Crypto Options: An aging dinosaur or overlooked behemoth?

Options, options, options…

Options have become a sort of “taboo” within the crypto sphere. Time and time again, many protocols and teams have attempted to create a crypto options dex, only to fail and leave investors upset, poorer, and turned off from the instrument altogether. In fact, recently, many have been calling for perpetuals and prediction markets to fully replace options, labeling options as an incumbent dinosaur of financial instruments that will inevitably become a fossil of time. 

While not an options trader myself, I understand why options are so powerful and widely used in traditional finance markets, and why they might come to own a significant portion of the pie in crypto as more institutions begin to come on-chain. In fact, the global derivatives market has arrived at an unprecedented crossroad. With more and more institutional capital flowing into digital assets (such as through BlackRock’s Bitcoin ETF), one significant question emerges: Will options be replaced by perps/prediction markets, or are crypto options the most overlooked next frontier of crypto from an institutional upside lens?

Today, my humble degenerate self will attempt to answer that very question. Furthermore, I want to highlight the best areas to look for crypto options, as farming these protocols may very well be far more lucrative than PvPing on the Nth perp dex. But first, we must start by examining why traditional options have been such a resilient, lucrative incumbent in the markets.

A Boomers Tool: The Resiliency of Options with Record Growth

Unprecedented Momentum

The tradfi options market has repeatedly defied calls for its death and decline, achieving its sixth consecutive year of record-breaking volume. In the US, options processed 3.8 billion contracts in 2024, with a daily average volume nearing 15 million contracts, a true testament to the utility of options often overlooked by retail audiences.

That being said, 0DTE options (Zero Days to Expiry) have indeed revolutionized how we trade; these instruments alone account for half of the SP500’s index options volume. This shift towards short-term speculation is a direct mirror of crypto today, with instant gratification 100x perps dominating the space. This massive shift shows the “TikTokification” of financial markets more broadly, a trend in which crypto has always been at the forefront.

Even with a more degenerate crowd becoming naturalized in tradifi, institutional adoption has grown far beyond simple volume metrics. Professional hedge funds and asset managers increasingly use options for their structure and volatility harvesting aspects. The rapid emergence of the prosumer ilk of traders has birthed a hybrid class that requires connecting institutional performance with retail accessibility. With that in mind, it’s no surprise that infrastructure continues to expand, with 18 U.S. options exchanges currently operational and two more on the way. At first glance, one might think that would create fragmentation, but in actuality, it has bred more competition and specialization, leading to better depth/experience in specific niches.

The Curse of Crypto Options

It’s no secret that most CT participants have PTSD about crypto options. From 2021 to 2024, crypto options protocols died quite spectacularly. Opyn died after a CFTC fine of 250k, causing the founders to quit crypto altogether. Hegic lost 80% of its 1 billion TVL, and DopeX narrowly avoided shutdown amidst reports of 26 security vulnerabilities. Meanwhile, CEX-based crypto options like Deribit maintained a 90% market dominance, continuing to process billions in options while Dexes largely imploded one by one. However, this trend is beginning to change. In September of 2025, the SEC and CFTC issued a joint statement enabling spot crypto asset trading on regulated exchanges. This was immediately followed by the beginnings of the GENIUS and CLARITY acts, passing with notable bipartisan support. Additionally, 85% of institutional investors are now signalling intent to allocate towards digital assets.

This convergence of regulatory and price catalysts mirrors the events of 1973, when the CBOE first launched standardized options with SEC support and Black-Scholes pricing, a move that has grown from just 20k daily contracts to over 500k SPX options per hour.

Most notably, crypto now has its own Black-Scholes adaptations (called the Kou and Bates models), its robust clearing infrastructure (blockchains/smart contracts), and finally its own regulatory clarity (Bye Gensler).

Fantastic research by Julia Kończal showing a comparison between the BS model and Kou adaptations.  (Wrocław University of Science and Technology)

Many Options Dex Protocols have spent years trudging and iterating through failures and regulatory blocking to build portfolio margin systems that can match the standard set by their tradfi equivalents. Finally, institutional-grade functionality with DEX transparency for options is here, just like Hyperliquid enabled for perpetuals.

Lessons from the Crypto Options Protocol Graveyard

The path to a viable options DEX is littered with skeletons warning of the fundamental challenges in bringing such a complex instrument on-chain. Between January of 2021 and February of 2022, TVL across options dexes lost 24%, individual protocols suffered even worse fates, with some losing over 80% of their peak TVL. 

In many cases, platforms were just too early, as regulatory laws had not caught up. For example, Opyn, the leader at the time, got charged by the CFTC in 2023 for operating as an unlicensed derivatives exchange and offering an options product, Squeeth. The CFTC stated that Opyn needed a legal registration as a swap execution facility, which they lacked completely. Opyn attempted to band-aid a solution by geo-blocking restricted IP addresses, but the CFTC wouldn’t budge. Opyn further failed to implement proper KYC/AML under the Bank Secrecy Act, and just two months later, both founders quit crypto entirely, stating: “After the regulatory action against Opyn, we have made the decision that we are leaving crypto. This is honestly really emotional for me and Alexis. We thought we were going to be in crypto for the rest of our lives.”

The technical vulnerabilities that plagued DopeX in 2023 revealed how smart contracts can create potentially catastrophic attack points. An audit from Code4rena uncovered 9 high-severity and 17 medium-severity vulnerabilities across DopeX’s infrastructure. For example, the ReLP slippage calculation used the wrong price quote (RDPX/ETH instead of ETH/RDPX, WOOPS!), which would cause users to receive amounts 8,000x+ less than intended. Additionally, price oracle precision errors assumed 1e^8 precision, whereas the RdpxEthPriceOracle actually returned 1e^18, enabling mass value fluctuations across core contracts. While, thankfully, no major exploit actually materialized, the audit exposed how an options dex requires magnitudes more sophisticated architecture than a simple defi primitive.

(Dopex rebranded to Stryke)

Hegic’s (perhaps one of the very first of this sector) decay illustrates the classic death spiral that options DEXes face during increased market volatility and stress. Hegic’s