Welcome back to Building the Future! In our last issue, we focused on yield-bearing stablecoins and how they’re bringing the basis trade onchain. 

Today, we’re going beyond the basis trade to explore how these tokens could be the spark that brings crypto options onchain in size for the first time. 

To date, perpetual futures have been the most successful trading vehicle in DeFi due to their easily-customizable leverage and backing, as well as their lack of expiration parameters. In fact, perps trading on DEX platforms tripled in 2025, reaching nearly $8T for the year and exceeding spot asset volume for the first time. In December, perps volume on DEXs (~$1T) was the closest it’s ever been to that of CEXs ($1.13T).

As we covered in our most recent Building the Future issue, perps’ funding rates are the primary source of yield for Web3 basis trades. 

However, options present an interesting alternative; they unlock even more potential to hedge exposure to various risks as well as capture value from a wide variety of sources. 

Yield can be generated by isolating certain “greeks,” or specific components of option pricing. Examples include:

Therefore, projects can integrate multiple strategies and shift them based on market conditions.

On the other hand, perps offer fewer opportunities. Beyond strategies like price arbitrage between exchanges/oracles and funding rate carry trades, there are little to no scalable ways to generate consistent yield.

The versatility of options gives them a major role in asset management. While retail participants generally use options for speculation, they can also be combined to create a wide range of strategies to limit loss, generate income, reward bullish or bearish price moves, and more. 

Ultimately, the variety of payoff structures that options strategies can produce can fit essentially any risk profile – and they’re only getting more popular. As of Q3 2025, total volume of option contracts in the US was on pace to exceed 13.8B, which would set a new annual record for the 6th straight year.

While options have long been preferred in traditional markets as a reliable tool for risk management, they’ve struggled to gain traction in DeFi. So, why is this time different? Why is the current environment one that can actually bring options onchain?

Reason #1: Increased awareness around yield-bearing stablecoins 

This could indeed be the catalyst for crypto options to achieve product market fit for the first time. It all started in early 2024, when Ethena launched USDe – since then, billions of dollars have flowed into yield-bearing stablecoins (we covered this in greater detail in the last issue). 

As the yield-bearing stablecoin landscape grows, projects are experimenting with different ways of generating yield for holders. 

Another example that we covered last week is Cap Finance, which allows approved money managers to essentially compete to manage the collateral of Cap’s cUSD stablecoin. This brings a variety of strategies to the table while also incentivizing performance.

While option-based strategies could become an interesting alternative to common strategies such as the basis trade, there’s been minimal experimentation in this area so far. 

An early pioneer in option-backed stablecoins is Main Street Finance, whose msUSD stablecoin can be staked to receive msY. 

The msY token uses box spreads (essentially the option-equivalent of the perps-based delta neutral spread) to generate income from factors like time premium and option mispricing. It also uses CME markets for option trades, which are among the deepest in the world in terms of liquidity. Since its launch in December, a large majority of msUSD – $9.4M out of its $11M total supply – has been staked to earn msY’s yield.

While Main Street is making solid progress in the world of DeFi option strategies, it still uses CME for options liquidity. The thin liquidity offered by onchain markets remains a core issue holding back option-based DeFi products. However, that’s starting to change. 

Reason #2: Growing demand for crypto options 

The crypto options landscape can be separated into onchain and offchain products. Like spot and perps markets, offchain exchanges have seen much greater adoption thus far due to easier access and regulatory compliance. This has led to a natural flywheel where deeper liquidity begets more users, which brings more liquidity, and so on.

Deribit, the leading crypto options exchange with over 80% market share, saw an explosion in volume last year. Overall, ~$1.3T in notional volume was traded throughout 2025, almost as much as 2022-2024 combined. 

So, the liquidity picture is improving – at least for CEXs like Deribit. This trend hasn’t gone unnoticed; Coinbase announced they were acquiring Deribit in May 2025 for $2.9B, making it the largest M&A transaction in crypto history. 

Coinbase’s Q3 report also noted that Deribit activity contributed $52M to revenue (~3% of total net revenue) for the quarter, an impressive amount considering the acquisition was not finalized until halfway through Q3.

Right now, centralized exchanges still dominate the crypto options field. But for the first time, traction is developing among decentralized alternatives.

For some quick context, the first wave of onchain option apps saw limited success. Early projects like Dopex (now called Stryke), Ribbon Finance (now called Aevo), and Lyra (now called Derive) gained some initial traction, each exceeding $100M TVL in 2022. But due to issues like limited liquidity and bad UX – users could only deposit into various strategies at certain times – none of these apps were able to sustain their early success.

Alongside the success of option CEXs like Deribit, signs of a resurgence for their onchain counterparts are starting to take shape.

The combination of yield-bearing stablecoins and option strategies is powerful.

We’ve already covered how yield-bearing stablecoins present a new hybrid asset class – one that offers stability within the asset itself as well as underlying strategies to fit any risk profile. 

One way to think of these stablecoins is like a dual checking account/savings account. If you have 10,000 USDe (Ethena’s yield-bearing stablecoin), but only need $1,000 for current expenses, you can stake the remaining 9,000 to earn yield, similar to transferring money from your checking account to your savings account. 

And instead of earning the average current savings account yield (0.61% in Jan 2026), it’s not uncommon to earn a rate 10x that amount or more.

When you apply the endless amount of option strategies to this model, it creates the potential to have different tiers of savings accounts based on the underlying strategy’s risk level. “Stake stablecoins into X vault for X strategy, Y vault for Y strategy, etc.”

It could also look like something similar to Cap Finance’s “fund-of-funds” approach, where the yield is composed of many underlying strategies run by different managers.

Finally, the answer to “why does this matter?” once again comes back to the core benefits of blockchain tech: permissionlessness, programmability, and composability.

Blockchains’ permissionlessness allow the general public to gain access to sophisticated strategies that have historically been reserved for institutions/HNW individuals.

Programmability means endless opportunities to customize strategies. This has attracted billions of dollars to the growing “vault curator” segment of DeFi. We’ll dive deep into curators in another issue, but they’re essentially the onchain form of asset and risk managers. Notable examples include the digital asset-focused subsidiaries of major asset management firms such as Susquehanna International Group and Fasanara Capital.

Composability makes it possible for yield-bearing stablecoins to be used as efficiently as possible. For example, “yield optimizers” like Yearn and Lulo automatically allocate funds to the top stablecoin yields across many chains, and lending protocols like Aave and Morpho allow users to borrow against USDe.

In DeFi’s short history, options have notably struggled to gain traction, but the rise of yield-bearing stablecoins could be the initial catalyst to change that. 

USDe kickstarted the trend of using basis trades to bring actively managed yield to stablecoins, but the programmability of onchain finance creates virtually infinite possibilities to expand into new yield sources. 

As more sophisticated traders and asset managers enter crypto markets, options are gaining significant traction. So far, this has occurred outside of DeFi, but the wide range of strategies that can be created with options makes them a potentially valuable source of yield for yield-bearing stablecoins. 

That’s all for now! Next week, we’ll dive into the world of synthetic assets – specifically, how blockchains make them possible, as well as their benefits for retail traders and institutional asset managers alike.