The Future of On-Chain Derivation: From Imitation to Innovation

Which on-chain derivation protocols have you used recently? This question reflects the awkward situation of the DeFi derivation track. Objectively speaking, without Hyperliquid led by James Wynn, as well as former star projects like dYdX and GMX, the on-chain derivation track might have already lost its presence.

The main reason for this situation is that most on-chain derivation projects have long stayed in the stage of imitating centralized exchanges: they have copied the contract logic and leverage mechanisms of centralized platforms, but cannot provide a matching user experience. There are still significant gaps compared to centralized exchanges in key indicators such as liquidation mechanisms, matching efficiency, and trading depth.

It was not until the emergence of Hyperliquid that new possibilities were brought to this sector. Hyperliquid has restructured its product form and user value by leveraging on-chain characteristics, demonstrating the potential of on-chain derivation. In May, the trading volume of Hyperliquid perpetual contracts reached $248.295 billion, setting a historical record, equivalent to 42% of the spot trading volume of a certain large exchange during the same period. The protocol's revenue also reached $70.45 million, breaking records.

However, in the long run, Hyperliquid's structure still follows the typical contract trading model, only taking the first step towards exploring on-chain native solutions based on optimizing existing solutions. This raises a deeper question: what is the next development direction for on-chain derivation? Should we continue to optimize centralized logical templates, or should we move towards a more differentiated product innovation path based on the openness of blockchain and the characteristics of long-tail assets?

New Opportunities in Decentralized Derivation

From the data, regardless of how the market fluctuates, the cryptocurrency derivation market remains a huge market with a continuously expanding scale. However, this "cake" is still mainly occupied by centralized exchanges.

Since 2020, centralized exchanges have gradually reshaped the market landscape, originally dominated by spot trading, by using contract futures as a starting point. According to the latest data, the top five centralized exchanges have all reached a 24-hour trading volume of over ten billion dollars in contract futures, with leading platforms exceeding 60 billion dollars.

From a more macro perspective, the penetration level of derivation trading is more evident. The daily trading volume of derivation on a certain trading platform accounts for 78.16% of its total trading volume of spot and derivation (5000 billion ), and this ratio continues to rise. In short, the daily trading volume of derivation on centralized exchanges is almost equivalent to four times that of spot trading.

However, on-chain, despite the spot trading volume of decentralized exchanges remaining stable at the level of billions of dollars, decentralized derivation has never been able to break through the market bottleneck. The daily average trading volume of a well-known project is only around 19 million dollars, while another project that once was in the limelight has seen both its open interest and 24-hour trading volume fall below 10 million dollars, almost forgotten by the market.

The only surprise is Hyperliquid, which is regarded as a "victory of progressive decentralization." As a new leader in on-chain derivation protocols, it has broken the industry's deadlock, with daily trading volume in derivatives once exceeding 18 billion USD, capturing over 60% of the on-chain perpetual contract market. Its revenue scale even surpasses that of most second-tier centralized exchanges, maintaining a month-on-month growth rate of over 50% for three consecutive months.

By closely observing the rise of Hyperliquid, we find that the key to its success lies in reconstructing the value logic through a vertically integrated architecture: deeply integrating the order book engine with the smart contract platform, enabling on-chain derivation to compete directly with centralized exchanges in terms of trading speed and cost for the first time, while establishing structural advantages in dimensions such as cost, auditability, and composability.

This also proves that on-chain derivation products are not lacking in demand, but rather in truly DeFi-compatible product forms. Traditional perpetual contracts rely on margin mechanisms, and high leverage leads to frequent liquidations, making it difficult for users to control risk, while previous on-chain derivation products have yet to create value that centralized exchanges cannot replace.

Once users find that trading on certain on-chain platforms carries the same liquidation risk, yet they cannot obtain the liquidity depth and trading experience of large centralized exchanges, their willingness to migrate will naturally drop to zero.

It is precisely for this reason that decentralized derivation inevitably transformed from a "Holy Grail" into an ordinary item in the last round of narratives. Its decline is essentially a deep-seated contradiction between the decentralized framework and the demand for financial products - having a decentralized narrative but failing to present a product that users find "indispensable". This is also the core factor that enabled Hyperliquid to overtake in the curve.

On the surface, the overwhelming advantage of centralized exchanges stems from their user base and liquidity depth, but a deeper contradiction lies in the fact that on-chain derivation has not been able to solve a core proposition: how to balance risk, efficiency, and user experience within a decentralized framework? Especially as the industry enters the deep water zone of derivation innovation, how can we minimize the entry threshold for new users and maximize asset efficiency?

A large exchange recently launched the "event contract", which offers a new approach worth considering - it is essentially a variant of options products, confirming the market's demand for simplicity, ease of use, and "non-linear returns."

From a personal judgment perspective, if one wants to escape the competitive red sea of perpetual contracts, options may be a more suitable remedy for the general user that aligns with on-chain characteristics - its "non-linear return" feature allows for limited losses for buyers and unlimited potential gains, which naturally fits the high volatility of cryptocurrencies, while the "small upfront premium" mechanism can significantly meet the general user's simple trading needs of small bets for large returns.

From contracts to options, a new direction for on-chain derivation?

Objectively speaking, in the on-chain derivation field, options with the characteristic of "non-linear returns" are actually the most suitable product form: they not only inherently avoid the risk of liquidation but also achieve a better risk-return ratio than futures contracts through "time value leverage."

However, due to the complex components of options such as exercise date and exercise price, they are not as intuitive for retail investors as perpetual contracts. Especially the complicated exercise rules of traditional options, such as expiration date and spread combinations (, always present a structural contradiction with the retail investors' pursuit of simple and instant trading. This mismatch is particularly evident in on-chain scenarios.

Therefore, for decentralized option products, the challenge lies in how to build an on-chain options system that can balance "cryptocurrency asset capital efficiency" and "product friendliness". It is worth mentioning the "coin-based perpetual option" mechanism proposed by a certain project - which attempts to reshape the underlying logic of on-chain derivation through "de-complexification" and "asset efficiency revolution".

If we break down the structure of "coin-denominated perpetual options", the key points are actually within its literal meaning: "coin-denominated" and "perpetual options".

Only currency-based can maximize the capital efficiency of "long-tail assets"

The core starting point of "currency-based" is to maximize the capital efficiency of users' on-chain crypto assets. After all, in the context of the meme coin wave and the explosion of multi-chain ecosystems, most users' on-chain assets are highly fragmented, such as being dispersed across different chains and long-tail token assets.

However, existing protocols often impose mandatory settlement in stablecoins, which forces users holding long-tail assets like BTC, ETH, or even meme coins to either participate in trades indirectly or passively bear the costs of conversion. Currently, mainstream centralized exchanges also use USDT/USDC as the settlement currency and have minimum trading limits, which fundamentally contradicts the DeFi concept of "asset sovereignty freedom."

For example, the current decentralized coin-based options protocol exploring similar products allows users to directly use any on-chain token as collateral to participate in BTC/ETH index options trading, aiming to eliminate the exchange step and activate the derivation value of dormant assets - for instance, users holding meme coins can hedge against market volatility risks without cashing out, and even amplify returns through high leverage.

From the data, as of May 2025, the margin trading supported by the platform, including Shiba Inu)SHIB(, PEPE, and other meme coins, accounts for a high proportion of the platform's active positions, proving that users indeed have a strong demand to use non-stablecoin assets for options hedging and speculation, which also indirectly verifies that "coin-based" margin is indeed a significant market pain point.

![On-chain derivation Battle Royale: dYdX/GMX Decline, Hyperliquid Dominates, Who Will Get the Next Ticket])https://img-cdn.gateio.im/webp-social/moments-ab2b3ce6901ec9102e34b9c4461d3ead.webp(

The Ultimate Leverage Strategy for "End Date Options" Perpetualization

In another dimension, in recent years, everyone has increasingly favored high-risk short-term trading with expiration date options - since 2016, small trading users have been flocking to options, with the proportion of 0 DTE options trading rising from 5% to 43% of the total trading volume of SPX options.

The "perpetualization" of the end-date options actually provides users with the opportunity to continuously bet on high odds "end-date options."

After all, the setting of the "exercise date" for traditional options is severely mismatched with the short-term trading habits of most users, and the frequent opening of "expiration options" can be overwhelming. Taking a certain platform's introduction of a perpetual mechanism in its options products as an example - it cancels the fixed expiration date and instead adjusts the holding costs through a dynamic funding rate.

This means that users can hold put/call option positions indefinitely, only needing to pay a minimal daily funding fee ), which is far lower than the financing rates of perpetual contracts on centralized exchanges (. This allows users to extend the holding period indefinitely, transforming the high odds characteristics of "expiration date options" into a sustainable strategy, while avoiding passive losses caused by time decay ) Theta (.

For example, it might be more intuitive to feel this here. When a user opens a 24-hour BTC put option using USDT or other long-tail assets as margin, if the BTC price continues to decline, their position can be held for a longer time to capture greater returns; if the judgment is incorrect, the maximum loss is limited to the initial margin, without worrying about liquidation risk - at the same time, when the 24-hour period expires, they can freely choose whether to continue the extension.

This combination of "limited loss + unlimited profit + time freedom" essentially transforms options into a "low-risk version of perpetual contracts", significantly lowering the participation threshold for retail investors.

Overall, the deep value of the "coin-based perpetual options" paradigm shift lies in the fact that when users discover any long-tail token in their wallet, even meme coins can be directly transformed into risk hedging tools. When the time dimension is no longer the natural enemy of returns, on-chain derivation is likely to truly break through the niche market and build an ecological niche that can compete with centralized exchanges.

From this perspective, the "coin-based perpetual options" showcase the potential of "new opportunities", which may be one of the important weights in the balance of the game between on-chain and centralized exchanges, or perhaps the real beginning of the tilt.

![On-chain derivation Battle Royale: dYdX/GMX Decline, Hyperliquid Dominates, Who Will Get the Next Ticket])https://img-cdn.gateio.im/webp-social/moments-4ce4bb98723137aed5c766ab6cd5bbcc.webp(

Will on-chain options yield new insights worth paying attention to?

However, the widespread adoption of options, especially on-chain options, is still in its very early stages.

Visibly, since the second half of 2023, new players in on-chain derivation have been exploring entirely new business directions: whether it be the on-chain native of a certain platform.