On-chain derivative battle royale: dYdX/GMX declines, Hyperliquid dominates, who will get the next ticket

Author: Web3 Farmer Frank

What on-chain derivatives protocols have you used recently?

This is almost an embarrassing footnote to the DeFi derivatives track. To be honest, if Hyperliquid, who had not been "the best spokesperson for the chain", had no longer had the "Holy Grail" status in the past two years, the rapid decline of dYdX and GMX almost ended the on-chain derivatives narrative.

The reason is nothing more than that they have been trapped in the identity of "CEX imitators" for a long time: they copied the contract logic and leverage mechanism of the centralized platform, but carried higher risk exposure and lower user experience. There is still a significant gap with CEX in key dimensions such as filing mechanism, matching efficiency, and transaction depth. Until the emergence of Hyperliquid, relying on the on-chain characteristics to reconstruct product forms and user values, it is rare to retain the possibility of further evolution for this track:

In the past May, Hyperliquid perpetual contract trading volume hit US$248.295 billion, the highest in a single month, equivalent to 42% of Coinbase 's spot trading volume during the same period, and its agreement revenue also reached US$70.45 million, setting a record simultaneously.

However, from a longer-term perspective, the Hyperliquid structure still uses a typical contract trading model, but it has taken the first step in the road from optimizing "existing solutions" to exploring "native solutions". This article also wants to enter deeper problems from the dilemma of on-chain derivatives and the development of Hyperliquid:

The next step for on-chain derivatives is to continue to optimize the centralized logical template, or to move towards a more differentiated product innovation path based on the openness and long-tail asset characteristics of the chain?

"New Ship Tickets" for Decentralized Derivatives

From a data perspective, no matter how the market changes, cryptocurrency derivatives are always a super big cake with continuous expansion of volume -but the knife and fork that cut the cake is still firmly held in the hands of CEX.

Since 2020, CEX has used contract futures as the entry point to gradually reconstruct the market structure dominated by spot trading. Combined with the latest data from Coinglass, it will be found that in the past 24 hours, the trading volume of the top five CEX contract futures has reached the 10 billion US dollars in 24 hours, and Binance, the leading one, has exceeded 60 billion US dollars.

If you broaden your vision, you can more intuitively perceive the penetration of derivatives trading. For example, TokenInsight statistics show that the current single-day trading volume of Binance derivatives accounts for 78.16% of the total daily trading volume of spot + derivatives (US$500 billion), and this proportion is still rising. In short, the current daily trading volume of CEX derivatives is almost 4 times that of spot trading.

However, on the chain, although the spot trading volume of DEX is firmly in the order of billions of dollars, decentralized derivatives have never been able to break the market gap: dYdX 's average daily trading volume is about US$19 million. GMX, which was once the most popular, both its holdings and 24-hour trading volume fell below US$10 million, which is almost forgotten by the market.

The only surprise is that Hyperliquid, which has recently been regarded as a "victory of incremental decentralization", broke the deadlock with the attitude of the "new king" of the on-chain derivatives agreement. The daily trading volume of derivatives once exceeded US$18 billion, accounting for more than 60% of the market share of the on-chain perpetual contract market.

Its revenue scale is even more than the majority of second-tier CEXs, maintaining a 50%+ month-on-month growth rate for three consecutive months. If we carefully observe the rise of Hyperliquid, we will find that the key to it is precisely that it reconstructs the value logic through a vertical integration architecture:

Deeply integrating the order book engine with the smart contract platform, allowing on-chain derivatives to compete with CEX in transaction speed and cost dimensions for the first time, and establish structural advantages in terms of cost, auditability, composability and other dimensions (I personally think it is a bit similar to the structural advantages that BYD has in the new energy market).

This also proves that on-chain derivatives do not lack demand, but lack product forms that truly adapt to DeFi characteristics. To put it bluntly, traditional perpetual contracts rely on margin mechanisms, and high leverage leads to frequent liquidation of positions, making it difficult for users to control risks. Previous on-chain derivatives have been unable to create value that CEX cannot replace.

Once users find that trading on dYdX/GMX requires the same risk of liquidation, but cannot obtain the Binance-level liquidity depth and trading experience, the willingness to move will naturally return to zero.

Because of this, decentralized derivatives inevitably disenchanted from the "Holy Grail" in the previous round of narratives. Their decline is essentially a deep contradiction between the decentralized framework and the demand for financial products - there is only a decentralized narrative, but cannot come up with a product ticket that makes users "must use". This is also the core factor in Hyperliquid's ability to overtake.

So on the surface, CEX's crushing advantage stems from its user base and liquidity depth, but the deeper contradiction lies in the fact that on-chain derivatives have never been able to solve a core proposition: how to balance risk, efficiency and user experience under the decentralized framework? Especially when the industry enters the deep waters of derivative innovation, how can we minimize the entry threshold for new users and maximize the release of asset efficiency?

In fact, the "event contract" launched by Binance not long ago provides a new idea for reference - it is essentially a variant of options products, confirming the market's urgent need for simple and easy-to-use and "nonlinear returns".

The same is true from my personal perspective. If you want to break out of the competitive red ocean of perpetual contracts, for Volkswagen users, options may be an antidote that is more in line with the characteristics of the chain

• its "nonlinear return" characteristics ( limited buyer losses and unlimited potential returns ) are naturally in line with the high volatility of cryptocurrencies, and the "small prepayment of the premium" mechanism can significantly meet the simple trading needs of Volkswagen users with small profits.

From contract to option, the promised land of on-chain derivatives?

Objectively speaking, in the field of on-chain derivatives, options with the "nonlinear return" characteristics are actually the most suitable product form: not only naturally avoids the risk of liquidation, but also achieves a better risk-return ratio than futures contracts through "time value leverage".

However, since options have complex components such as exercise dates and exercise prices, there is no intuition for perpetual contracts for retail investors, especially the complex exercise rules of traditional options (such as expiration dates and spread combinations) and retail investors ' pursuit of simple and instant trading always have structural contradictions, and this mismatch is particularly obvious in on-chain scenarios.

Therefore, for decentralized options products, the problem is how to build an on-chain option system that can balance "Crypto capital efficiency" and "product-friendliness". It is worth discussing the "coin-priced perpetual options" mechanism proposed by Fufuture - trying to reshape the underlying logic of on-chain derivatives through "decomplexization" and "asset efficiency revolution".

If the structure of "coin-principal perpetual options" is broken down, the key points are actually in its literal meaning: "coin-principal" and "perpetual options".

Only by coin standard can we maximize the capital efficiency of "long-tail assets"

The core starting point of the "coin standard" is to maximize the release of the capital efficiency of Crypto assets on the user's chain. After all, in the context of the meme coin wave and the explosion of multi-chain ecosystem, most users' on-chain assets are highly fragmented, such as scattered on-chain and long-tail token assets.

However, existing agreements often require settlement in stablecoins, which forces users who hold long-tail assets such as BTC, ETH and even meme coins to either be unable to directly participate in transactions or passively bear exchange losses (currently, mainstream CEX also uses USDT/USDC as settlement currencies, and has a minimum transaction limit), which is essentially contrary to the concept of "asset sovereignty and freedom" in DeFi.

Taking Fufuture, a decentralized coin standard option protocol currently exploring similar products, as an example, it allows users to directly use any on-chain token as margin to participate in BTC/ETH index option trading, aiming to save the exchange steps and activate the derivative value of sleeping assets - for example , users holding meme coins can hedge market volatility risks without cashing in, and even amplify returns through high leverage.

From the data point of view, as of May 2025, among the margin trading supported by Fufuture, the total margin positions of meme coins such as Shiba Inu (SHIB), PEPE, etc. account for a high proportion of active positions on the entire platform, proving that users do have a strong demand for using non-stable currency assets to participate in option hedging and speculation, and it also indirectly verifies that the "coin standard" margin is indeed a big market pain point.

"Doom Options" The ultimate leverage idea for sustainable "

Another dimension is that in recent years, people have become increasingly favoured with high odds short-term trading such as doomsday options - since 2016, small trading users have begun to pour into options in groups, among which 0 DTE option trading accounts for the total trading volume of SPX options increased from 5% to 43%.

Source: moomoo.com

The "sustainability" of doomsday options actually provides users with the opportunity to continue betting on high-odd "doomsday options".

After all, the "exercise date" setting of traditional options is seriously mismatched with the short-term trading habits of most users, and the frequent opening of "doomsday options" is inevitable that people can't stand it. Take Fufuture's design logic of introducing a perpetual mechanism into options products as an example - canceling the fixed expiration date and instead adjusting the holding cost through dynamic capital rates.

This means that users can hold bearish/buy options positions indefinitely, and only need to pay about a very small amount of capital fees every day (much lower than the financing rate of the CEX perpetual contract), which is equivalent to users being able to continue the position cycle infinitely, converting the high odds characteristics of "doomsday options" into a sustainable strategy, while avoiding passive losses caused by time decay (Theta).

For example, it may be more intuitive to feel here. When a user opens a 24-hour BTC put option with USDT or other long-tail assets as margin, if the BTC price continues to fall, his position can be held for a long time to capture greater returns; if the judgment is wrong, the maximum loss is only limited to the initial margin, and there is no need to worry about the risk of a breach of position - at the same time, when the 24-hour expiration is reached, you can freely choose whether to continue to extend the period.

This combination of "limited losses + unlimited returns + freedom of time" essentially converts options into "low-risk version of perpetual contracts", significantly lowering the threshold for retail investors to participate.

In general, the deep value of the "coin-price perpetual option" paradigm migration lies in that when users find that any long-tail token in their wallet, even meme coins can be directly converted into risk hedging tools, and when the time dimension is no longer a natural enemy of returns, on-chain derivatives are expected to truly break through the niche market and build an ecological niche that competes with CEX.

From this perspective, the potential of the "new ticket" shown by "coin-principal perpetual options" may be one of the important weights that the game balance with CEX on the chain may really begin to tilt.

Will on-chain options come up with new solutions worth paying attention

to?

However, the large-scale popularization and penetration of options, especially on-chain options, is still in its very early stages.

It is obvious that since the second half of 2023, on-chain derivatives rookies have been exploring new business directions: whether it is Hyperliquid's on-chain native leverage or "coin-price perpetual options" like Fufuture, decentralized derivatives trading products are indeed brewing some seed variables of huge changes.

For these new generation protocols, in addition to achieving a positive confrontation with CEX in the transaction speed and cost dimensions, and releasing the capital efficiency of Crypto on-chain long-tail assets including meme, it is more important to have the on-chain architecture that can maximize the interests of the community, transaction users and the protocol -liquidity providers, transaction users, and the protocol 's own architecture can form a "loyal and loss-sharing" interest community network (taking Fufuture's protocol architecture as an example):

• Liquidity providers obtain risk stratified returns through a dual-pool mechanism (high returns for private pools + low risks for public pools);
• Traders participate in high-leverage strategies with any assets, and the loss ceiling is clear;
• The protocol itself captures ecological value growth through governance tokens;

This is essentially a complete subversion of the traditional CEX "platform-user" exploitation relationship. When the long-tail tokens held in the user 's wallet can directly become trading tools without relying on CEX, and when the transaction fee and ecological value are distributed to ecological contributors through DAO, the on-chain derivatives finally show what DeFi should look like - not only a trading place, but also a value redistribution network.

This is actually the "DeepSeek moment" of on-chain derivatives that the market has been looking forward to for many years - allowing decentralized derivatives to break through the constraints of trading experience, gradually introduce on-chain native leverage and maximize capital efficiency to DeFi, and no longer rely on CEX as a necessary link, which is expected to bring greater leap to the market, give birth to more borderless innovations, and usher in a new "DeFi summer".

Historical experience tells us that every round of narrative explosion requires the resonance of "correct narrative + correct time". Whoever can solve the most painful asset efficiency problem of users at the right time will be able to master the scepter of derivatives on the chain.

Written at the end

I personally always believe that the decentralized derivatives agreement is the undoubtedly "Holy Grail on the Chain" and is not a narrative false proposition.

From multiple dimensions, decentralized derivatives still have the potential to become one of the most scalable and revenue-potent tracks in the DeFi ecosystem. However, it must truly get out of the shadow of "centralized replacement" and use the revolution of on-chain native structure and capital efficiency to complete the self-innovation of product forms.

But the key to the problem is that for on-chain users, the value of decentralized derivatives is not only in providing new trading tools, but also in whether it can open up a path of "asset frictionless liquidity - derivative hedging - compound growth of returns".

From this perspective, when Meme coin holders can directly use tokens to participate in Crypto long-tail asset transactions, and when multi-chain assets can become margins without cross-chain, the form of on-chain derivatives is being redefined. This is also the leap idea of ​​new generation players such as Hyperliquid and Fufuture.

Perhaps the end of decentralized derivatives is not to copy CEX, but to create new demand with the native advantages of the chain (open, composable, and permissionless), and the market may have taken a key step.