for these integrators to build really high performance structured products or trading strategies or you know, AI agents at scale 247 for really any asset, not just Ethan Bitcoin. But you know, we'll certainly be looking at adding, you know, the sweet whole suite of RWAs throughout this year.

A (18:24)

Okay, so I did also just want to ask something that I know this comes up pretty much for like yeah, most, most defi projects. But you know, obviously in finance there's this element where privacy or secrecy can give an advantage. So I just wondered like how that affects the public on chain or sorry the on chain options market.

C (18:49)

Yeah, it's certainly going to be something that's an important feature to have at sufficient scale. I don't think it's something the market is necessarily demanding of us yet I think to some extent at our size and even at hyper liquid size, to an extent like it's part of the, you know, the spectacle in some ways it makes the positions visible, it makes it interesting to talk about. But I think at sufficient institutional scale it becomes, you know, mandatory. So it's something that like we're certainly looking into as well as a feature. And I think some of the latest ZK tech makes this a lot more manageable and achievable than it, than it once was. I don't think this was something you could plausibly do a Year or two ago. So not the top priority in terms of getting to the next level of scale for us, but certainly at sufficient scale it will be okay.

A (19:40)

And then last bit, so I saw that you're on op, can you just talk a little bit more about kind of the technical aspects of what it is that you're doing at Derive?

C (19:49)

Yeah. So the way Derive is architected, we have an off chain order book and integrated RFQ for price discovery. So if you want to buy 100 bitcoin calls, you take either the order book liquidity or you ping the rfq, get a quote that you like, accept it and you know, you trade and that is then sent through to the protocol for margin. So it remains self custodial settlement, liquidations and effectively clearing as well. So all of that logic from margining options lives on chain. It's verifiable, it's auditable in real time. And a lot of that logic is very sort of like compute heavy mathematical. And so for us when we launched in this version in early 2024, we have a op stack app chain which is sort of customized to handle that logic, executing at scale trustlessly. So that's kind of the basic outline of the architecture.

A (20:47)

Okay. And ltr, I was going to ask you, when you look at this space, kind of what are the main problems that you feel like really need to be resolved before we start to see it take off?

B (20:59)

I mean like I think within ct, it honestly perhaps doesn't matter as much for onchain options. Like I think the average retail participant or the average trader on perps and stuff is going to stay on perps because it's mostly news driven and like Nick said, like the, the, the information cycles are so short that like options for more discretionary or more PA trading I just don't think make a ton of sense. Where it does matter I think is like foundations, DATs, they all need to be educated about this and so they don't have to incur the same risk they do with perps. We saw in 1010 OI, buildup can be pretty bad, especially if you're running a large book or if you're an employee and you're receiving a ton of tokens and you want to hedge them. Options just can be a better instrument for that. So it's one part education for sure. But I think it's going to take a lot of GTM and penetration of like, hey, you know you can trade 24, seven, you know, you can see proof of reserves easily. Like this is open and stuff like that to the outsiders, to the people who already trade options or maybe have Bitcoin on their balance sheet or a normal company. So that's what I'd say. I think like a lot of people will always come back and say like, oh, you know, options will, will never replace purpose of the average trader. And like, I disagree with that. Like, I'm not even trying to argue against that. It just matters to a different audience.

A (22:16)

Okay, so one thing I saw that Variant wrote about what they saw as some problems in this space and one is one that they called bad order flow, which is about like, you know, you need to have good market makers, you need to attract them and potentially they might just be more attracted to something like Deribit, which is more centralized and where they're going to probably just like have better tooling and other things. And I wondered know if you, if you see that as a problem and if so, you know how you think that on chain offerings can resolve that?

C (22:53)

Yeah, you just need differentiated order flow like real organic users of options. You need that to get market makers over the line. That begets more, you know, liquidity, which makes it easier to attract that next level of organic order flow. Flow. I think part of the reason we've managed to scale up recently is we've done a couple of foundational deals for liquidity with Falcon X for example, that has allowed us to build out differentiated order flow, particularly starting with hyper liquid options, since we're the most liquid venue globally for those. And that onboarded a whole, kind of forced a whole new group of market makers to take note and to start getting integrated with Derive in order to sort of interface with that flow. And that's what they need to see is just more of that organic usage. It's kind of why Ribbon managed to make it work way back in 2018, 2019. Not the greatest product in my opinion for the users, but it was great for onboarding liquidity because they offered market makers very cheap volatility in massive size. I think they had like 300 million in the vaults at the peak. And that's really the carrot that you need to start to develop, you know, two way order flow over time because and to build those network effects you've got to go find those pockets of users who for whatever reason uncomfortable trading on Deribit. And that class is actually starting to grow at the moment.

A (24:22)

So in a moment we're going to talk a little bit more about options. But first we're going to take a quick word from the sponsors who make the show possible. Bitcoin changed how money works. Citraya changes how Bitcoin scales. Citraya uses Bitcoin as both the settlement and data availability layer. As Bitcoin's application layer, Citraya enables the first trust minimized BTC on a fully programmable platform and a native stablecoin for Bitcoin. Cetera offers Bitcoin capital markets with lending, privacy payments, Bitcoin yield trading and predictions. Citraya expands Bitcoin's utility without sacrificing its security. Citraya mainnet is live get started at Citra XYZ slash unchained. Etherfi is giving unchained listeners 15% cash back on rideshares, groceries and restaurants right now, which honestly is kind of wild for a card like this. On top of that, I'm getting 3% cash back on every single transaction using my actual crypto. No conversion fees, no nonsense. My bank never once did that. And it goes beyond just spending. You can borrow against your holdings at 4% or less, which is super useful if you don't want to sell your assets. You can also earn on all major assets up to 8% APY just by holding and moving money is just easy. No hidden transfer fees, no friction. It just works globally. If you want to check it out, go to Ether Fi Unchained to claim your offer. That's Ether Fi Unchained. Back to my conversation with Nick and ltr. You know, so one thing I heard you talk about Nick, was that you feel like there's this relationship between on chain derivatives and defi yield. And you wrote a piece called Yield Magent. So tell us a little bit about your theory there.

C (26:15)

Yeah, so I, you know, we originally tried to make options selling options competitive in 2024. And so a lot of this insight was driven by that experience of trying to get, you know, bigger some of the big funds in the space to sell options, which is what happens at scale in traditional, you know, finance for, you know, 15, 20% yield in USD terms obviously with some financial risk there to where the price goes. And it was impossible, like it was actually like just impossible to make any headway. The reason why is because either the basis trade, which they could lever up was yielding 15 to 30% almost risk free, like certainly delta neutral, or they had the ability to do a deal with a team that was going to launch a token and needed TVL where they, you know, commit 50 million in TVL for six months. They get, you know, 10 to 20 million dollars worth of that team's token, which they can either hedge out through pre market pups or, you know, using Pendle on the, on the points markets. And that really was, you know, both the basis trading crypto from 2020 to 2024, 2025 and then the sort of points farming meta with token launches made it almost impossible to actually deliver options as a competitive yield product in. Defi themes and projects and products were built around these sources of yield. So the basis trade or offshoots of the basis trade slash, taking advantage of some of these token launches. What happened on 1010 was kind of the best thing that could have been, you know, could have happened to us in, in some ways in terms of the market structure. And that was effectively, it was the final nail in the coffin for the basis trade, you know, which was already in decline really over the course of 2025. But then also it really hit a lot of the valuations for a lot of these alts in crypto, which, as I said, a lot of these funds had built all of their returns around. We're still seeing, in my opinion, a lot of the, you know, a lot of the funds shutting down, particularly the delta neutral runs right now. It is capital outflow from the space. It's because a lot of them were built around those two strategies. And, you know, people have been unable to compete in the new environment. So I think, like, really for the surviving crypto teams and we've seen Athena, I think a couple days ago, announced that they're pivoting their strategy from just the basis trade to starting to incorporate, you know, a whole wider range of strategies. I haven't done too much research into that, but I think it's indicative of where the space is going. People need to find yield, you know, from other places that are sustainable, more evergreen, and kind of require a little more financial risk than, you know, most of the teams and the funds in this space have been used to over the last four or five years. And that makes options more competitive. It's the end state for a lot of the yield generation in traditional finance outside of, you know, like credit and lending. And there's a reason for it. It's because it's tailorable and bespoke and it creates, you know, kind of it's no longer crowded out by those dynamics that we were describing.

A (29:27)

Ltr, what do you think?

B (29:30)

I mean, I think Nick has done far more research than I have on the Yieldmageddon, but I would just say it as like that one tweet that's like, you know, why would you be in defi and earn 1% below T bills and lose your money once a year pretty much. It's like right now, especially when rates are higher, it's just like, you know, I can earn in a money market on UBS with full FDIC versus like get one shot, you know, pretty much time and time again. I mean unfortunately we saw this with Drift. Like they had a great yield product that, that most of Salana, you know, Defi ran through. And so there's just a lot of systemic, you know, I think we even saw in 1010 with a lot of these defi protocols is they're all looping, they're all borrowing, they're all over collatting with each other. And that just creates like an intertwined mess that when something does happen, everything else suffers. And I think like options provide a lot of insulation from that. For one, for both counterparties, they can be far more siloed with specific collateralization and whatnot. So I would totally agree with Nick here.

A (30:26)

Okay, so yeah, I mean we're obviously a very sort of, what's the word, different or interesting crypto market. It was like we had this bull market and I think because of regulatory stuff and just a lot of validation that people were seeing from TRADFI and other things, I think it's not even, I think I know because I had so many people on the show who said this will be the first time that the crypto four year cycle is going to be dead and it's just going to be. I don't think they use the word super cycle, but they basically said like this is not, you know, just going to be the typical trend that it's been. Obviously they were wrong about that, which is okay. But I do think that despite that, everybody knows that in a way it doesn't matter where the market is right now because every single indicator shows that this is not only here to stay, but that both Tradfi and Crypto and fintech are all wanting to compete in the same space. So in that regard it's sort of like kind of when the real race begins or something like that is maybe how to think about it. So you know, when you look at that and you kind of imagine what this world could look like when, when you are really using all the different tools on chain, you know, what are the different types of products that you feel like could or should be built or features that they should have that you know, we haven't really either seen or that haven't found? Kind of like, you know, the right features to really take off.

C (32:14)

Yeah, I mean I can start. I think, you know, our vision and our goal is to trade any asset in any way at any time. And so like it's not just trade any asset like up or down. I think you can create, you know, like what Athena did for the basis trade specifically. I think you can tokenize pretty much any trade that you want to or like strategy that people use on repeat. So this is this, you know, common one on Robinhood called the wheel strategy where you sell puts until you get assigned on the downside on like Tesla for example. Then you buy Tesla kind of at the lows and then you sell calls to the upside. People want to do this. They cost tons in execution. It's a very popular retail strategy. I, you know, I don't know if it's profitable. A lot of these strategies, these maybe unprofitable for some, but if you have some sort of directional edge or you have a specific lean to or insight into how a stock trades, maybe it's the best way to express that opinion. You can tokenize that you can do it on repeat. It's one click for us. I think we're interested in how you can take the options and the strategies that we build to stabilize other sorts of looping and all of these other risks in the system. For example, you can hedge some of these bitcoin collateralized lending markets to the downside by owning Bitcoin 40K puts that expire in a year. These are the kinds of seamless financial integrations that require some degree of programmability that I think don't exist anywhere in traditional finance. I think at the end state we will have this payoff factory that you can really build and create, you know, these sorts of structures for yield generation, hedging or speculation in a really, really tailored way using not only, you know, specifically tokenized trades, but also drawing on AI to an extent to craft and implement these strategies. It becomes a lot easier to, you know, use options if you can say, hey, like I think, you know, not only I think this, you know, Bitcoin's going up. I think Bitcoin is specifically going to between 80 and 90k in the next two months and you can go away and implement that strategy with one click via options and make more money than you would and have less exposure to scam wicks or market dynamics than you would if you were to do that in any other way. So I think it's just like that extreme range of integratability and bespoke customization of those strategies that we will offer that will be very difficult to replicate out of a Robinhood brokerage account. And I think that. And those products, those yield products, those hedging products can then be reused in other parts of the system as a stabilizer or as a, you know, evergreen source of yield

A (35:07)

ltr.

B (35:09)

Yeah, I would agree with all those. I think like the composability there is going to make things a lot of fun and really cool. Like I think we're going to see some, some crazy bundles that we can do or some crazy structured, you know, trades that we can make especially because we can just go cross platform or we can, you know, put wrappers on things and trade them. I think one of the main things that we're going to need to do is like capture the, the tokenization wave of like stocks and stuff. Because I think that's really what's going to, you know, bring this from, from 1 to n rather than 0 to 1 is like we are going to have these tokenized stocks. You know, we already do Blackrock, Franklin, Templeton, they're all tokenizing either their treasuries, their stocks, et cetera. But the problem right now is they're very siloed like you. It's pretty much the same tradfi experience you have to kyc. You can't bring it anywhere, you can't really transfer. But I think options have a really good advantage where they don't necessarily need to have the underlying quite in the same fashion. So I think being able to hedge 247 on stocks just like we've seen on trade XYZ with perps will be huge for options. And I'm pretty excited for that.

A (36:08)

Yeah. I mean on one of the other shows that we have here, Bits and bips, they were Talking about how RWAs in some way can break ethereum or break defi. Like break composability. But I think you're right if the option is just. It has some underlying. Actually I'd love to hear you talk through that. Do you see ways in which, because it isn't fully just permissionless and decentralized, that there are sort of like edge cases that create issues for it to be fully on chain and truly be defi.

B (36:46)

Yeah, I mean there's a couple things, right? Like a lot of the rwas we've seen in the past have unfortunately been like Liechtenstein SPVs that you're, you know, you're not really owning anything and you can get rugs like anthropic has a deal where like, if they find out that, you know that you're selling stock, they can basically just zero it because it's technically a private company and a lot of companies have those terms. So like, I'm, I'm very cautious with anything that's trying to do like private markets, especially right now, just because those can be zeroed pretty quickly. But with public stuff, I think, you know, Robinhood is already live with some tokenized stocks in Europe pretty much. And yes. Are those somewhat kind of sus because they're kind of rappers and they got in trouble with OpenAI and a lot of other companies. Yes. But on the other hand, I think it's just like an inevitability that we're going to have tokenized stocks and we already do. The key thing is just about accessibility and openness now. And that's kind of what I'm looking for is like, how can we open and make these accessible without necessarily having the same cumbersome kyc? Like there's some interesting stuff, you know, ZKTLS for, for kyc, et cetera, et cetera. Or like Kraken has this thing where you can link your on chain wallet to your Kraken account. And so you can kind of trade centralized but on chain. And that's kind of cool. But beyond that, like Superstate from Leshner is doing some interesting things where it's like a fund and you're basically signing up to agree that maybe you don't own the asset specifically, but you're more like taking part of like an ETF or something like that. I think there's a lot of interesting workarounds. I mean, I think we have some of the brightest minds in that with within defi. And so I'm excited to see what happens next.

C (38:17)

Yeah, I mean I would just say like we already. This is the same problem that USDC or USDT has. I expect it will be solved comprehensively for, for stocks and there are a lot of great teams, you know, fully focused on, on solving that. So, you know, maybe it's, it's a, it's a consideration in the next six months if you're looking to get into RWAs. But structurally I would over the next five years, I think it's, you know, we can assume that those assets are going to be live liquid and on chain and you know, ruggable, not ruggable to the extent that, you know, whatever Circle or USDT is.

A (38:53)

And I wanted to ask. So I think on derive, like most the options are still Bitcoin and ether is that accurate? So what is, you know, keeping derived from getting to a place where it can be so many other assets and really, you know, build a long tail.

C (39:09)

Yeah. There's one more upgrade that we are working on. It's not quite public just yet, although that's a bit of a public leak of those plants. But it'll be totally compatible for anyone who's building on us with what we already have. That will allow us to seriously take on that market and make a big push in there. So a lot of our engineering efforts are around that. It requires some tweaks to the architecture, some isolated risk components to really make it sturdy and resilient, particularly for the longer tail of assets. And then just making sure we line up the liquidity with some of the partners we have onboarding at the moment. We want to do it once and do it right. We have no plans to just launch something. We know that options tend to lag perps as well. And so per RWAs are taking on off right now. We expect to kind of measure twice and cut once and really launch, get that going. I am excited though. I think as I said this is. We've always been built from day one to be a fintech, not just a, you know, on chain crypto native team or structure. And I think that the architecture that we built lends itself really, really nicely to these RWAs. And you know, we're excited to take them on because as I said, I think the people who hold these RWAs are much more natural users of options anyway than, you know, good chunks of, of the crypto Twitter market today.

A (40:32)

Okay. And actually one other thing, so I think you mentioned the partnership with Athena earlier and I meant to ask. So you know, there you'll get access to, you know, a large amount of tbl, a large user base. But so I think like, you know, if I think about Athena's business, the, the model depends on the funding, funding rates being in being positive. So how does it work if the funding rates go negative in terms of, you know, what the, what derive and Athena are doing?

C (41:09)

Yeah, we don't have like a formal like kind of initiative where we're working with them directly on liquidity at the moment. So in terms of funding rates going negative, it doesn't really impact us or with them. We, you know, a good working relationship with them. But I think they're kind of, as I said, re architecting their stack now in real time to, to. To go away from the basis trade. But I think if the basis is negative you know, their approach to date has just been flipping into, you know, the, the treasuries that they, they, they've done with BlackRock. So I would expect that to, to continue with negative funding. And you know, I haven't looked too deeply into the new announcement, but it looks like, you know, the diversifying and, and potentially taking on a little more risk and going up the risk curve a little bit in order to deliver their users a bit more yield.

A (41:55)

Okay. By the way, this, I, I took a risk and I asked the question that Claude selected and clearly it's based on a fiction. So we're going to cut that. This is why like I, I, I always literally write all my own scripts. I don't rely on the AI and for good reason. I just discovered. Okay, we're going to skip that one. So Nick, earlier you talked about how you felt like AI agents were perfect for options on chain, and I'd love to hear you kind of explain more why you see them as being such a good fit.

C (42:26)

Yeah, because I think a lot of traders have good intuitions around what is going to happen to a stock like that or to an asset. Like, I think people, you know, if you've ever had an opinion where you think like, hey, like if, if, if Trump does this, then I think bitcoin goes to, you know, the 76k to 80k range in, in two weeks and if he doesn't do this, I think the bottom falls out and it goes straight to 50k. Like if you were thinking about like, okay, how would I express that opinion? For a lot of traders, even all at the top levels of finance, which is why, you know, JP Morgan Structured Products Desk, like still exists. It's kind of hard to like, think about how to build that trade and express that view both from a capital efficiency perspective as well as from a maximizing your payoffs perspective. And I think AI agents, right, like that is not an issue for them. They can take that opinion and translate it very cleanly into the right structure, which might be like buying a call spread in Bitcoin as well as pairing it with a ratio, put spread to the downside. Very difficult to come up with on your own and is a big blocker for a lot of people trying to access options in general. Even again, people who have a decade of experience in finance, that problem gets completely solved with agents, right? Like, particularly if you have an agent. And I don't pretend to know more about this stuff than kind of most of your sort of layman tech Twitter, but I expect Structurally agents to become more sophisticated over the next five years. Those are exactly the kinds of issues that they'll be perfectly suited for, like being able to take all of the ingredients, survey, you know, the whole range of financial assets they have, you know, at their disposal. Whether it's prediction markets, binary options on prediction markets, perpetuals, spot lending or options, I think, you know, like they'll select the tools which kind of achieves the, you know, objective function most cleanly and most efficiently. And I think a lot of the time options will be that tool. So I'm pretty excited. I think we're trying to make our stack as integratable and agent friendly as possible. And that is a, I think thematic tailwind not just for options, but for composable defi in general over the next five years.

B (44:43)

Ltr, yeah, I would agree. I also think like it can just make people more literate. Like let's say if you don't know anything about options, but you know, you suddenly received a large locked investment of some token and you're like hey Claude, how can I hedge this and protect my downside without basically naked put or selling outright? And it could just be like, oh hey, you can do this kind of thing. And this is how you would set it up via derive or whatever it is. And I think that is just a big unlock. I mean once you see payoffs and once you see your P and L at different price points, then options become very, very clear and very digestible to people. And I think that's what's missing from a lot of like first of all options products, but just literacy in general. I think there are some interesting options apps that are working on stuff like that that's more forward facing but I think AI can really disperse that out to a lot of people and help them with stuff.

A (45:35)

Okay, all right. So you know, my thinking is like we sort of, so we saw that hyperliquid took off amongst basically crypto degens and then now we're seeing that tradfi is like hey, hey. So you know, it sort of feels like, you know, we're going to see some kind of similar trajectory I would imagine here. So you know, I know, I know we even still just have to get past that first hurdle. But I'd be curious to hear how you think about bringing institutions to options on chain. Is there kind of like a specific pitch that you would have to them? Or like is there a specific problem that you think it solves for them that they currently, you know, can't, can't do in their, you know, traditional systems. How do you, how, how do either of you think about this?

C (46:30)

Yeah, for, for me, I think we, one of the big blockers we've had to institutional adoption is to some extent like custody. It blocks a lot of institutions from like within their mandate being able to come and trade on chain. We've actually developed like I think a unique product where we work with some of the big custodians, the qualified custodians tokenize their balances with a partner called Strands who you know, tokenize the balance in say your bitgo account, whether it's Bitcoin or usdc. And then those tokens, you know, those funds are, you know, segregated. They can't be double pledged. It's you know, qualified custody and they can be used on drive as collateral. And so like that's the kind of thing where it gets institutions a lot more comfortable with trading. And at that point you kind of have this pitch for us where you can trade, you know, the most liquid hype options in the market. Very competitive, competitive with derivit on bitcoin and eth for big block trades and you know, for smaller sizes as well with lower fees and we're more responsive. So if you have a, you know, a custom kind of collateral or trades you want to put on, we have one guy who, you know, one fund who asked us to list cardano options via the RFQ and they're going to do you know, 50 to 100 million a month in volume. And we've done that and we're you know, kind of, I think the fastest moving team in options. So at the moment that's our pitch is like hey, you get the lowest fees on the market, best execution on the market and the widest range of assets to trade as well as your funds in, you know, in qualified custody. And so like that all up is a product that a lot of people like. It then also removes a lot of the credit risk and some of the potential exposure that they might have to different venues in the market too. Yeah, I would echo those.

B (48:21)

I think trust is obviously a huge one. I think a lot of institutions are still very wary of the Coda's law, you know, regime that we do have in on like in onchain in general, especially with Defi and especially with Dexes. So like that is a big one. A second big one is obviously like reporting and like stuff like that. I mean if you are like a publicly traded company, etc, like it might be a little harder to maybe show your proof of assets or maybe show your trades. Obviously to us it isn't because we're very chain literate, but for like SEC reporting or, or investor letters, it might be a little different. I think a general like what Nick said, like in the end though, especially as Dexes improve and improve, like it becomes a win win if you can get over those hurdles. I mean you get a wider class of assets, you get 24, seven access, you get composability and fees are far, far cheaper than they would be in a centralized counterpart because there isn't that monopoly and onchain is truly a free market. So yeah, I would, I would agree with that.

A (49:16)

So you know, as you look at where this sector is right now and you know, what steps are needed to get it to become as big as some of the other parts of the crypto defi world, what are the major milestones you're looking at? Whether it's volume or certain technical hurdles or whatever it might be. What are you looking to hit and where do you think we could go from there?

C (49:43)

Yeah, I think from us, we've gone from 0.1% of Deribit's average daily volume like six months ago to I think two and a half to three in March. I think we can get that, you know, we're trying to get that to 10 to 15, you know, the next six to 12 months. And we think we have a path to do that. I think at that point we become just like a globally competitive options venue across the board. And with some of the integrations we're kind of working on at the moment, we would expect our liquidity to be, you know, like very, very consistent at major sizes, like almost instant and as I said, you know, 24, 7. And at that point it opens up a lot of those use cases I described where you can then, you know, for us, I think the biggest last piece of our vision to watch for is, you know, other teams starting to hit scale, integrating with derive and offering the options in specific ways. So whether that's a retail trading interface that's much more easily easy to digest, focusing on shorter dated options or a large distributor doing structured products and then kind of crafting them, building them, using the building blocks and distributing them, or you know, like an AI first agent, you know, kind of team offering an interface to go construct those payoffs, like those are the integrations I think we want to focus on in the back half of the year as well as some other ones with some bigger names in this, you know, kind of globally, like that's how we want to get distribution. I think that would be a big marker of both maturity, the liquidity in our system to support those sorts of integrations and also the path forward because that is really how you scale. It's not going to be the derive team building retail trading UI and then going on TikTok and trying to get people to come and trade or marketing specific structured products for Indian equities to people locally in India. That's a global thing and I think know similar to how hyper liquid are doing HIP3 and that really is kind of the, the transition from them to just a, you know, a perp dex to a, you know, a much broader liquidity network. I think that's where we can get to this year and that's what you know, for us and like, for me I think we're, we're looking at doing. I, I guess that's a very derived specific answer and not, not so much about the sector. So I apologize for that.

A (51:58)

It's fine. It's. I mean it's what you're focused on so it makes sense. Ltr, what about you? What do you feel like you would want to really see this sector hit, to see it take off?

B (52:09)

Yeah, I would just say like RWA options going live for tokenized stocks. I think I would actually like to see the CME launch 247 crypto options. Sorry, I have a new puppy in the background, if you can hear him. And then I think another thing is a major traditional institution like someone in TRADFI actually publicly disclosing like onchain options activity. Like oh hey, even if that's dribit, like, oh hey, we're using dribit right now to, to hedge our BTC balance or something like that. I think that could be pretty big. Other than that, just like the, the normal things, you know, lots of volume one bill volume monthly like over time and like would be really nice. And then yeah, I'd say that's it. Like, I mean as far as the regulatory side, I'd love to see a safe harbor. You know, I think we're making some, some bounds on the perp side. And the good thing about options is I think they're a little bit more digestible to maybe the older people that might be at the sec. And so like it could, it could have some, some leverage I would say in like the regulatory hearings and whatnot. So it'd be cool to get some sort of genius clarity act for on chain options just to, you know, help the space out. But that's kind of what I'm looking for.

A (53:16)

Yeah, Random question that just came to mind, like, is there any world where it would make sense to have it be a Defi mullet style type of thing where like Derive could be the back end of something either on Coinbase or Deribit or like, you know, like the Morpho deal or. I'm not sure even if that makes any sense.

C (53:39)

I think definitely makes a lot of sense. Yeah, those are exactly the kinds of integrations we're hoping to support and it would it be.

A (53:47)

And is that specifically just because of the long tail type of thing that you can have on Defi that maybe is harder to do at a centralized company.

C (53:57)

And the self custodial execution of structured product strategies, for example, that we've already had live and built on Derive, but again struggle to gain traction in the old environment when we're really pushing them and launching them. So whether it's us directly or a centralized exchange curating those strategies, I think it remains to be seen. But yeah, I think it's the long tail, it's the ability to surface those, you know, yield generating and you know, protective strategies kind of cleanly in a one cliff interface.

A (54:31)

Yeah. And presumably then there's also the potential for something that's akin to an Hip three as well. Oh, okay, right. Yeah, of course, the money Legos, it's just. Yeah, just apply it everywhere. All right, well I look forward to seeing how all of this kind of gets built out because even if, yeah. We're in this bear market and you know, the options space so far on Chain has been kind of, you know, maybe not. Not super successful yet. I have no doubt, no doubt that it's going to be someday. So anyway. All right, well it's been super fun chatting with you both. Thanks so much for coming on Unchained.

C (55:14)

Thanks.

B (55:15)

Thank you so much for having me.

A (55:17)

Next up, we have bits and bits, so stick around and the crew, Austin, Rom and Chris will be discussing all kinds of things, so stick around after this short break.