The Birth of Bitcoin-Native Finance: Turning Idle BTC into Productive Capital

Bitcoin (BTC) is the 13th-largest asset in the world, with ~$1.3 trillion in market capitalisation, and is increasingly being adopted by company treasuries, ETFs, investment portfolios, and more, positioning it as a “reserve asset”.

Even after establishing its position in the financial market, Bitcoin’s financial utility remains underdeveloped compared with that of traditional assets of similar scale. A BTC holder today primarily holds the asset for pure price exposure, lacking access to any native, underlying yield that naturally accrues value over time. In traditional finance, assets can be securely leveraged to borrow against or generate dividends from corporate cash flows. While Bitcoin can also be used as collateral for borrowing, most current solutions introduce smart-contract or counterparty risk that might not align with the risk profiles of current holders.

As a result, out of the active supply of 20.05 million BTC, only 311k (~1.5%) have access to any yield, including Decentralised Finance (DeFi) lending, staked BTC, BTC deployed on Decentralised Exchanges (DEXs), and vaults.

Ethereum (ETH), the second-largest asset, has built a layered set of financial primitives that convert idle ETH into working capital. Almost 32.5% of all ETH in circulation is staked, earning a native yield of ~2%. On top of base staking sits a second layer of liquid staking: Lido alone represents ~21% of all staked ETH, issuing stETH, a rebasing asset that is usable across DeFi.

This gap is a downstream effect of Bitcoin’s design and the holder behaviour.

1. Bitcoin is a proof-of-work network that has no staking mechanism.

2. Holders’ behaviour is deliberately conservative, meaning those with large holdings would never want to risk their assets for the yield that comes with additional risk, as seen in the centralised BTC lending cascade in 2022, with the collapses of Celsius, BlockFi and Voyager.

In this piece, we aim to highlight the current problems that lead to BTC being underutilised as an asset, while also reflecting on the steady development going forward to solve this exact problem through a case study using Stacks.

The Bitcoin Yield Stack

Only a limited amount of BTC earns any active yield, and almost all of that yield originates in the developed DeFi ecosystems of EVM chains and Solana, because those ecosystems already have financial primitives like lending markets, DEXs, and vaults that can support consistent yield generation. In this section, we highlight the BTC yield stack and the development in its sources over time.

Centralised BTC Lending

Before the onchain ecosystem matured, centralised platforms like Celsius, BlockFi, and Voyager offered BTC yield but sacrificed custody. All these platforms eventually collapsed in 2022 through a nearly identical mechanism: taking legal title to deposited crypto (Celsius’ terms explicitly transferred “all right and title” to depositors’ assets, entitling the platform to rehypothecate them), and re-lending to opaque counterparties. Celsius’ failure was triggered by a liquidity crunch following the Terra/Luna collapse: 75% of the platform’s withdrawals came after this event, forcing it to pause redemptions. Voyager failed when 3AC defaulted on a $350 million USDC and 15,250 BTC loan. BlockFi took the same 3AC hit, then a second one from Alameda Research’s roughly $680 million loan default.

What was common among them was undercollateralised institutional lending funded by retail deposits, with contractual terms that stripped depositors of ownership of the underlying assets.

The DeFi Ecosystem

DeFi is battle-tested in the EVM and Solana ecosystem, which gives users greater confidence in using it. However, to use these products, a BTC holder must first convert native BTC into a representation that the destination chain understands. This includes asset categories such as custodial mints (WBTC and cbBTC from Coinbase), decentralised bridged assets (tBTC), and Liquid Staking Tokens (LBTC). All these categories add a risk layer:

1. Bridge Risk: To mint a representation, a user sends native BTC to an address or custodian that holds it and receives a 1:1 receipt token on the destination chain. For custodial mints (WBTC and cbBTC), the mechanism is operated by centralised operators who are vulnerable to private-key compromise or social-engineering attacks. Threshold’s tBTC has a signer network with no single custodian, though it still carries signer-set and smart-contract risk.

2. Custodian Risk: For assets like WBTC, the custodian, BitGo, shifted from unilaterally holding all three keys of WBTC’s 2-of-3 multisig to a multi-jurisdictional split across BitGo Inc (US), BitGo Singapore Ltd. and BiT Global (Hong Kong) in August 2024. Even after this change, the third key remains with BiT Global, a joint venture connected to Justin Sun’s Tron ecosystem, in which BitGo is only a minority shareholder, making it still a key risk for the asset. On the other hand, cbBTC is backed 1:1 but held entirely by Coinbase, a single custodian that can freeze or seize funds under its user agreement.

3. Smart Contract Risk: Using any DeFi protocol exposes depositors to smart contracts. There have been multiple instances in which protocols have been hacked, and there is simply no resolution. In the November 2025 Balancer hack, liquidity providers (LPs) suffered significant losses after ~$128 million was drained from Balancer V2 pools, despite the protocol having undergone multiple audits.

Even after years of battle testing, DeFi protocols are not the perfect place to park capital.

In the recent kelpDAO rsETH exploit, over 8.6k BTC left the protocol amid fears of contagion in the first six hours. In the kelpDAO hack, the attacker deposited rsETH as collateral and borrowed a large amount of wETH against it. Since all the wETH liquidity was siphoned off, lenders began using their deposits as collateral to borrow in other stablecoin markets. To avoid becoming part of this contagion, users simply decided to withdraw their assets. These withdrawn assets represented ~12% of BTC-based assets deployed on the protocol.

It was a major breach of confidence, as Aave is the largest lending protocol, and an attack on an external asset sent the protocol off a cliff due to factors including its pool-based design and a gap in governance oversight during asset onboarding to E-mode, which pushed its LTV to 93%. Post this, Aave’s market size is down by over 50%.

Bitcoin L2s and Staking Protocols

The second route to BTC yield runs through Bitcoin L2s and staking protocols, such as Babylon, Lombard, Stacks, Rootstock, BOB, and others cumulatively accounting for ~$4 billion in total value locked (TVL).

Of these, Babylon represents the most value locked. It is primarily a staking protocol in which BTC holders lock their assets on the L1 itself, thereby securing Proof-of-Stake (PoS) networks with Bitcoin’s L1 security guarantees. In return, these users earn yield through the chain’s native tokens, whose security they help maintain.

To obtain liquid representations, holders simply deposit either native BTC or WBTC in Lombard, thereby receiving a liquid, yield-bearing representation of the asset, LBTC, making Lombard a liquid staking protocol.

Nonetheless, these assets still expose the BTC holders to slashing risks.

The remaining locked value comes from BTC L2s aiming to bootstrap their own chain, which has historically been more difficult because it requires bootstrapping activity on the chain, attracting builders, stablecoin rails, great UX, and providing incentives to retain capital.

Current gap and its trust assumptions

Cumulatively, all these routes of earning yield reflect that the market has demand and infrastructure, but they don’t essentially sit in the same place. EVMs have deep liquidity and applications but force custody/bridge risk. Bitcoin L2s have stronger philosophical alignment with BTC holders but lack yield variety and UX to retail capital. Centralised lending is structurally broken post 2022 collapse.

Each of these deployments carries a distinct trust assumption:

• Wrapped BTC trusts a custodian, and/or bridge signer set, plus the wrapper and downstream smart contract risk.

• Babylon native staking trusts a covenant committee and an M-of-N multisig (currently 6-of-9, including 3 signers from Babylon Labs, 1 from CoinSummer Labs, RockX, AltLayer, Zellic, Informal Systems, and Cubist) that co-signs unbonding and slashing transactions.

• Stacks sBTC bridge trusts a 15-member set of institutional signers, including Figment, Chorus One, Stacking DAO, and more. For the bridge to function, it requires 70% (11-of-15) of signers to participate honestly, with system safety holding as well and allowing no withdrawals, even if 33% of the signing voting power is honest, i.e., 5-of-15.

The unmet need is an approach that keeps Bitcoin’s trust model as intact as possible while still delivering the applications and liquidity that make capital productive.

Bitcoin-Native Finance

Bitcoin-native finance refers to financial products that use BTC as the primary asset while keeping settlement, security, and asset movement as close as possible to Bitcoin’s base layer, minimising additional trust assumptions.

Bitcoin-native finance cannot be achieved on the L1 itself because of Bitcoin’s own design:

• Bitcoin Script can enforce simple spending conditions but is not Turing-complete and cannot execute arbitrary complex logic or loops, so it cannot express the state machines DeFi protocols need (AMM curves, health-factor checks, liquidation logic, and more)

• UTXO model has no shared, persistent state. Bitcoin scripts do not maintain state beyond the current transaction, whereas a lending market or an AMM requires exactly the shared, mutable state the UTXO model cannot provide.

• Blockspace is scarce and slow. With roughly 10-minute block times and genuinely scarce block space, high-frequency DeFi actions cannot be executed on the L1.

• There’s no native BTC yield mechanism to build derivative products upon because the chain is proof-of-work.

• Bitcoin cannot verify external chain state, so moving BTC into any programmable environment requires custodians or signers.

Given these constraints, fully Bitcoin-native finance isn’t achievable. Every product on the market today relies on some trust assumption beyond Bitcoin’s consensus itself. To solve this problem, a certain set of protocols is building as close to Bitcoin as possible.

• Babylon requires no bridging at all: the staked BTC stays in timelocked Bitcoin UTXOs, but assumes the risk of its covenant committee and of the finality providers it delegates to secure external proof-of-stake chains, introducing slashing risks.

• BOB pairs Bitcoin finality with a full EVM environment via BitVM-style bridging: In practice, it currently settles on Ethereum and treats full Bitcoin security as a phased roadmap.

• Stacks anchors its execution layer’s finality directly to Bitcoin consensus while accepting a signer set for its BTC-backed bridge asset, sBTC, which requires 70% (11-of-15) to move funds.

Among the current solutions, some have already reached a good scale. Babylon (staking protocol), Lombard (liquid staking protocol), and Solv (yield generation), each at the TVL of $2.6 billion, $800 million, and $480 million, respectively.

These protocols have gained traction for their strong composability with the rest of DeFi, enabling users to earn more on top of the base yield the asset accrues.

Yield comes from different sources. LBTC from Lombard does it through staking, sourcing yield from the Babylon network, which secures PoS blockchains. solvBTC from Solv generates yield from delta-neutral strategies, lending, liquidity provisioning, staking, and Real-World Assets (RWAs).

While currently there is no complete Bitcoin-native solution, today this means:

• Getting yield directly on the Bitcoin L1 itself, without giving up self-custody and introducing any new risks.

• Getting a liquid representation of the committed BTC, if the user requires it.

• Having full transparency on the risks involved with each of these steps.

A series of questions users should ask in order to understand whether a solution is Bitcoin-native:

• Does the solution allow self-custody?

• How decentralised are the bridge signers?

• Where does the yield actually come from?

• Can a holder exit or demand, or is there a lockup?

In the following section, we discuss how to answer these questions using the case study of Stacks and how it is building towards Bitcoin-native finance.

How is Stacks building towards BTC Native Finance?

Stacks is a BTC L2 that anchors its execution to the Bitcoin base layer. It is currently at ~$90 million in onchain TVL, with an additional $190 million in sBTC. It is one of the most complete attempts to combine all the pieces of a Bitcoin-native stack in one place:

• Bitcoin-anchored execution layer

• A trust-minimised BTC bridge

• Native BTC-denominated staking

• A liquid-staked representation (sBTC to go live with self-custodial staking)

• Live DeFi applications (Zest, Bitflow, StackingDAO, Hermetica, etc.)

Bitcoin-anchored Settlement

Underpinning both sBTC and the broader chain is a finality model anchored to Bitcoin. Since the Nakamoto upgrade in October 2024, every Stacks miner’s block-commit transaction anchors prior tenure’s full chain state to a Bitcoin transaction, so reversing finalised Stacks tenure would require reversing the corresponding Bitcoin block. Stacks blocks therefore acquire full Bitcoin finality roughly one Bitcoin block after their tenure closes.

sBTC: trust-minimised BTC movement

sBTC is the mechanism that enables BTC to move between L1 and Stacks without a traditional custodian, serving as a bridged representation of Bitcoin on Stacks, which currently has a TVL of ~$190 million.

All the bridged BTC sits in a single peg wallet, a Bitcoin Taproot address, whose movement is controlled by a 15-member, community-elected signer set requiring a 70% (11-of-15) threshold to move funds, as highlighted in the sections above.

Native, self-custodial Bitcoin staking

Stacks recently proposed a Proof-of-Transfer (PoX-5) upgrade that lets BTC holders earn BTC-denominated yield while their BTC stays locked on Bitcoin L1 (expected to go live in late August). For this to work, Stacks utilises a standard OP_CHECKLOCKTIMEVERIFY timelock that allows BTC to remain committed and yield-bearing while staying in the holder’s own custody; the lock is enforced by Bitcoin consensus itself, requiring no trust in a custodian, bridge, or signer set.

Yield in PoX-5 is sourced from the Stacks consensus mechanism as miners bid BTC to mine Stacks blocks. We also covered this mechanism in detail in our previous research on the PoX-5 upgrade.

Since January 2021, this mechanism has already distributed over 4200 BTC to STX stakers. Now BTC stakers will be able to earn yield through the same mechanism.

Participation in BTC staking will require a protocol bond that locks BTC on L1, along with an STX position equal to at least 5% of the BTC value, for a six-month term. The paired BTC-STX bonds form a senior tranche with first claim on each cycle’s miner-BTC pool, targeting 3% APY. The remaining yield is distributed amongst STX-only stakers, forming the junior tranche, and the reserve fund, which accrues excess miner revenue. The reserve fund is used to pay yield in future cycles where miner revenue might be short and unable to fulfil the yield obligation.

Additionally, there is no binding exit, and holders can exit with their BTC in the time it takes for a couple of Bitcoin blocks by giving up the remaining term yield, while the paired STX are locked for the full term. In this model, there is no slashing risk involved, meaning stakers won’t risk losing their funds.

Making BTC productive natively is one of the first steps in the Stacks roadmap; the team is also actively putting research efforts into self-custodial bitcoin borrowing. Through this, users will be able to use BTC as collateral in lending protocols like Zest on Stacks while their BTC never leaves the L1. Stacks constantly verifies the bitcoin collateral on the L1 by reading the Bitcoin state, allowing borrowers to access stablecoins like Circle’s USDCx and Hermetica’s Bitcoin-backed USDh to further produce yield on their assets while still earning the staking yield from PoX-5.

stBTC and the application layer

The BTC that is staked on the L1 with STX is productive in practice, as it earns a base yield and is redeemable at any time. But the same BTC, while staked, cannot be used elsewhere, lacking composability. A possible solution to this is a Liquid Staking Asset (LST) for those seeking DeFi use cases.

StackingDAO is set to launch one such product, stBTC. It is a liquid, staked Bitcoin token, a Bitcoin analogue of stETH.

The major benefit of staking through stBTC is that the BTC holder doesn’t need to source the 5% STX pairing themselves. StackingDAO supplies it from the STX already backing its stSTX and stSTXbtc products, so the holder earns BTC yield on BTC with no STX exposure while remaining in the senior tranche and retaining the highest rights to the yield.

In their model, a user deposits native L1 BTC or sBTC and receives stBTC, whose value autocompounds as sBTC rewards accrue from the PoX-5 mechanism, paid at the end of each cycle. A portion of these rewards goes to the STX backers who lend stSTX and stSTXbtc for the STX pairing. The remaining sBTC is reinvested into the pool backing stBTC (auto-compounded), increasing the stBTC/sBTC ratio.

Additionally, for withdrawals, stBTC exits are facilitated via a reserve buffer for a small fee, or via a one-cycle cooldown using a withdrawal NFT if the buffer is drained.

The applications into which all this value flows are DeFi applications.

Zest is the largest DeFi application on the chain and the lending market. Zest enables its users to deposit BTC-denominated collateral (sBTC, STX, stSTX) and borrow stablecoins with risk-isolated markets. Zest also announced its ‘Stacks Vaults’, which will go live alongside Stacks’ BTC staking. The first vault will be a fully automated stBTC looping strategy, targeting a 6-8% APY, the first example of liquid staked BTC being made productive through Stacks’ finance stack. Followed by them is another lending protocol, Granite. Granite lets its users borrow stablecoins against BTC/sBTC collateral with isolated exposure.

Hermetica issues USDh, a Bitcoin-backed, basis-trade synthetic dollar.

Bitflow is the DEX on Stacks and runs on a Curve-style Stableswap AMM purpose-built for BTC-pegged assets (sTBC, xBTC, aBTC, and WBTC) alongside Stacks-native stablecoins.

Top-of-funnel model

Bitcoin Staking is top-of-funnel for Stacks; it attracts BTC capital seeking yield without giving up custody. Once bonded, that capital becomes legible to the surrounding app layer: Zest for borrowing, Bitflow for swaps, Hermetica for structured basis-trade yield, and StackingDAO for liquidity once stBTC goes live. Use of those apps drives chain activity, generating transaction fees that eventually become a meaningful, self-sustaining source of consensus yield alongside the minder-bid PoX pool.

Closing Thoughts

The Bitcoin idle capital problem is real and structural.

Bitcoin lacks a native yield mechanism, and every route built to compensate for that, whether it is wrapped BTC, BTC L2s, or CeFi lending, has come with certain trust assumptions.

There is adoption of these routes, and BTC currently represents ~7% of the DeFi TVL ($5.2 billion). But given its size, it’s underrepresented. Most of the BTC today lacks productivity and remains an asset to hold for price appreciation.

Stacks has been steadily building for many years now to reduce these trust assumptions, and with its upcoming PoX-5 upgrade, Bitcoin holders can natively earn yield from Stacks blockchain miners who bid BTC to mine Stacks blocks.

Whether their model becomes the most adopted or utilised depends on how closely their ecosystem grows alongside native BTC staking, because for the yield to sustain (3% APY), miners have to constantly bid. For now, this has been proven, with 5+ years of activity since the Stacks mainnet launch.

Nonetheless, BTC remains a reserve asset and is being widely adopted by institutions. The increase in its productivity would only expand the asset’s ability to consistently be part of more balance sheets and be lucrative for new holders.

written by @Noveleader

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Welcome to another edition of The Castle Chronicle.

This marks the beginning of August, usually the slowest month of the year. This, of course, does not apply to drama, which seemed to abound this week.

Between Coldcard being hacked, putting self-custody and its meaning to the test, and FWA rugging token holders, we really can’t catch a break.

Amidst the more sensational headlines, much stronger fundamental updates such as Solana’s tokenomics improvements risk getting lost.

In this week’s Chronicle:

• Solana’s proposal to cut emissions and double annual disinflation from 15% to 30% to reach the net inflation rate of 1.5%.

• The Coldcard Vulnerability and how frontier models helped find a 5-year-old bug.

• An attack on Umbra Treasury and how it never materialised due to the MetaDAO model.

• FWA keeps 100% of Accrued Fees so far to the protocol.

• How is Robinhood Chain doing?

Tokens Either Die Young or Live Long Enough to Become Deflationary

Let’s start on a positive note: Solana just put a proposal to a vote which would cut emissions and double ‘annual disinflation’ from 15% to 30%.

L1 tokens are dinosaurs, and we have very rarely seen this kind of proposal recently, signalling a potential broader shift in the market.

This is a massive step forward for a token which has often been criticised for its emissions, which currently has an inflation rate of around 3.7%, equalling over $1.5 billion in SOL distributed to stakers yearly. Solana is now making its token more appetible with a better monetary policy, if you will.

The proposal on the governance forum is SIMD-0550.

0550 is a proposal to reduce inflation by an additional 15%. Solana projects to reach a 1.5% inflation rate as its benchmark rate. This proposal accelerates the road there, with a target for H1 2029 instead of H1 2032.

This proposal will also reduce SOL emissions by over 18 million SOL before reaching the 1.5% inflation rate.

The impact on staking rewards is expected to be as follows:

• Current APY: 5.84%

• Year 1: 4.34%

• Year 2: 3%

• Year 3: 2.25%

We refrain from commenting at this moment on how changes in APYs will affect staking dynamics. For now, this change is expected to slightly impact validator profitability. However, given that Solana already had a target set for 1.5% inflation, this was due to happen anyway.

The Coldcard Vulnerability: No One is Safe

While there is no stopping hacks this year, many of them were related to private key compromise through social engineering or at the infrastructure level. But at the end of the day, you feel safe because most of your funds are in a hardware wallet.

This assumption broke last week with the Coldcard hack.

A critical security flaw was uncovered in Coinkite’s Coldcard hardware wallets, enabling an attacker to drain roughly $89 million in Bitcoin from over 4500 bitcoin addresses.

The exploit stemmed from a 2021 firmware build configuration bug that disabled the device’s hardware random number generator. Instead of producing standard 128-bit or 256-bit cryptographic randomness, wallet generation fell back to a predictable algorithm. This compromised the device’s private key entropy, dropping it to a vulnerable 40-bit or 72-bit range. Attackers exploited this by regenerating candidate seed phrases and brute-forcing the private keys to sweep funds.

The most brutal aspect of this attack was that the bug was live for over 5 years and it was never noticed by the code maintainers. Also, as Galaxy traced the wallets from which these funds were stolen, most of them were retail, holding smaller amounts of BTC, ranging from 0.1 - 1 BTC.

This attack also ignited a debate in the security space, as frontier AI models could be leveraged in this scenario because finding this bug was tedious and only LLMs could reduce the time to such findings.

As they can be used in attacks, they can also be used in defence. So every protocol that secures users’ funds behind code should use these models to protect their users by auditing their code with them.

Umbra Protects its Treasury from a Malicious Governance Proposal

On the 1st of August, a malicious governance proposal, UMBRA-004, was created on the governance forum.

The proposal aimed to steal over $1.5 million from the Treasury. The attacker attached enough stake for the proposal to reach the minimum staking amount and go live.

The proposal eventually failed, as the treasury was defended through voting on decision markets, taking positions against the attacker’s proposal.

This is an interesting example of both the risks of decentralised governance and the often underestimated impact of coordination between an aligned user base - and this is also thanks to the MetaDAO model.

Umbra now has to carefully assess the potential for future, better organised threats against its treasury, which is very appealing considering the modest size of the protocol.

Relying on markets to secure governance works as long as the incentives are aligned. This precedent highlights a different kind of market-based governance defence, where participants price and reject a malicious treasury action.

Why We Can Never Have Nice Things: FWA Directs 100% of Accrued Fees ($3m) To Protocol

In last week’s edition, we introduced FWA and how it had grown to account for over 10% of total fees paid on the Ethereum mainnet.

Yesterday, the company announced that the previous fees accrued by the protocols will not be used for buybacks but rather for the protocol itself.

This received backlash, considering that just a few days before the CEO had gone on an interview declaring: “how much of the fee that is currently going to tokenworks should go to buybacks? and that can be anywhere from zero to 100%. will it be zero? no. will it be 100%? no. my gut says down the middle.”

It turned out to be zero.

While token buybacks are not the holy grail of crypto, they are the easiest way for people to monitor whether the team has skin in the game. With time, they have become proxies for token holder revenues, though unjustly.

Considering that a lot of FWA supply is already being minted, reducing incentives to spin the gacha to get tokens, this is another potentially negative setback for broader protocol usage, especially on the day of unlocks.

Protocols should aim to make money.

However, they should aspire to do so without stirring their community or stifling growth.

Users will always want most revenue to be used for buybacks or to go to them.

Teams want it all.

A middle ground should have been the obvious answer: now FWA risks just becoming a fun experiment that lasted a week.

From the last post, it emerges FWA is committed to purchasing tokens for around 300 ETH from their revenues (about 10% of total fees raked).

We will continue monitoring the situation and see how things evolve.

Post-Hype Update on Robinhood Chain

Finally, we deserve a little more air time for Robinhood Chain. After flooding our home page with massive hype, RH Chain is now suffering a period of adjustment.

This comes after memes have cooled down, reflecting a slowdown in DEX and launchpad volumes.

However, RH is already broadening its offer to become a more complete ecosystem, as part of its onboarding of several blue chips, signalling a search for maturity.

Taking this all into account, daily transactions are still on a positive trend and at an all-time high.

Currently, there is a fair 50/50 balance between new and returning daily wallets, showing both consistency and that the RH chain is not slowing down in terms of attracting new users.

The initial weeks of development of a new ecosystem are most interesting to observe from a research perspective.

For now, we believe that Robinhood has voluntarily led its ecosystem to be sort of a live experiment and see how market dynamics work. Armed with these insights and data-driven knowledge, we expect them to capitalise on what has made RH chain so appealing while also further leveraging both its huge distribution and monetary and strategic capabilities to bring a wide range of products to further differentiate the eco from others.

On our Radar

• Monad’s TVL more than doubled in July, from $350 million to $830 million, primarily driven by deployments like Aave, Pendle and Euler.

What’s particularly interesting about Monad is the focus on making these assets productive, with over $370 million in active DeFi TVL, one of the highest.

• Discussions like the one surrounding FWA show how the token question mostly remains unanswered for protocols. Just last week we released a report on (what we believe is) a broken link between protocol revenues and token performance.

Four questions you should ask about a token include:

• What are the protocol’s revenue sources and their sustainability?

• How do they distribute this revenue to tokenholders?

• How much of the token value goes towards emissions?

• Is there any existing dual token-equity structure?

Read the full research: https://research.castlelabs.io/p/the-broken-link-between-protocol

Mike from Blockworks appreciated our comments, highlighting the importance these aspects have on investor confidence.

• For those of you interested in the perps space or on how RWA products can get better distributions, tomorrow, Wednesday at 1 pm UTC, we will sit down with the CEO of Variational to discuss these subjects! Make sure to join us:

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Thank you for your support as always.

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In our newsletter, we may discuss projects or tokens in which we hold positions. While we aim to provide informative content, our views are not financial advice. Please conduct your research and consult professionals before making investment decisions. Crypto markets are volatile, and past performance doesn’t guarantee future results. Invest responsibly, and be aware of the risks. Your capital is at risk, and we do not accept liability for any losses.

Since the beginning of the year, crypto protocols have cumulatively made $7.42 billion in revenue.

Even after generating astonishingly good numbers, most tokens in crypto struggle to reflect their protocols’ success.

Not all revenues are the same.

This is a result of how the industry was built from the beginning, but the situation is evolving, and so are the questions being asked by investors when evaluating any token, focusing on the product’s revenue generation, spending, and tokenholder value accrual, marking a shift from gambling to investing.

At most times, tokenholders are looking to find the answer to the following:

1. How does the protocol generate revenue, and is that sustainable?

2. How do they distribute this revenue? And do tokenholders accrue value from it?

3. How much of the token value goes towards emissions, including inflation, unlocks, and incentives?

4. Is there any existing equity distribution that grants greater rights than those of the current holders?

Answering these four questions weighs the project in the eyes of any investor, but most projects can’t answer them definitively. Every token has a different value accrual mechanism, and some simply don’t have any. Even when there is a direct value shared with tokenholders, the token might not perform as expected.

Take the example of PumpFun: since its token launched, the protocol has generated ~$450 million in revenue (1-year timeframe), but the token is in a never-ending downtrend due to a combination of factors, including the token’s unlock velocity, failed airdrop expectations and more.

In this piece, we highlight the different ways top protocols generate and distribute revenue, accounting for emissions and incentives to show the nuances investors should consider when evaluating a protocol or token.

Crypto Revenue Sources and Allocation

The base question before getting into the argument about value accrual to tokenholders is quantifying the revenue generated by major products and how it is distributed. For this analysis, we consider six protocols (Aave, Aerodrome, Hyperliquid, Pump, Sky, Uniswap), which collectively generated $726 million in revenue during H1 2026.

While higher revenues can be a sign of a sustainable business, seeing them in isolation isn’t enough. For one thing, to account for short-term fluctuations, revenue is better measured across different timeframes to assess its sustainability, so below we also compare Q1 and Q2 2026 revenue and measure the change between them. For most protocols, the delta was negative, reflecting weaker performance in Q2 due to overall market conditions.

Turning to revenue sources, Hyperliquid derives revenue from trading fees on its perp exchange (native + HIP-3), spot markets, ticker auctions, priority fees, and HyperEVM gas fees.

Aerodrome is a Decentralised Exchange (DEX) that generates revenue from fees on swaps and external voting incentives (bribes). Similarly, Uniswap charges fees on swaps contributing to its revenue.

Sky generates revenue from its different products: stability fees are charged on collateralised DAI/USDS loans, liquidation penalties, Peg Stability Module (PSM) trading fees, and interest earned from Direct Deposit Modules (D3Ms) and Real-World Assets (RWAs).

Continuing the list, Aave generates revenue from the interest rate spread (paid by borrowers), flash loans, liquidation penalties, and stability fees from its native GHO stablecoin. Pumpfun generates revenue from trading swap fees and graduation fees charged when newly created tokens reach a target market capitalisation.

Once we have highlighted how these protocols source their revenue, we now compare them with token emissions to explore whether and how they balance. While a protocol tokenholder’s revenue can be high, if token emissions are equally higher, the value of the accrual process reduces. A protocol could have $100 million in revenue, but that number means something completely different if it does so by minting $200 million in tokens a year. In addition, token emissions are also important to highlight because they show how much value is going toward inflation, token unlocks for the team or investors, and, most importantly, incentives.

The revenue allocation of most protocols is usually split between tokenholders and the treasury. The details come down to specific protocol mechanisms and the governance in place for handling this division.

To demonstrate how emissions affect any token, we subtract emissions from Holder Revenue. For Aerodrome, Sky, and Uniswap, the net token flow becomes negative after this, even with revenue allocated to holders, indicating that these protocols are giving away more in emissions to maintain current revenue levels, reducing the net value flow to holders.

Currently, tokenholders accrue value in two major ways: Buybacks and Fee Distribution.

Buybacks

Buybacks are one of the easiest ways for projects to distribute value to tokenholders, albeit indirectly, by using revenue to buy tokens and burn them.

Buybacks usually return tokens to the protocol treasury for future incentives or even staking rewards; for example, Aave directs buyback tokens to the treasury.

To be more aligned, most protocols burn these assets, reducing the supply. Lighter, for example, burnt ~15.6 million LIT tokens it acquired through revenue (6.6% of the supply) worth $36 million.

Hyperliquid performs a buyback and burn programmatically and has, to date, burnt over 47 million HYPE tokens, about 4.72 % of its supply. Uniswap performed a 100 million UNI token burn in December 2025 and has, to date, cumulatively burnt 107 million UNI tokens (~11% of the total supply), sourced from the fees it enabled.

Burning isn’t necessarily present in all tokens and is highly nuanced in the way burns are carried out. In the past, for example, BNB used to run quarterly burns. However, these were often less effective than users expected, as they burned non-circulating tokens and thus had no real impact on market dynamics. Users have to look at the fine print on burns: where are the tokens getting burned from? Circulating supply or not?

Every project performs buybacks differently. Maple Finance holders recently voted for a buyback program that scales with revenue and increasingly allocates more to the tokenholders as revenue grows. This was an update to their MIP-019, which previously set aside 25% of revenue for buybacks. At the given H1 2026 average revenue of $1.15 million, the buyback would be scaled down to 10%, which, as a holder, might not be the best news, but it passed with 99.97% of votes “for”.

Additionally, tokenholders can choose to stake their tokens with the protocol and earn staking yield from the treasury. After its recent tokenomics update, Lighter is targeting a staking yield of 6%, which, at the current staking level of 125 million tokens, would distribute 7.5 million LIT tokens yearly.

Similarly, over 430 million HYPE are staked, earning yield from the future emissions reserve at an estimated 2.1%.

Buybacks and burns alone won’t save a project from down-only tokenomics or declining revenues, and should be considered within a broader framework across the buy and sell sides of every single protocol. However, they can be leveraged to drive ecosystem growth and bootstrap liquidity while tapering slowly over time, leaving time for organic growth. Burns have a similar mechanism where they can use platform activity to counter inflationary tokenomics.

Fee Distribution

Other protocols, such as Aerodrome and Curve Finance, distribute fees directly using a ve-tokenomics (Ve) model. In this model, holders stake their tokens and convert them into vote-escrowed tokens (e.g., veAERO or veCRV).

It creates economic value for holders through different mechanisms:

1. Protocol Trading Fees: These protocols route 50-100% of the fees to ve token holders.

2. Boosting Yield: Holding these tokens also increases yield for Liquidity Providers (LPs) in the pools on these exchanges.

3. Bribes: Protocols pay cash incentives to ve holder in exchange for their governance votes to steer future rewards towards their specific liquidity pools.

Ve protocols are, in fact, characterised by an inherent design that drives strong emissions, which partially explains their high fee distribution growth through inflation.

Using these methods, these protocols have so far generated over $2.75 billion in tokenholder revenue, primarily driven by Hyperliquid and Uniswap (due to a 100m UNI burn in December 2025).

But as we mentioned, value accrual alone is not sufficient; emissions need to be balanced as well.

In the next section, we explore additional reasons beyond tokenholder revenue and emissions that can stunt a token’s growth.

Beauty of a Token

Over time, crypto products have grown and generated significant revenue, but revenue doesn’t necessarily mean the token will perform better.

Most of the tokens from revenue-generating products struggle due to the combination of the following reasons:

1. The revenue doesn’t flow to the token: Even when a protocol generates meaningful revenue, that value often sits with the treasury rather than reaching tokenholders. The way buybacks are used is important. Treasury retention is discretionary and depends on the protocol. Since there is no contractual obligation, protocols can pause, resize, or eliminate the buyback at any time. Though there is governance behind these decisions, most of the voting power is controlled by the project team.

2. There is an equity-token split that makes tokenholders secondary citizens: an increasing share of companies now operate a dual equity-and-token structure. One prime example of such a token is XRP. Ripple Labs stock has been performing well since 2025, up 105%, while the XRP token is down 45% over the same period. They issue both tokens and equity, but since tokenholders have no specific rights to the company’s revenue, there is no value accrual. In contrast, equity holders receive this value and do well.

3. Higher unlock velocity increases expected sell pressure: Even when revenue sharing exists, a higher-rate supply unlock schedule can push the token down, as explained above in our discussion of token emissions. Another aspect that adds to this is the token’s low float and high FDV nature, because a huge amount of supply still needs to be unlocked and absorbed by the market, which could effectively reduce the P/S ratio of the protocol, making it look “cheap”, but in reality the circulating supply shock is expected in the future to become part of emissions.

Combining these factors reflects the token’s true nature and explains price action in most cases, though additional factors may affect its performance.

The PUMP token is down 60% since its launch, even as the project has completed over $315 million in buybacks. On the other hand, HYPE is up 1,400% since launch and has returned $1.2 billion to shareholders through buybacks. Both have consistent buybacks, but the PUMP price is unsatisfying due to the team’s lack of communication, the lack of an airdrop, rapid unlocks, and market selling of tokens.

AAVE token has been struggling since the start of the year, performing $45 million in buybacks since the buyback program started in April 2025 (currently paused due to the Kelp DAO incident) due to multiple factors, including the DAO service providers like BGD Labs and ACI leaving, and the Kelp DAO incident’s impact on Aave and increasing institutional competition from Morpho.

In the case of Aave, they also lost over $23 million performing these buybacks as the asset price declined. Their average buy price of AAVE was $182, while it currently trades around $90, suggesting that buybacks might not be the best path.

However, buybacks remain one of the most aligned solutions for a token to accrue value because they’re trackable onchain and the protocol has to buy the asset from the market, creating buy pressure funded by revenue. Thus, it creates a direct reinforcing link between growing protocol success (more revenue) and improved, more deflationary tokenomics with lower inflation. For crypto holders, this might be the most optimised way to ensure alignment between the protocol and the token. Still, as seen with Aave, they are at a 50% loss on their purchases, eroding the value they generated through the project’s success.

On the surface, a dividend can seem like a better option, as users could earn stablecoins tied to the tokens they hold and be free to do whatever they want with them. However, unlike buybacks, this has no direct impact on the token price, making the decision between the two a little difficult and highly context-dependent. If a protocol distributes fees, then its token might become useless (unless it has other values or utility). A counterargument is that since dividends are present, more people would want to invest in a given token.

As of today, most projects are conducting buybacks, indicating they see more value in them.

Closing Thoughts

Multiple protocols are earning good revenue, but not all of them accrue value to the token in the same way. Even if they do, it doesn’t necessarily lead to the asset’s price appreciation because there is often enough sell pressure from vested tokens held by insiders, negative news, incentives, the project’s overall sentiment, and the competitive landscape.

Looking at each of these different nuances individually tells a little story. Instead, investors should look at a broader analysis that includes how the protocol generates revenue, how it distributes it, and how it balances that with eventual emissions and incentives.

The first step for any protocol should be to become a successful business and make revenue. Then, it should ensure that it accrues to tokenholders in one way or another, whether through buybacks, dividends, or automated fee distribution.

In the case of Hyperliquid, we witnessed how protocols with a strong token and value-accrual process excel when alignment is embedded from genesis.

It distributed most of its revenue to its holders, with other projects like Aerodrome and Uniswap following suit.

Protocols are increasingly realising that a good token has good distribution, so we expect more alignment between protocols and users, and tokenholders to win more.

written by @Noveleader

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In this week’s Chronicle:

• Vault curators come under the microscope after Hester Peirce warned that some crypto vault strategies may raise questions usually reserved for portfolio managers or investment advisers.

• Robinhood Chain by the data after a month of being live, with memecoin launchpads taking more of the pie vs. RWAs than initially thought.

• Fake World Assets brings NFTs back into the conversation, with various forms of ponzinomics.

• BitMEX and BitMart shutdowns show how hard the exchange business has become, while DEX/CEX volume ratios keep moving in favour of onchain venues.

• Mantle turns three, with the network pushing deeper into DeFi, tokenised equities, active strategies and RWA-specific trading infrastructure.

• On our radar: Securitize Capital’s RIA approval, Marc Zeller / ACI’s stealth project, and HIP-3 Stars on Hyperliquid.

Are Vault Curators the same as Portfolio Managers?

The AUM of vault curators has grown massively over the past year. This is clearly demonstrated by the chart below, which shows AUM by Curator of Morpho V2.

Among the factors that have contributed to it is that vault curation, at its core, resembles a dynamic similar to that of fund managers in traditional finance. At a time when institutions are increasingly looking at onchain finance and how to put their RWA to use, vault curation is the perfect vehicle for it.

Nonetheless, vault curators have operated without regulatory clarity on the topic. That is, until now. This is somewhat typical of any primitive coming from crypto, and it’s quite unavoidable, especially when it comes to asset management: a new primitive is born, it grows so much until regulators take notice, and eventually the new primitive has to comply with the law.

This happened just recently, when Hester Peirce warned that some crypto vault strategies may raise questions typically reserved for portfolio managers or investment advisors, depending on how yield activities are selected and assets are reallocated.

Participants across the sector understandably have different takes:

• Togbe, previously of ACI, argues some curator policies and reallocation bots remain too opaque, especially where users cannot easily understand who is making decisions and when.

• adcv of Steakhouse argues that vaults do not unilaterally set rates, and that the mechanics are not as simple as “curator selects yield, user follows”.

• KPK highlights their transparency on the topic, publishing target weights for each market and detailing the underlying infrastructure (but not giving everything away).

• Tesseract agrees with the SEC. Its position is that vaults are not a single thing: “At one end, fixed rules run by immutable code. At the other, a person is choosing strategies, moving capital and setting risk. The more discretion the curator exercises, the more the vault starts to look like portfolio management.”

• Matthew Graham of TokenLogic has a similar view: if a curator is selecting allocation and managing risk on behalf of users, the comparison to investment management is hard to avoid.

Whoever you agree with, regulation comes as a positive, meaning that vault curators will continuously be embedded as an alternative to traditional investment vehicles.

Regulation can bring increasing transparency on vault curators, which at times have been accused of being too opaque.

Curators can do a much better job at explaining and documenting:

• their allocation policy, and who is able to change it

• what happens under certain stress conditions

• who is ultimately accountable for the vault’s allocations

• what underlying offchain infrastructure is running

• where the offchain dependencies and permissions sit

On the other hand, the hurdles of obtaining a license might prove hefty for smaller curators, thus stifling grassroots vault curation.

We can, however, expect many more regulated traditional finance managers coming onchain to run compliant vault positions.

Nonetheless, it’s still early to express what the SEC regulatory action on the matter will be.

We have seen the Morpho team and other representatives of the vault sector meeting with the SEC just after this memo was published.

We expect more concrete documents from the SEC in the coming months.

Robinhood Chain by the Data

Robinhood Chain was unveiled at the start of this month and has already captured a decent chunk of crypto mindshare.

The launch was initially framed around tokenised stocks, but over the month they have leaned more and more into memecoins, with Vlad posting repeatedly about these, several launchpads battling for attention, and a surprising approach to pairing memecoins with stock tokens inside AMMs.

This means users who want to trade the memes are effectively moving from ETH or USD, through tokenised stocks, and into the memecoin trade.

The chain has seen impressive growth and stability, with Entropy’s data showing over $800m in assets on the chain, with stablecoin market cap approaching $500m. In terms of TVL, Morpho accounts for roughly $259.9M, Ethena another $184.7M, with Maple, Uniswap and Spark behind them.

Daily fee revenue has been running between roughly $150K and $350K, with gross margin around 88-89%. The 7-day annualised revenue line is near $66M, ahead of the 30-day line at roughly $41M, suggesting that activity is still accelerating rather than rolling over just yet.

As mentioned, memecoins are dominating daily activity on the chain, with memecoin pairs at 65.9% of spot DEX volumes, versus ETH-USD at 24.1%, and Robinhood stock tokens at just 8.2%. This is happening at such a rate that Robinhood launchpads have now overtaken both pumpfun and pumpswap (pumpfun’s DEX) by volume.

Of these Robinhood launchpads, pons now represents around 75% of the total launchpad token volume on the chain, generating over $2 million in total revenue so far.

The stock side is still growing too, breaking $25 million in total tokenised value yesterday, and rwa.xyz reporting nearly 330,000 RWA holders across 97 assets.

Across the board, Robinhood is experiencing strong early traction and can be seen as more of a consumer trading venue than a pure RWA play.

Whilst the stock tokens and their underlying representations give the chain legitimacy, it’s currently meme coins and launchpads giving it velocity amongst users, and by pairing meme coins with stock tokens inside AMMs, they have cleverly found a way to embed a role for stock tokens inside of the high-volume meme coin trading category.

But can Robinhood Chain secure this meme coin trading and launchpad volume, and take a meaningful share from chains like Solana? Can tokenised stock deployment keep growing beyond the first wave of tickers? And how far will Robinhood go in integrating the chain and its assets into the main mobile trading app?

h/t Entropy Advisors for the data.

Are NFTs Back?

You meet someone on the street, and the guy goes like: “NFTs are not dead”!!!

You look at him with a pity look, throw $5 at him, and go home.

Then you open X and find out there is a new NFT gacha protocol on mainnet Ethereum.

WTH.

TokenWorks launched Fake World Assets, a protocol that at its core resembles some gacha dynamics:

• NFT owners deposit NFTs in a pool with a corresponding ETH backing

• Purchasers pay a price specific to each NFT pool and have randomised chances to win the NFT in question with each try

Users who win the NFTs have a chance to choose how to get paid. Here is some interesting data on the outcomes, partially biased because of the extreme and early stage of the FWA token during this week, which justifies why users opted for FWA payments in most cases..For a deep dive into how the protocol works, you can check:

Nairolf
as required
ipe0x

In just 7 days, the protocol is now responsible for 10% of gas consumption on the Ethereum mainnet. These are some stats that give a better idea of the activity:

It is still extremely early to say whether this is a short term burst or a dynamic which can last.

The daily participants trend is still very good, showing less inflation than those of volume, meaning fewer hardcore users doing lots of spins and more chill users doing a lesser number of spins.

While gambling should not necessarily be the only silver lining to make new things nowadays, in this case it shows how a simple consumer-focused protocol with a gacha dynamic can revive and attract interest.

More builders should take this as an inspirational example and an opportunity to build things that people use.

Not another L1, L2, or even prediction market app.

Crypto Trading is Moving Onchain

Just this week 2 CEX representatives of the old guard have shut down: both BitMEX, one of the OG CEX and BitMart.

What does this tell us? For once, the CEX business is brutally competitive and dominated by a few incumbents. This is often a duopoly or monopoly depending on which geographic region.

In addition, both regulation (for instance, MiCa in Europe) and competition from the likes of Hyperliquid, Lighter, Variational, and other onchain trading venues have led to a loss of users and volumes across the board.

The DEX/CEX spot-volume ratio hit 24.3% in July, a series high, up from 17.9% in June and around 18 to 21% for most of 2026.

Exchange power is consolidating at the top, while the next growth or innovative layer is moving onchain. DEXs may end up the same way, with Robinhood/Uniswap on spot, Hyperliquid on perps, and a few app-layer distributors deciding where flow lands.

For the next cycle, we can expect fewer CEXs consolidating themselves, and more flow controlled by the venues and front ends that own distribution

Nonetheless, something important to keep in mind about the recent shutdowns is that they have happened in an orderly way and without affecting users’ funds, a sign that the industry as a whole is maturing and perhaps healing.

Mantle’s Birthday and Q2 Reflection

Mantle turned three last week.

The network started as a DAO to support the growth of open finance and develop decentralised, tokenised economies; its focus of late has been on DeFi, yield products and institutional-facing RWA infrastructure.

Nansen recently framed the Q2 thesis for Mantle as a full-stack distribution layer for tokenised real-world assets. By quarter-end, it counted 155 tokenised equities, $1B+ in DeFi TVL, and $955m in stablecoin market cap.

Live RWA.xyz data now shows around $120m in tokenised active strategies on Mantle. We are highlighting active strategies because they give a cleaner read on real capital being put to work through managers, products and platforms, rather than passive tokenised exposure sitting onchain.

The application stack has been moving in this direction too, with trading infrastructure in particular being built around RWAs:

• Fluxion is Mantle’s native spot liquidity for RWA-linked assets, with AMM pools and concentrated liquidity designed around xStock/USDC markets and other asset-backed pairs.

• xChange is xStocks’ Atomic RFQ route, giving onboarded participants issuer-direct quotes for minting and redeeming xStocks, with both sides settling in one onchain transaction or not at all.

It’s becoming clear that Mantle is not just trying to host tokenised assets on its chain, but is building the required liquidity and execution stack around them too, just as Nansen highlighted: a full-stack distribution layer for tokenised real-world assets

We’ll have more to cover on the Mantle ecosystem soon.

On Our Radar

• Securitize Capital gets SEC RIA approval as an SEC-registered investment adviser, which will allow it to operate tokenised funds above $100m, with a full compliance programme and fiduciary duties to investors. In light of Peirce’s comments, they also positioned the approval as regulatory coverage for RWA-based vaults that interact with DeFi lending protocols.

• ACI / Marc Zeller’s new project appears to be in stealth under @acier, with the account verified, followed by ~9.5k people and currently saying only “Building”. Given ACI’s role around Aave, any new project from them is worth tracking, especially in a week where vault curation, permissions and onchain capital management are central themes.

• HIP-3 Stars on Hyperliquid: Rajiv flagged Stars on Hyperliquid’s HIP-3 testnet, which lets deployers create controlled markets for custom perp DEXs, including address-allowlisted venues: HIP-3 already gives builders a way to launch their own perp markets, and Stars adds more control over who can trade them, bringing more speculation around whether Hyperliquid wants to move beyond purely open, crypto-native flow.

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In our newsletter, we may discuss projects or tokens in which we hold positions. While we aim to provide informative content, our views are not financial advice. Please conduct your research and consult professionals before making investment decisions. Crypto markets are volatile, and past performance doesn’t guarantee future results. Invest responsibly, and be aware of the risks. Your capital is at risk, and we do not accept liability for any losses.

We’ve been spending a lot of time on revenue lately, across both apps and chains.

Apps have always been strong revenue generators, with direct access to their customers and a demand to provide value.

Chains, on the other hand, have long supported the ecosystem through grants and protocol infrastructure upgrades, but now they must also adapt and turn their attention to paying customers or risk running their treasuries dry.

Over the last 2 years, 14 crypto companies made over $200m. Just one of those was a chain.

Hyperliquid.

To demonstrate the gap between some of these chains, Arbitrum generated just $430k in the last 30 days, versus Hyperliquid’s ~$58m (>100x).

But things are changing. Chains understand that blockspace is no longer the business model, and they need to focus on other revenue streams. We have already seen the first few movers striving to become product studios, app distributors, payment rails, or vertical SaaS stacks. This will no doubt continue, with more chains moving away from neutral infra and towards the ownership of specific verticals.

If you are interested in the verticalisation of blockchains, check out our flagship report, published in collaboration with Kaiko here.

A similar theme runs through the rest of this week’s Chronicle:

• We look at Ostium’s exploit, and what it says about the security standard for onchain products that depend on offchain prices

• We cover the options stream we hosted with Kalshi, Rysk, GammaSwap, and Block Scholes, where the strongest takeaway was that options work best when users don’t have to think of them as options.

• On Our Radar, we pick up fixed-rate lending from Yearn, Plether bringing DXY perps onchain, and Starknet’s new security focus for institutions surrounding privacy and quantum durability.

Ostium Loses over 40% of its TVL in Exploit

Last week Ostium’s LP vault was exploited for 23,752,746 USDC after an attacker compromised offchain infrastructure feeding prices into the protocol.

The attacker submitted illegitimate price reports that appeared valid, then used them to open and instantly close large positions, extracting artificial profit from the vault. Essentially, the attacker found a way to push false price updates through an approved route, making losing trades look profitable and draining the LP vault.

This is particularly painful for Ostium as its whole product centres around bringing offchain markets onchain. Stocks, commodities and FX on Ostium do not have native onchain prices; the protocol has to import them, and more importantly, trust them.

The contracts on the protocol rely on this trust, and so do its users, meaning a false price that passes the checks can quickly move from bad data to bad execution, bad vault accounting and real LP losses. For Ostium in particular, oversight around this offchain-to-onchain journey is core to the product.

Ostium says trader collateral was isolated and not affected, and trading contracts were frozen within 60 minutes. This is fairly quick, but the question is: how much damage should a bad price input be able to do before a protocol catches it?

What makes this more frustrating is that Ostium was already leaning into TradFi trade-offs. Many of the markets it offers are not truly 24/7 because the underlying assets are not 24/7 either. If you are already accepting market hours, stale prices, closures and liquidity gaps, that should make tighter controls around price updates, trade size, withdrawals and timing easier to justify, not harder.

The industry needs to get more comfortable with this, and I think Ostium was well positioned to take a lead. If an authorised route can update a price, shouldn’t that route be tightly controlled and watched? If a fresh price update can support a large trade or withdrawal, shouldn’t there be circuit breakers around size and timing? If attackers test the system with smaller transactions first, shouldn’t monitoring catch the pattern before the vault is drained?

For protocols bringing offchain markets onchain, these controls should not be optional safety features; they should be embedded and marketed as the product.

Options Need Abstraction

Last week we hosted Kalshi, Rysk, GammaSwap, and Block Scholes on a stream following our report on The Renaissance of Onchain Options. There was one point in particular that repeatedly came up from these builders: options are powerful, but marketing them as “options” is often the worst way to sell them.

Most users do not want to think in Greeks, expiries, strikes or volatility surfaces; they want income, leverage, protection, or a simple way to express a view. That is why the products showing the most promise in terms of user adoption are often not vanilla options venues, but income vaults, short-duration binaries, structured products and prediction markets.

Dan from Rysk summed it up almost perfectly: the option is not the product; the benefit of the option is the product.

Rysk said its newer product has seen over $1bn in open positions over the last year, mostly from DeFi power users looking to earn income on assets, rather than people arriving as options traders. The quarterly notional chart shows how quickly that product has found demand.

Kalshi said it now handles 86% of global crypto binary options volume, and around 70% of global prediction-market volume, with 15-minute markets looking like the sweet spot for crypto binaries because it’s easy for users to understand the payoff, the time window and the risk.

GammaSwap is a great example of abstracting options away from end users. Its V1 let users borrow liquidity from AMMs, with AMMs behaving a lot like option sellers, but the product was capital inefficient and hard to use once Greeks, exotic payoffs, and fragmented liquidity had to be part of each user journey. V2 is on its way and is moving toward prediction-style markets, order books and known payouts, focusing on providing a clear question that is easier to sell than another complex options product.

Block Scholes brought the perspective from the infrastructure side, as they power roughly 90% of onchain options volume through venues like Derive. Traditional options exchanges may keep a niche user base with their native UX, but structured products are how many more users will access them in the future without knowing they are touching options at all.

For options to grow even further onchain, they need to stop being sold as options. The broad view was that the next wave probably comes through products that package the payoff into something easier to understand.

On Our Radar

• Flex, fixed-rate lending from Yearn: Yearn’s Flex product is a fixed-rate money market where borrowers choose their own fixed interest rate. Follow the new protocol on DefiLlama here.

• How Base rebounds: Two announcements from Jesse and Brian have led to wide frustration from the community on X. Jesse admitted his failed strategy regarding social and creator coins, and is now handing over the Base App to Cobie, the Crypto Twitter trader and founder of Echo (Coinbase acquired for $400m). Brian, on the other hand, disregarded all responsibility for the recent pump and dump of a memecoin attached to his profile picture last week. Sentiment can be summed up well by posts like this from Rune. Cobie running back the Base App is quite literally their last straw with respect to saving face, to crypto-natives at least.

• Plether, onchain dollar-index perps: Plether is building a perp DEX for the US Dollar Index (DXY), letting users take long or short synthetic USD exposure onchain. What’s interesting is that positions have a maximum payout defined at entry, LPs sit in senior and junior tranches, and the protocol blocks new opens if it cannot enforce solvency.

• Starknet’s security focus: Yesterday we published a report on the two blockers to the next phase of institutional onchain growth: privacy and durability against the quantum threat. Starknet is a useful lens here because its recent work touches both areas: privacy improves what institutions can safely reveal onchain, and quantum durability asks whether today’s infrastructure can survive the next security cycle.

Every week for the last 3 years, we have shared our research for free, directly in your email. Not a subscriber yet? Let’s fix it:

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In our newsletter, we may discuss projects or tokens in which we hold positions. While we aim to provide informative content, our views are not financial advice. Please conduct your research and consult professionals before making investment decisions. Crypto markets are volatile, and past performance doesn’t guarantee future results. Invest responsibly, and be aware of the risks. Your capital is at risk, and we do not accept liability for any losses.

As onchain finance moves closer to traditional markets, digital assets are being held to higher standards and sharper requirements.

Two critical issues exist in this new world: the movement of capital onchain is open for all to see, and the cryptographic signatures underpinning the entire technology are at risk from quantum developments.

Nowhere does this matter more than Bitcoin.

Currently representing over 56% of the total crypto market cap, Bitcoin still anchors the crypto market, despite offering little native programmability.

To improve its utility and programmability, Bitcoin has been exported across chains, introducing it to the onchain financial world through wrappers.

But Bitcoin in DeFi does not just need higher yield; it needs a way to move in size without a broadcast, and the assurance that it will be safe when the quantum computers of tomorrow arrive.

The same is true across onchain finance: assets need to move, settle, and compose without exposing every position to the public, and without relying on cryptography that may not survive the next decade.

We have been tracking one protocol in particular that appears to have understood these issues and built around both problems earlier than most.

Despite its BTCFi campaign earlier in the year, Starknet is not simply making Bitcoin usable onchain. It is using Bitcoin as the first clear test case for conditions both individuals and institutions actually care about: private by default, discloseable when required, and hardened for a post-quantum future.

For background reading on Starknet’s work in this area, we covered why $2 trillion of Bitcoin sits idle and how Starknet’s roadmap charts a path to trustless BTC, and Starknet’s new privacy framework, STRK20, and why they designed the system for “privacy through ownership”.

Privacy and the quantum ticking clock

A core mantra in crypto has always been “don’t trust, verify”, and that’s what public, transparent blockchains have always allowed us to do. Verify balances, snoop on transfers, inspect capital flows, and monitor contract interactions. All open for everyone to see.

You can understand how this started.

Transparency builds trust, but total transparency undermines one’s intellectual property, strategy, personal safety, and operational privacy. This is especially true today, where AI-driven de-anonymisation can link public addresses to real identities at up to 90% precision.

Privacy is not only a human right but also a critical infrastructure required onchain for both user protection and institutional adoption.

Individuals need privacy to avoid surveillance, profiling, harassment, crime, and political exposure. Institutions need privacy to ensure confidentiality of positions, order flow, and other data, as well as protection from counterparty visibility and strategy leakage. Additionally, privacy needs to be configured so that selective disclosure is available to auditors, regulators, or compliance.

Previous attempts at onchain privacy have repeatedly highlighted the trade-offs:

• Purely anonymous privacy pools like Tornado Cash ran into compliance pressure, leading to OFAC sanctions, as well as criminal charges and prison sentences for developers, living proof that non-compliant pathways are fraught with political and legal risks.

• Privacy coins on native chains (e.g. Monero, Zcash) proved hidden transactions are possible, but have consistently struggled to integrate with the rest of the onchain world, unable to compose with DeFi primitives at scale, pointing to a problem larger than privacy alone, but one of liquidity, interoperability and compliance.

• Private execution systems like Aztec saw early demand for private DeFi, but they often faced high costs, liquidity fragmentation, and subpar user experiences.

The problems arising from a lack of privacy do not exist in an isolated onchain world, but have bled into the physical one. Onchain addresses tied to real people with public balances present heightened attack risks. CertiK reported 34 verified physical attacks on crypto holders in the first four months of 2026, up 41% year-on-year, representing only the recorded portion of these extremely underreported incidents. More specifically, in France, there were 41 crypto-linked kidnappings from January to May 2026, around one every 2.5 days.

Privacy is not only about hiding trading activity or protecting alpha, but also increasingly about reducing personal and operational risk.

While the privacy issue is actively being addressed in the industry, another threat has surfaced in quantum computing. A path to address both visibility and durability can drive blockchains closer to becoming the next generation of financial infrastructure.

In March of this year, Google Quantum AI’s report, co-authored by Justin Drake (Ethereum Foundation) and Dan Boneh (Stanford), identified multiple attack paths and estimated roughly $100 billion was at risk across the Ethereum ecosystem. It also singled out Starknet as having a stronger post-quantum position than other major L2s because its proof system is based on hash-based STARK assumptions rather than elliptic-curve cryptography.

The paper focused on secp256k1 public-key exposure, relevant to Bitcoin and Ethereum wallets, stating a sufficiently powerful quantum computer could attack a wallet in under 9 minutes, with Justin Drake later warning there is “at least a 10% chance” a quantum computer can recover a private key from an exposed public key by 2032.

Whilst this is not a reality today, the long-term security, and hence longevity, of an asset meant to be held across decades has been called into question.

Bitcoin is the most important digital asset in the world, and as it increasingly serves as collateral, treasury reserves, and an asset on institutional balance sheets, its security and privacy requirements rise.

In the following section, we highlight one solution being developed around Bitcoin, the largest and clearest test case for these privacy challenges.

strkBTC: private Bitcoin on Starknet

We’ve all likely used BTC wrappers before. They let Bitcoin move into other ecosystems and become composable: as a tradable asset, as collateral, as liquidity.

What they haven’t solved is visibility.

While wrapped BTC can become productive, every movement can still be monitored, inspected, and traded against. Deposits, loans, trades, LP positions, repayments, withdrawals, wallet clusters, treasury movements. All public by default.

That is not how serious financial markets work, and until this is solved, onchain finance will keep hitting an institutional ceiling.

In traditional finance, privacy is built into the plumbing, whether you are a retail mouse or an institutional behemoth. In fact, a large share of equity volume moves through private or off-exchange venues like dark pools, where counterparties see what they need to see, regulators retain access where required, and the public sees aggregated volume rather than every move as it happens.

Crypto has treated visibility as standard. In reality, privacy should be the norm.

strkBTC is Starknet’s attempt to enable Bitcoin to move through the onchain financial world without that restriction.

strkBTC is an ERC-20 on Starknet, backed by BTC locked on the Bitcoin network, and built on STRK20, StarkWare’s privacy framework for shielded balances and private transfers.

STRK20 gives strkBTC two modes:

• In public mode, it behaves like a standard ERC-20: users can hold it, transfer it, supply it to lending markets, provide liquidity, or use it as collateral.

• In shielded mode, selected balances and transfers are hidden from public view. Users can shield, transact privately, and unshield back into a public balance, directly from inside their wallet.

Before Starknet v0.14.2, the upgrade that enabled STRK20, an application that wanted to verify a STARK proof on Starknet would have had to do so inside a smart contract, making it prohibitively expensive and complex due to the size of the proofs. But now, transactions can reference offchain proofs directly, with Starknet consensus handling verification natively through in-protocol proof verification.

This has unlocked privacy at the protocol level, rather than the historical friction of using separate apps, chains, pools, or mixers, which add complexity, cost, and liquidity fragmentation. This allows apps to focus on building better products, as the underlying infrastructure has made private actions easily accessible to builders.

Compliance is a key part of the design, the piece that opens up Starknet to the institutions coming onchain.

When a user shields strkBTC, an associated viewing key is shared with Financial Privacy Inc, also known as FPI, the independent third-party auditor operating the compliance infrastructure for STRK20, granting it scoped access in the event of a valid regulatory request. Whilst this may be at odds with pure cypherpunk philosophies, it aligns much more closely with traditional markets. Privacy from the public, with disclosure to the regulator.

The bridge follows a similar logic and is operated by a trusted strkBTC Federation made up of Twinstake, NEAR Intents, Luganodes, UTXO Management, and Xverse. Currently, these independent signers support the minting and burning between BTC and strkBTC. The Federation is not the end state; however, Starknet is set on progressively hardening the roadmap over time.

strkBTC is not meant to be another wrapper, but to unlock the potential of a programmable, composable BTC whose movements are not broadcast, thereby solving the first problem: visibility.

The next problem is durability.

Blockchain’s quantum problem

Every blockchain relies on public-key cryptography. When a user signs a transaction, they reveal their public key while keeping the private key hidden. This is routine across Bitcoin and most other blockchains, and is considered completely normal and safe in today’s environment. But in a post-quantum world, that assumption gets a little shaky.

As alluded to earlier, a sufficiently powerful quantum computer running Shor’s algorithm could, in theory, derive a private key from an exposed public key. That means public-key exposure, a harmless part of transaction verification, could soon turn into a potential attack surface. This is not unique to any one chain, as the same elliptic-curve foundations sit under Bitcoin, Ethereum, and Solana alike.

The threat is shared, but the ability to respond to it is not. The chains most exposed tend to be the ones that move the slowest, and Bitcoin is the clearest example.

Bitcoin is not short of ideas for a post-quantum future. If anything, it has too many. The problem is agreeing trade-off the network is willing to accept: bigger signatures, higher costs, legacy coin treatment, user migration, wallet support, miner policy, or a fight over freezing dormant and unmigrated coins.

It’s clear the issue with Bitcoin is just as much social and political as it is technical.

Dan Boneh, one of the co-authors of Google’s paper, calmed everyone’s nerves in a recent interview: “Bitcoin should not panic, but it cannot ignore this either. Moving too fast could be worse than waiting, because a rushed post-quantum migration may introduce a catastrophic bug before quantum ever becomes a live attack.”

Bitcoin will probably solve its quantum problem, but not quickly or cleanly.

That sluggishness is, in part, a feature of sound money, but it also leaves the door open. While the base layer debates, more agile stacks can build the durability that Bitcoin itself cannot yet commit to.

Ethereum and, by extension, L2s do not escape this problem. Most rollups settle to Ethereum and rely on it for data availability, thereby inheriting the base layer’s exposure. Ethereum is aware of this and has published a multi-year migration plan of its own, but until that arrives, every chain built on top of it is exposed to Ethereum’s post-quantum migration problem.

This is where Starknet has a head start. Although it settles to Ethereum like any other L2, the core of Starknet, its proving layer, was built on a foundation not dependent on the quantum-vulnerable cryptography. Although the inherited exposure from Ethereum is real, everything within Starknet’s own stack carries less migration debt than on most major chains, and it has more in the pipeline.

The Architecture Advantage

Starknet’s position of strength originates from two design choices, both made long before quantum was an urgent concern.

The first is the proving layer, the system that generates the STARK proofs securing every state transition on the network. It relies on hash functions rather than the elliptic-curve mathematics quantum computers threaten, and has done since the 2018 paper co-authored by StarkWare CEO Eli Ben-Sasson. This is the key, security-critical layer, and it’s why Google’s paper named Starknet as the one major L2 already ahead of the game.

The second is native account abstraction. On most chains, the signature scheme is fixed at the protocol level, so replacing it requires a hard fork that every user and application must follow. Starknet, on the other hand, lets the account define how it authenticates, so a user can move to a post-quantum signature without any protocol-level change. S2morrow, a quantum-proof wallet, has already been deployed using Falcon-512, and OpenZeppelin is building a standardised version, according to StarkWare.

On many chains, this kind of change means a coordinated protocol migration. On Starknet, much of it can begin as a wallet upgrade. Now, this does not mean every Starknet wallet is post-quantum; it means the model gives users on Starknet an easier way to get there.

StarkWare is now working to close the remaining gaps. Last week they published a roadmap to make Starknet post-quantum secure end-to-end before Q-day, the point at which a quantum computer becomes powerful enough to break today’s cryptography.

It runs in three phases:

None of this makes Starknet fully quantum-safe today, and the roadmap doesn’t claim otherwise.

What still has to be proven?

Starknet can replace Pedersen with BLAKE2, improve post-quantum wallet support, and provide legacy contracts with a migration path, but it cannot eliminate all the issues it inherits from its base layer. Bridge messaging and blob data availability still sit downstream of Ethereum’s own post-quantum roadmap. Starknet can harden the surfaces it controls, but surfaces inherited from Ethereum will move on Ethereum’s timeline. That being said, the Ethereum Foundation has outlined structured fork milestones targeting completion of core post-quantum infrastructure by approximately 2029.

strkBTC has a similar phased story. Today, the bridge relies on a Federation to coordinate minting and burning between BTC and strkBTC. A credible starting point, but not the desired trustless end state. Starknet aims to move from a federated model toward Bitcoin-native verification, then a more trust-minimised BitVM design, and finally a fully trustless OP_CAT-based design if Bitcoin enables the required opcode in the future.

Viewing keys are the other piece still to be proven. They are Starknet’s practical answer to institutional privacy: public opacity with selective disclosure, but have yet to be pressure-tested in real-world circumstances, raising questions about who can request disclosure, under what conditions, and with what safeguards.

Conclusion

Digital assets, Bitcoin included, do not need another wrapper. They need the infrastructure around them to operate onchain without compromising the two things institutions care about most: confidentiality today and durability tomorrow.

strkBTC addresses confidentiality by giving BTC a private, selectively disclosable route into DeFi. Starknet’s existing architecture and roadmap target durability: its proof layer already avoids the elliptic-curve assumptions that create post-quantum migration debt for others, and its roadmap now extends that advantage across the remaining surfaces, with the stated goal of making Starknet post-quantum secure before “Q-day”.

While the result is still early, the direction is clear: onchain finance’s next institutional phase will require more than yield. It will need privacy, compliance, programmability, and durability all in the same stack.

Every week for the last 3 years, we have shared our research for free, directly in your email. Not a subscriber yet? Let’s fix it:

Disclaimer: This article was produced in collaboration with Starknet. Castle Labs applies the same standard to commissioned research as our independent research. We strive to be accurate, unbiased, and educational. Commissioned partnerships provide resourcing and distribution, not editorial control.

This article is an excerpt from our research on The Renaissance of Onchain Options, mapping the expansion of options (and prediction markets) as a trading instrument and the volatility that prices them, published in collaboration with BlockScholes.

Download the complete report here.

Prediction Markets (PMs) closely resemble traditional binary options.

In binary options, users choose either a call (buy) or a put (sell), predicting whether the asset’s price will be higher or lower than the strike price at expiration. This is the same mechanism on which PMs function. These are simpler instruments than the options because a trader is essentially betting on the asset’s price and whether it will be above or below a certain level.

Prediction markets take the traditional binary options one step further by introducing ultra-short-expiration markets, with times as short as 300 seconds. Additionally, the rules are simple: either the value of your “Yes” or “No” share approaches $1 or $0.

These markets have attracted significant attention and are today major contributors to trading volume on platforms like Polymarket and Kalshi.

Moreover, PMs as a whole are growing at an enormous rate and have consistently driven monthly volumes exceeding $30 billion over the past two months. Last month (i.e., June 2026), it even surpassed $45 billion, given the World Cup-related trades on the platform.

In this section, we highlight the protocols driving this growth, how they function, how they compare in terms of the volumes they handle, the infrastructure supporting them, and how these platforms are evolving to replace traditional instruments to some extent.

We also went live with different builders to discuss the options market, including guests from Kalshi, Rysk, and GammaSwap.

Standalone prediction-market venues

Polymarket

Polymarket’s settlement infrastructure runs on Polygon PoS and utilises Gnosis’s Conditional Token Framework to create a binary outcome contract. For liquidity, the platform relies on a hybrid CLOB-based model, and users (market makers) are incentivised to provide liquidity.

Resolution path is an important factor for any PM: Polymarket sources its event resolution from the combination of UMA’s Optimistic Oracle and Chainlink for crypto price markets.

Regulatory alignment remains pivotal for expanding into multiple regions: In 2022, the platform received a CFTC order and was unable to provide access to U.S. customers. To reclaim this market, the platform acquired QCEX (a CFTC-licensed DCM) in 2025 to reenter the U.S. market. They are currently slowly rolling out Polymarket U.S.

The platforms’ monthly volume now exceeds $10 billion, primarily driven by categories such as crypto, sports, and politics.

PMs’ crypto markets attract a ton of volume, as they offer a simpler design and appeal to audiences interested in trading binary options with ultra-low expiry time. Users can buy a simple “Yes” or “No” contract on whether the price of an asset like BTC will be above or below a certain number after 5 minutes, 15 minutes, 1 hour, and so on.

These markets are created automatically after the designated market period and are also referred to as “digital binary options” because of the fixed expiration time and binary payout structure, which settles at either $0 or $1.

Regarding options-related markets, Polymarket also went live with Volmex Volatility Index markets, which track the IV of crypto assets such as Bitcoin. However, these markets failed to attract much volume because there is a steeper learning curve to trade in such markets.

This makes the case for how PMs find PMF as a seamless instrument, abstracting the complexity of outcome events and gaining volume in simpler categories that require users to choose between two options, rather than in multi-outcome events that add complexity. Additionally, it highlights the divergence in audience between traditional derivative trading platforms and PMs, as the latter’s market structure is easier to understand and has a low barrier to entry.

Kalshi

Kalshi commands over 65% of the volume in prediction markets and has slowly outpaced its competitor, Polymarket. At one point, both platforms were trading at similar valuations, but now Kalshi is eyeing $40 billion, while Polymarket is targeting $15 billion for its next round. The gap between them widened primarily due to Kalshi’s regulated approach, its dominance in the U.S., and its collaboration with platforms like Robinhood.

Similar to Polymarket, Kalshi also offers 5-minute and 15-minute crypto markets, making it more tied to binary options. Their liquidity sourcing model is also similar, based on a CLOB, while Kalshi has ties with institutional market makers.

Additionally, both Polymarket and Kalshi are launching their perps platform. Kalshi recently went live with it, becoming the first federally regulated perpetual futures trading platform in the U.S. It is currently making its way into the category and has reached daily perps volume of $1 billion, with OI growing steadily as well.

Limitless

While most of the volume is driven by top products like Polymarket and Kalshi, a few products, such as Limitless, are also making their space in the category. They are one of the few products with a live token and have recently expanded their offerings through user-generated markets (UGMs), which enable users to create financial markets in a permissionless manner.

Structurally, Limitless is similar to Polymarket and Kalshi and offers comparable offerings, but their recent expansion into UGMs for crypto positions them differently. If UGMs can scale, they can become a custom binary option-like hedge instrument, where users can choose the price at expiry rather than have it set by the platform. Once they introduce other asset classes, such as stocks and commodities, the use cases could grow. This asset class expansion also applies to other PMs.

Predict.fun

Predict.fun offers a unique twist on PMs, allowing users to earn lending yields while their positions are active. These yields come from their integration with Venus Protocol on the BNB chain; the collateral deposited to purchase the contracts is deployed in the lending protocol to earn base stablecoin yields (3-5%).

This feature is something only onchain prediction markets can enable. Suppose a user has an active hedged position on such a platform, and while they are hedging, they could also earn yield, which could effectively contribute to the overall position PnL.

Deepbook Predict

Deepbook Predict is currently in whitelist mode and is developing on Sui. It is part of the expanding Deepbook Stack, which includes Spot and Margin products. Predict is where binary markets live, and because it is composable with other Deepbook products, a Predict position can be leveraged or used as collateral, making it a distinct offering from incumbents like Polymarket and Kalshi, whose positions have no additional utility.

Liquidity in these markets is sourced from LPs who deposit their assets in a shared vault, which is used to take the opposite side of traders. Depositors receive a PLP token receipt and earn interest from fees or from traders who lose bets. What sets Deepbook apart is its oracle infrastructure, as its binary outcome products reference Block Scholes, which prices binaries from a full implied-volatility (IV) surface.

PM, as a category, is consistently expanding, with newer products taking different approaches, such as offering UGMs, robust resolution infrastructure, and improved capital efficiency.

In the section that follows, we cover newer offerings that take a whole different approach to prediction markets by embedding them in their existing products.

Embedded prediction-market primitives

HIP-4 went live in May 2026 and has amassed over $250 million in volume so far.

Hyperliquid’s offering is structurally different from others because it is already a well-established perpetual exchange doing billions in daily trading volume. Under the same margin account used on the perp exchange, users could access the binary outcomes offered through HIP-4, which has provided a good distribution flow from Day 1, making Hyperliquid a strong competitor to existing incumbents. Additionally, users gain exposure to options-style payoffs and hedges alongside their existing perpetual positions, enabling different strategies.

To launch these markets, deployers need to stake 1M HYPE (~$60 million), thereby providing a sufficient barrier to entry and maintaining market quality. Currently, markets are covering Crypto, Sports, and Economics.

Additionally, Hyperliquid is the cheaper venue for trading smaller-sized positions (due to less liquidity currently). It charges fees only at closing or settlement, not at opening; the fees are 7 bps for taker and 4 bps for maker.

In the next section, we compare binary options providers, evaluating their trading volume, spreads, and performance over the last 1 week to determine which platforms currently lead in the binary options market.

Comparing Binary Options Providers

In this section, we compare the top providers for binary outcomes, including Kalshi, Polymarket, and Hyperliquid, based on the volume and spread of the BTC 1-day expiry markets they list, using data from the past 1 week (2026-06-22 to 2026-06-28).

The goal of this analysis is to quantify the quality of these different trading venues for binary-outcome markets, map the performance of a common offering (the BTC 1-day market), and assess how newer participants like Hyperliquid are catching up.

Data Methodology

All these venues share a similar goal with this offering: a binary “above/below a fixed BTC price” market expiring in 24 hours, but they differ significantly in practice.

For BTC specifically, Hyperliquid lists exactly one 1-day binary market per day (its HIP-4 outcome markets also list many non-crypto markets mainly around economics and sports). Polymarket and Kalshi (KXBTCD) both list a ladder of multiple markets within these 1-day markets at different strike prices.

To perform this research, we mainly compare:

1. Volume: Cumulative volume summed across each venue’s entire strike ladder within our data window.

2. Spread: The gap between the best bid and ask at each day’s highest-volume (deepest market in the ladder for Polymarket and Kalshi) strike. Each platform’s spread is calculated differently: Hyperliquid’s spread is the mean of orderbook snapshots sampled a few times throughout the day; Kalshi’s spread is the mean bid-ask gap from 1-minute candlesticks in the hour before close; Polymarket’s spreads are fetched from reconstructed historical trade execution prices.

We source this data from multiple sources: for Hyperliquid, we use the 0xarchive API; for Polymarket and Kalshi, we use their public REST APIs (Polymarket’s Gamma/CLOB/Data APIs and Kalshi Trade API).

The Analysis

Within the observed window, Kalshi’s volume for the BTC 1-day binary market is the highest, averaging $4.24 million, compared to Polymarket at $2.76 million and Hyperliquid at $400k. This reflects only the BTC 1-day binary specifically; this ranking might vary across different categories.

Spreads, on the other hand, have a different trajectory. Hyperliquid, the lowest-volume venue, also had the widest and most volatile quoted spread (50-587 bps, spiking near settlement on one day); Kalshi held a steadier 107-154 bps band despite having the highest volume. Polymarket’s reconstructed spread (5.8-19.8 bps) is the tightest of the three despite lower volume than Kalshi.

Note on Polymarket Spread: Polymarket’s spread is estimated from actual trades rather than read directly from a live order book, which can make it appear artificially tight. The reason: once BTC moves clearly above or below the strike, the outcome becomes near-certain, the YES or NO token converges toward $1 or $0, making the spread we reconstruct from trades at that point compress toward zero. In a one-day market, this phase often dominates in our data, making the median reconstructed spread for Polymarket 0 bps on almost every day, even if the mean isn’t. Additionally, there may be other reasons why Polymarket’s spreads appear tighter, including market-maker incentives or automated trading activity, but we haven’t examined these in this research.

Comparing protocol offerings by age makes the distinctions in volume and spread concrete, as Polymarket and Kalshi have offered binary markets longer than Hyperliquid; both platforms’ volume and spreads are generally better due to already-developed liquidity for this market type.

Over the duration of the analysis, the 1-day BTC market has accounted for $29.6 million, $19.3 million, and $2.8 million in volume for Kalshi, Polymarket, and Hyperliquid, respectively.

Resolution and Oracle Infrastructure

A prediction market, or a binary outcome, is as good as its market-resolution mechanism. There are several different oracle mechanisms, but they can be broadly divided into three categories:

1. Decentralised Oracles: Polymarket uses a UMA Optimistic oracle and follows a propose-then-dispute model. Market participants can dispute any decision made by UMA voters within 48 hours of the proposal; if it passes the voting process again, it is accepted. But this model has flaws that have surfaced multiple times because UMA voting power is highly concentrated among a few whales, who try to steer the market for their own profit, as seen in recent instances such as the Strategy BTC Sale Market.

2. Centralised Oracles: These oracles are labelled centralised and used by platforms such as Kalshi and Limitless, which have internal teams that make market decisions. It has so far proven better than decentralised Oracles like UMA, as Kalshi hasn’t had any major reported instances of people losing money due to a poor resolution mechanism like UMA.

3. Automated Oracles: These include Chainlink and Pyth, which provide crypto price data to DeFi platforms. They are used by almost every platform that offers automated crypto markets. They don’t introduce any problems, usually because they simply report the asset’s actual price, which is often verified by validators. Apart from them, BlockScholes is another contender on the list, which, in addition to the spot price, also streams a full volatility surface, allowing the protocol to continuously compute the fair value of binary outcomes.

There are a few unique resolution models as well, such as the one used by XO Market, a permissionless prediction market. They have a three-layer resolution system. The first is the AI-first path through MODRA (Market Outcome and Dispute Resolution Agent), which uses AI to autonomously resolve clear-cut cases quickly. After that comes the Senate court and a Supreme Court appeal, which require human review. It has traded over $250 million so far, enabling 2800+ markets and 30,000+ trades.

Apart from this, protocols like Augur are also working on the resolution infrastructure as part of their updated roadmap under the Lituus Foundation. In their new resolution engine, participants commit their own capital in support of an outcome. Every time a dispute occurs, the commitments increase, making it progressively more expensive to sustain a dishonest position.

While there has been great work in this category, the top protocols still face challenges due to the oracles they utilise; only once they move to better oracles or improve the current ones could the category improve.

Additionally, in the context of the report, for automated crypto markets that correlate with binary options, providers like Chainlink and Pyth are used to minimise resolution risk.

Closing Thoughts

PMs in the last 18 months have grown from a ~$2 billion/month category to a ~$30 billion/month category. The majority of this growth occurred after the 2024 U.S. elections, during which Polymarket posted odds more accurate than those implied by traditional polling methods.

Polymarket’s crypto volume grew rapidly after it launched 15-minute and 5-minute markets, during the period from Q4 2025 to Q1 2026. These markets are similar to binary options, as traders could simply buy a “Yes” or “No” contract priced between $0.01 and $0.99 and would know exactly how much they would win if the market resolved in the direction of their position. These markets ultimately gave rise to multiple strategies that sought to exploit their inefficiencies, whether by exploiting latency arbitrage between price movements and oracle updates or by securing equal market shares at a discount, bringing the total value to $1.

Additionally, as they grew, Polymarket introduced fees on these markets and slowly rolled them out to other categories as well. Nonetheless, these markets proved to be a great short-term expiry instrument for traders who are highly invested in them, as volumes continue to rise.

This growth is also aligned with the increasing contribution in options volume from 0-day expiry options (0DTE) and short-dated options. For option buyers in this category, PMs’ crypto markets offer even shorter expirations than traditional venues, making them attractive.

In terms of fees, PMs as a category generated over $300 million this month (i.e. June 2026), primarily led by Kalshi and Polymarket. For reference, this is almost double the fees of categories like Lending, making it attractive in terms of revenue as well.

PMs, as a category, have already moved towards mainstream adoption. With offerings like binary options on various crypto assets, they are also close to the traditional options market.

As they grow, the gap between traditional venues and PMs is expected to close due to simpler design choices by these platforms and good UX.

This article is an excerpt from our research on The Renaissance of Onchain Options, mapping the expansion of options (and prediction markets) as a trading instrument and the volatility that prices them, published in collaboration with BlockScholes

Download the complete report here.

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Link to the report: https://docsend.com/v/sjv2g/verticalisation-of-blockchain-revenue

Table of Contents:

Crypto has spent years using blockchain activity metrics as benchmarks for success: TVL, trading volume, users, transactions, and active addresses.

The more important question that is fast becoming consensus this cycle is whether these businesses are sustainable, whether activity turns into actual revenue, and who gets to keep it.

That is the focus of this weekly Chronicle:

• Maple’s new rules-based buybacks

• Uniswap’s fee switch for v4 pools

• Sky’s strong revenue numbers but complex accounts

• Theo adding Fidelity’s FILQ inside thBILL

• OndoPerps turning tokenised equities into collateral

Revenue is not enough on its own: it needs a clear route of value accrual.

Does it go to tokenholders, stakers, LPs, reserves? Or does it get captured somewhere else in the stack before holders ever see it?

We are revisiting a similar question in our Castle x Kaiko report later this week: how blockchains make money. It’s quickly becoming clear that, despite raising vast amounts of capital and commanding huge valuations, very few are running sustainable, profitable businesses.

Maple’s Revenue-Linked Buybacks

Maple has been a great success story in crypto recently, offering professionally managed, permissioned, and secure lending for sophisticated allocators. They just closed out a record H1 with $4.6B in AUM (+81% YoY) and $4.4M in Q2 revenue (+47% YoY), while their business grew 22% even as DeFi lending contracted 31%.

That was swiftly followed by a strong start to Q3 with the launch of syrupUSDG, Maple’s first new Syrup asset in two years. syrupUSDG brings Maple’s onchain credit engine to Global Dollar (USDG) and Robinhood Chain, giving holders exposure to Maple-originated lending strategies

syrupUSDG can sit inside Robinhood Earn, which offers up to 7% APY. This APY packages Robinhood’s distribution, Morpho’s vault infrastructure, Steakhouse Financial’s curation, and Maple’s institutional credit as the yield source.

So how do SYRUP holders benefit from all of this?

Recently, Maple implemented discretionary buybacks (MIP-019), but is now set to replace them with a rules-based framework (MIP-021). This will scale the proportion of buybacks directly with the gross monthly revenue:

• Below $1.5M: 10% allocated to SYRUP buybacks

• From $1.5M to $2.0M: 20% allocated to buybacks

• Above $2.0M: 30% allocated to buybacks

Buybacks occur at the end of each month once revenue is finalised, with purchased SYRUP allocated to the SYRUP Strategic Fund (SSF), which Maple defines as working capital for strategic growth, token liquidity, capital reserves, and buybacks.

Most buybacks aim to distribute profits (dividends), retire shares (burn supply), or reduce float (lock-up supply). Maple’s route doesn’t really do any of these things, which makes it look more like a treasury management strategy.

This has been raised in the forums, with community members requesting that bought SYRUP be held in a public reserve address and treated as non-circulating, non-voting, and non-transferable unless a new governance proposal is raised. However, those safeguards do not appear to be included in the current proposal.

Therefore, the definition and use of this strategically reclaimed SYRUP remain up in the air, which may well impact public perception of this buyback framework, leading to it being viewed more as a treasury management play and less as any real value accrual for SYRUP holders.

Follow the snapshot vote here.

Uniswap Brings Fees To v4

Yesterday, Hayden from Uniswap shared that the protocol is now raking in over $5 million in daily fees, second only to USDT and USDC.

Most of this revenue increase is deriving from the launch of Robinhood Chain. However, while very much welcome, these stats are neither annualised nor expected to last long. In fact, we expect Robinhood to internalise these fees as soon as possible.

In recent years, there has been considerable debate about the utility of UNI, its revenues, and fee distribution.

Finally, Uniswap has activated protocol fees on V4 as well.

The previous fee switch activation on V2/V3 led many LPs to move to V4 as an incentive to encourage capital migration. How will this change affect LPs now? Will it improve capital efficiency for Uniswap as a whole, helping deprecate V2 and V3 in favour of V4?

Due to its architecture, V4 requires a more flexible and customisable approach to the fee switch. This is mainly due to the Hook architecture and dynamic fees, which can create multiple fee tiers.

As a consequence, governance rules in V4 will be defined by a “fee controller system”, a practical way to ensure governance can set rules for different “pool families” (V4FeePolicy) while still retaining enough flexibility to override or adjust these policies in time (V4FeeAdapter).

The question remains: how will this change affect LPs?

The previous fee switch on V2 and V3 resulted in a 25% cut for LPs, prompting them to move to V4.

Now that V4 fees are activated, will Uniswap manage to retain LPs or will they move to other fee-less trading venues?

These concerns have been expressed by governance participants.

A proposed solution is to conditionally enable the fee switch for V4. That is, only if LPs are profitable.

A user proposes as follows: “If a pool’s implied volatility is consistently above realised volatility, then governance can take a cut without breaking the LP trade.

Instead, if RV > IV, then LPs are already undercompensated. Taking 25% of their fees does not monetise the protocol. It pushes LPs further into negative EV”

We will monitor flows from V4 closely to answer this question.

Fees from V4 will be used for LP rewards/buyback allocations, with a split closer to a 5-25% / 75%-95%. Here is how this compares to the Hyperliquid buybacks:

To date, Uniswap has already burned over 6 million UNI tokens.

More stats on UNI burns are available here.

Something else worth mentioning is the impact of these buybacks and the overall revenues and fees for token holders.

Projects distribute these very differently.

Stay tuned as we are writing a report on this.

Sky Posts Record Revenue

June was a record month for Sky! In case you missed it:

• Record revenue run-rates of $419M

• USDS yield distributions exceed $250M

• Sustained growth in Sky Reserves

• Increased activity across the Sky Agent Network.

No doubt Sky is generating revenue, building new products, and pushing more activity through Spark, Grove and the wider Prime Agent structure.

But what do these record numbers mean for SKY holders?

SKY does have an accrual mechanism. Protocol revenues from stability fees and Sky Agent performance are used to buy back SKY on the open market, with those tokens distributed to participants in the SKY Staking Engine. However, Sky is not a simple one-token, one-balance-sheet story. Prime Agents have their own roles, tokens, holders, and economics. For context, Prime Agents are specialist capital allocators inside the Sky ecosystem. Sky can fund or back them, they can owe money back to Sky, and their performance can feed into protocol profits. Those profits are then supposed to support the SKY buyback and staking reward mechanism.

That makes the token-holder question harder to answer cleanly. You can look at protocol revenue, cost of revenue, reserves, staking rewards and token-holder income. But once Prime Agents sit around the core protocol, the balance sheet becomes harder to read. Some value may accrue to SKY. Some may sit with agents. Some may flow through sUSDS or Ecosystem Rewards. Some may accrue to SPK, GROVE or future agent tokens.

PaperImperium wrote a useful thread this week on exactly this, arguing that Sky’s financials are hard to interpret because Prime Agents are not treated consistently across the accounts. If determining what a token holder has a claim to is too complicated, the value proposition itself can be undermined.

OndoPerps Launches with Tokenised Stocks as Collateral

Ondo just launched OndoPerps, its perpetual offering for trading equity perps with up to 20x leverage.

This complements Ondo’s spot equities offering and allows it to compete with venues such as Tradexyz, which has captured most of the perpetual open interest in RWAs.

The listed markets include commodities such as oil, gold, silver, stocks like Apple, Tesla, Nvidia, Microsoft, Amazon, Alphabet, Meta, Netflix, Intel, AMD, Oracle, Micron, Palantir, SpaceX, Strategy, Coinbase, Circle, Robinhood, and indices such as the US100 and US500.

The particularity of this launch is that it complements Ondo’s existing offering, allowing tokenised stocks to serve as collateral for 24/7 perpetual exposure to commodities, equities, or indices. This is the key differentiator that sets Hyperliquid apart from other trading platforms: a unified margin across all products, enabling a broader range of strategies, including hedging, delta-neutral, and more.

Now Ondo spot equity holders will be able to use these as collateral and hedge or leverage their current exposure.

The perps market still has a long way to go, and we can expect RWA perp trading to become one of the fastest-growing areas in the near future. The trend is clear.

In the backend, liquidity is ensured by a combination of institutional market makers and user flows.

If you already hold Ondo spot equities and want to try Ondo Perps, there’s over $175k in USDC rewards available in the first week (this is not a sponsored post for Ondo).

Tokenised Funds are Moving From Issuance To Utility

For the last two years, the RWA market has mostly measured progress by what got issued onchain.

Another fund tokenised, another asset manager onboarded, another chain supported.

The next phase is about what those assets are used for.

That is why today we’re sitting down with Theo to discuss their FILQ integration.

Theo invested $20M into Fidelity International’s tokenised USD digital liquidity fund (FILQ) through Sygnum, adding FILQ as a second institutional underlying asset within their existing product, thBILL.

Whilst direct holding is the familiar starting point, once a fund is onchain, the more interesting question is where else it can sit: inside a stablecoin, a Treasury product, a collateral system, a lending market, a vault, or a settlement workflow.

“Most investors don’t want a money-market fund. They want the yield, in a form they can actually use.”

Evan, GTM & Chief of Staff at Theo, said, “holding the fund directly gets you the return and nothing else. Wrapping it into a composable product lets the same dollar earn and move at once... The tokenised fund makes it institutional-grade. The onchain product makes it useful.”

thBILL already had exposure to Wellington’s tokenised Treasury fund. The addition of FILQ now brings Fidelity International as a second institutional manager. That gives thBILL a broader base, but it also shows that the structure can add new managers without rebuilding the whole product each time.

If tokenised funds remain standalone wrappers, the market will simply compete on issuer brand, AUM, and chain support. However, if they become inputs for more customisable onchain products, competition moves to what additional value can be built around them.

Fidelity International’s own framing follows a similar line. Emma Pecenicic, Head of Digital Assets Distribution at Fidelity International, said the firm sees tokenisation as “a foundational shift in how global financial markets will function,” and that combining investment expertise with digital-native infrastructure can bring “regulated, institutional-grade liquidity onchain for markets that operate around the clock.”

So what is this shift we are expecting?

Theo’s view is that “direct holding is the first step because it’s the familiar one. It maps to how funds work today. But the value of putting an asset onchain is what you can do with it next: use it as collateral, route it into strategies, settle against it instantly.”

The target destination for these assets is clearly utility.

Can they sit inside a Treasury product? Can they back a stablecoin? Can they be used as collateral? Can they move through lending markets, vaults, or structured products without being a compliance headache?

The addition of FILQ inside thBILL is a small but useful example of that shift. The fund is not the final product. It is a balance-sheet item for Theo, strengthening their product and readying it for growth and expansion into places Fidelity cannot easily reach.

The next wave of tokenised fund adoption will be driven less by direct holders of these institutional assets, and more by their embedded use in onchain products.

On Our Radar

• Circle and agent payments: Jeremy Allaire has published an essay on Circle’s Agent Stack, stating that if agents take on more of the firm’s work and value moves natively across programmable networks, the agentic and onchain economies begin to overlap. What should be watched is whether this becomes real payment flow. Do agents actually hold balances, pay for services, rebalance wallets, settle invoices or trigger transactions in USDC? Do developers build around Circle’s stack rather than generic wallets and APIs?

• Castle x Kaiko revenue report: We are publishing with Kaiko later this week on the changing business of running a blockchain. Chains used to rely mostly on blockspace fees, but they are now forced to diversify into other vertical revenue streams, MEV, sequencer economics, app capture, and making sure they are positioned to capture value where it actually accrues.

• Robinhood Chain durability: Robinhood Chain’s first week has caused quite the disruption in the onchain landscape. We flagged it as the fifth-largest chain by 24h DEX volume shortly after launch, with more than $370M in daily volume and $1.35B cumulative volume, mostly driven by CASHCAT. It later rose to second in 24h DEX volume, only behind Solana. Whilst Robinhood has everything set up to be a serious consumer distribution channel for onchain finance, they are leaning into the meme world and, as a result, are seeing great early metrics on their chain. We’ll be watching how these two worlds find better equilibrium over the coming months.

• SEC public-market access roundtable for IPOs: Clearly, crypto is having an impact on traditional finance markets, with several large tradex trading platforms opening their doors to 2,747 trading more and more assets being tokenised, and even IPOs coming onchain. Now, here, the SEC is hosting a virtual roundtable on modernising IPOs and expanding their access to public markets.

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In our newsletter, we may discuss projects or tokens in which we hold positions. While we aim to provide informative content, our views are not financial advice. Please conduct your research and consult professionals before making investment decisions. Crypto markets are volatile, and past performance doesn’t guarantee future results. Invest responsibly, and be aware of the risks. Your capital is at risk, and we do not accept liability for any losses.

The growth of RWAs has led to over $32 billion of assets flowing onchain.

Most of these are low-risk assets such as T-bills, and increasingly other asset classes such as equities.

The leading commodity onchain is gold. With over $4.9 billion in value tokenised, it has paved the way for tokenisation, given its unique profile as a store of value.

However, most onchain products are limited: they allow users to purchase spot gold, with little follow-up on how to ensure this gold is used productively onchain.

This results in inefficiencies that could affect the value and utility of onchain products relative to their Traditional Finance (TradFi) alternatives.

This article focuses on what we believe is the next wave of RWA adoption, with a focus on making these assets yield-generating.

As part of this, we use Enhanced as a case study and focus on its upcoming Gold Volatility Income Vault, which uses PAXG. It is the first of Enhanced “Thesis Vaults”, where users can express defined outcomes and payoffs using options (and more binary instruments in the future). This specific vault is designed using covered call options, a category that has often been underrepresented but offers unique advantages for its purpose, as it allows both yield-generating strategies and hedging, as a step towards creating yields on typically non-income-generating RWAs such as gold.

The development of the onchain RWA ecosystem has just started.

Are vaults using options the big unlock to make RWAs productive?

Let’s dive into it, starting with the opportunity to make gold productive.

Making Gold Productive

Gold is a $30 trillion asset class and the first commodity to have opened the route to onchain tokenisation, as we mentioned in our previous research report. However, while there is over $4.9 billion of gold onchain, the overwhelming majority of this capital is still sitting idle and does not generate yield.

The emergence of Traditional Finance (TradFi) products, such as covered call ETFs, has enabled many to leverage options to generate premium income or hedge their gold holdings.

Nonetheless, these products feature the usual trade-offs of being TradFi products, such as limited accessibility, high expense ratios, management fees, brokerage fees, KYC and custody requirements. For instance, GLDI, the most established gold covered call ETF (a similar strategy used by Enhanced) charged a 0.65% expense ratio, deducted before any yield accrues to investors.

This is why Enhanced decided to focus on gold. Onchain gold solutions exist, but are currently limited: most are spot-based and do not offer any yield.

Furthermore, gold is the largest asset onchain by market capitalisation and also benefits from a historical period where:

• The price of gold reached an all-time high in April 2026

• More investors are trying to get gold exposure due to its role as a store of value

• Geopolitical and macroeconomic volatility has been at an all-time high in recent years

This makes it a perfect candidate for covered calls: it provides strong premiums while exhibiting a rather measured, range-bound price action.

The attempt to make onchain gold a productive asset is the natural evolution of RWAs onchain: the first wave of growth focuses on pervasiveness and on broadening access to these assets. The next one, arguably more important to differentiate these assets from their offchain counterparts, is ensuring they are efficient and productive.

Vaults are a perfect way to package this.

Enhancing Yield

Enhanced is launched with a focus on bridging the gap between RWA assets and their onchain productivity.

It does so by recognising the unique profiles of each asset and of retail and institutional investors and by encapsulating these nuances within structured strategies that provide yield for RWAs.

For gold, they focus on thesis vaults using covered call options.

Leveraging Options

Options have always struggled to achieve broader onchain adoption compared to other primitives like perpetuals. This is often attributed to the complexity of option trading, which requires education and skill. Since not everyone might be familiar with them, we make sure to explain covered call options and how Enhanced uses them.

A covered call allows the optional sale of a share only if the share reaches the strike price at expiration. In exchange, the seller can receive a premium while continuing to hold the stock (or the commodity in the case of the first Enhanced vault).

Users leveraging covered calls have a rather neutral/slightly bullish view of the underlying assets: they expect minor movements and collect yield during the holding period. However, in some cases, covered calls might also be used as a hedge after an asset has grown steadily in price. Both these cases fit the profile of gold as an asset perfectly.

Covered call users are basically spot long, as they hold the asset, while having an option short position that generates a premium.

Covered calls provide a reliable premium, cushion losses, and also cap the potential upside. For this reason, they are better suited to less directional (e.g. moderately bullish), more passive investors.

The RFQ System

The PAXG vault’s underlying mechanism leverages a Request for Quotes (RFQ) system.

In the backend, the deposited asset gets auctioned in batches to the best bids(by top market makers) from RFQ system, and options are written onchain. Users then receive the premium upfront.

There is also a manual RFQ feature that is open to access and is expected to gradually attract more market makers, institutions and retail investors to ensure a fair premium on the options.

Anyone participating can sell covered calls directly against their holdings and define custom parameters for execution (e.g. strike, tenor, direction). In the future, the range of available instruments can be expanded to buying and selling options on any asset beyond gold, including any ERC-20.

Trades are signed by both parties, executed atomically and cannot be altered by the operators, ensuring fair quotes.

The RFQ system is appealing to any large treasury holding assets that need to be periodically rebalanced or have specific terms of sale, thereby helping to monetise the assets.

Enhanced targets the broader structured products market, as the RFQ system can be leveraged for asset classes beyond gold, thus ensuring future expansion.

The PAXG Volatility Income Vault

The first Thesis Vault launched by Enhanced will be the PAXG Volatility Income Vault.

It will focus on leveraging PAXG’s volatility to generate premiums for users.

The vault will leverage covered calls to allow users to earn an option premium on gold.

The vault will work as follows:

• It will subscribe to European-style options. They can only be exercised on the expiration date, meaning funds will be locked during epochs

• Users can deposit both PAXG and USDC (swapped to PAXG)

• The strike price is expected to be 103-107% out of the money (OTM), meaning the strike price is usually between 3-7% compared to the gold spot price, while dynamically adjusted to reflect market conditions

• Options epochs will be bi-weekly (14 days, 26 epochs a year)

• Charges a protocol fee of 0.019% on capital at the end of each epoch (0.5% annually)

To make this more practical, let’s see what it means for a user to deposit gold in the vault as well as what happens at expiration in different scenarios.

To make this concrete, we consider a user who deposits gold in the vault (which sells a covered call on it). When the option expires:

• If the price of gold is above the strike price, the option is settled, and users receive the value of the option they subscribed to, plus the premium in USDC. The cost of an In The Money (ITM) option is the forgone upside in the epoch. In this case, users forgo the potential upside beyond the strike price.

Let’s have a practical example with an initial gold price of $100 and a strike price of $105.

If, at the time of expiry, the price is $107, the option is exercised: users receive their upside and the premium up to the strike price (from $100 to $105), while they forgo the upside of the extra $2 from $105 to $107.

• If the price of gold is below the strike price, the call option expires worthless and is not exercised, and the user retains their gold holdings as well as the premium generated. Given its current strategy configuration, this is the targeted case and is expected to be the most common. The covered call does not protect against downside risk, but only provides a cushion through income. If gold fell in price, the vault would hold the same amount but be worth less in dollar terms.

The particularity of the Enhanced vault configuration is that it allows users to opt in to different settlement modes that dictate how premiums are distributed.

The default settlement option is the Compounding Mode, where every premium earned in USDC is automatically compounded, swapped into PAXG and added to the deposited funds in the next epoch. This is a classic auto-compounding position, better suited to long-term gold investors.

The optional mode is the Income Mode, where every premium in USDC is deposited into a separate balance that can be withdrawn at any time. This strategy is more suitable for users looking to accumulate and generate USDC income from their gold assets (similar to dividends), which is very appealing for those with large treasuries of idle assets.

Users can simply toggle between modes before any epoch starts.

Here is an example of how the two settlement modes perform differently, leveraging a strategy backtest on gold spot from Jan 2010 to April 2026:

The end-to-end workings of the vault are illustrated with a diagram:

The PAXG vault is not focused on maximising premiums. Rather, it focuses on a more conservative strategy: retaining its gold as much as possible by staying OTM while still generating premium income for users.

Food for Thought

Vaults are evolving from a single strategy to a multi-strategy range, set to cover the nuances of RWAs’ asset categories and investor profiles.

Making the assets that are now idle productive onchain is the number one priority for both yield providers and users holding these assets.

The Enhanced gold vault is a suitable example of how options and covered calls can provide additional income streams in the form of premiums for PAXG holders.

As one of the main issues with options was their complexity, in this setting, option working is abstracted in the background, making it seamless for users.

Through these products, investors can now earn yield on their gold, a massive step toward making onchain RWAs as productive as offchain alternatives, with benefits in accessibility, automation and configuration. A clear example of this is the two different types of settlements, which can be easily switched through a toggle.

Other benefits include transparent pricing and fees and the flexibility to deposit and withdraw at every epoch without strict lockups,

We expect this to be the starting point, as vaults have proven to be the most suited primitive for making onchain RWAs productive. Enhanced itself can leverage the RFQ for a broader range of assets, including stocks, and more - gold is just the first proof of concept.

More strategies and asset coverage will be fundamental to ensure significant capital allocation. Once the CLARITY Act is fully passed, friendly regulation will make it easier to bootstrap liquidity and AUM.

We will be watching these developments very closely.

written by @francescoweb3 ✍️

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Options just had one of their best quarters in years.

Quarterly premium volume is at an all-time high, and options-linked tokens are beginning to catch a bid. DRV is up 37% from its June lows, while SYN is up more than 10x in a month after Synapse pivoted into Hyperliquid options via Hypercall.

This comes at the same time as Paradex launched its options product, and as Lighter announced plans to expand into options this quarter, shortly after announcing a new Robinhood Chain instance that will be accessible directly through the Robinhood Wallet.

We have had mini options cycles before, and 2021-2023 left behind a graveyard of protocols that never found consistent demand.

So is this time actually different?

We asked four teams building in this market why onchain options never saw the adoption curve of perps, what’s changed this cycle, where the real bottlenecks still sit, who’s actually using these products, and what would count as genuine success moving forward.

• Dan, Co-founder of Rysk

• Guillaume, Founder and CEO of Panoptic

• Devin, Co-founder and COO of GammaSwap

• Sean Dawson, Head of Research at Derive

Each team approaches the market from different angles with their product: Rysk packages options into income products; Panoptic builds oracle-free perpetual options from AMM liquidity; GammaSwap is moving from AMM-native volatility into binary markets; and Derive runs a professional options exchange on its own L2. Their diagnoses, on the other hand, were nearly identical.

Dan got straight into the main gaps for options, saying onchain options spent years “copying the perp model,” which was a fatal mistake. Perps combine an entire market’s demand into a single book, while an options exchange splits it across a range of strikes and expiries, fragmenting liquidity into separate, thin markets.

Guillaume at Panoptic highlighted the market maker side. They “have to update hundreds of quotes after every price move, which is quite difficult to do on a blockchain,” he says, and the fragmentation causes traders to get trapped in their trades because the liquidity for deep in-the-money or out-of-the-money positions to exit is not there. Sean at Derive says the gap between options and perps boiled down to the fact that greeks, options boards and “nonlinearity is often overwhelming and turns people off options.”

When it comes to highlighting the key change that has resulted in a revival of onchain options, they all agree it’s yield. Through 2023 and 2024, the appeal of strategies that sold volatility was limited, as other strategies, such as the basis trade and double-digit yields on stablecoins, paid out with greater simplicity. Guillaume reckons it’s “quite difficult to achieve >5% yield nowadays without resorting to looping strategies,” with Sean framing volatility as “the last product left that is unfarmed,” suggesting the category still had a lot left in the tank after only recently being ‘discovered’ by onchain users.

Crypto is a volatile industry, and is likely to stay that way, so selling that volatility is a source of yield that will continue and has yet to become saturated onchain.

Where they diverge in their thinking is on what has been missing to enable onchain options to gain more traction, which explains why each has built a vastly different product.

For Rysk and GammaSwap, the gap is closest to the user. For Dan, specifically, it’s trust. People got burned by products they didn’t understand in the past, and we shouldn’t keep trying to hide the mechanics; instead, we should focus on making outcomes transparent before a user commits. In particular, this concerns the premium shown in the protocol and the RFQ system's final execution. “Options are not the product.” People don’t want an option; they want what the option does for them. Devin, at GammaSwap, agrees: “Complexity is the enemy. Simplicity trumps everything.” The rest will follow: “If the UX is strong and you have retail flow, market makers will inevitably come in.”

Guillaume sees the problem lower in the stack; rather than focusing on the interface or user education, he believes onchain options lack real demand and a greater range of collateral. The institutions he is targeting are not chasing 100x leverage. They need “a mature risk management layer” and “portfolio-wide margin,” in which deposits, assets, and options positions can be netted against each other rather than fully collateralised in isolation. That is also why he is focused on tokenised assets. If stocks, funds and RWAs move onchain, they will need hedging markets where those assets are issued.

Sean sits closer to the exchange view: liquidity has historically been the biggest blocker, because strikes and tenors fragment markets and widen spreads. Some of that has improved, especially as Derive found demand around HYPE options, but education remains a major gap. “Reading an options board for a newbie is impossible,” he says.

As expected, there are a multitude of gaps, with each builder’s perspective shaped by their own experiences building, but we do keep coming back to the same core themes: UX, demand, collateral, and education.

Each product has a separate core group of users. Rysk’s are holders earning income on what they already own, from individuals to treasuries, DAOs, and institutions. Panoptic has advanced users and market makers for now, but aims to widen that through its vaults. GammaSwap has historically been for sophisticated retail investors, but it wants to expand beyond crypto by offering non-crypto-correlated assets and a simpler interface. Derive was built for professionals but recently rose to prominence due to retail demand for HYPE options.

They also define success differently. Dan wants to see volatility yield widely referenced and quoted on terminals, alongside lending and staking. Guillaume wants funds and treasuries to use options to manage risk rather than retail chasing pure speculation. Sean wants onchain volume to increase to a level comparable to CEXs, the way Hyperliquid now stands next to Binance. Devin thinks options have already found PMF onchain through prediction markets, but nobody noticed, as they are binary options in all but name. He now wants to see substantial growth in fees across the sector.

The demand for options is growing. Traditional markets show this across both retail and institutional channels, while recent onchain traction suggests the same demand can emerge when the right strategy is paired with the right asset and presented to the right user, with HYPE options as a prime example.

The early iterations of option protocols focused on education, teaching users about the value of options. In the current forms, protocols are instead focusing on simplifying options and framing them in terms of their utility and what they can do, ideally reaching the point where users don’t even know they are using options in the back end, while fully understanding each outcome.

If this has interested you, make sure to check out our flagship report on The Renaissance of Onchain Options, published in collaboration with @BlockScholes.

You can find all our research published directly on our website at: https://castlelabs.io/research

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Welcome back to another edition.

This week we’ll be looking at:

• Onchain options, from the builders’ side: we sit down with those creating the options protocols of today to learn what’s being solved and what’s coming next

• Lighter’s horizontal bet: why LIT has repriced, and whether its horizontal approach can start to close the gap with Hyperliquid.

• Prediction markets under pressure: where real PMF is now running into regulatory, resolution and manipulation risk.

• SECZ and issuer-led tokenisation: Securitize’s own public stock is now onchain, but now they need to go even further.

• On our radar: Product updates from Variational, Spark, 1inch, Hyperliquid and Ondo.

Options from a Builder’s Perspective

Options just had one of their best quarters in years.

Quarterly premium volume is at an all-time high, and options-linked tokens are beginning to catch a bid. DRV is up 37% from its June lows, while SYN is up more than 10x in a month after Synapse pivoted into Hyperliquid options via Hypercall.

This comes at the same time as Paradex launched its options product, and as Lighter announced plans to expand into options this quarter, shortly after announcing a new Robinhood Chain instance that will be accessible directly through the Robinhood Wallet.

We have had mini options cycles before, and 2021-2023 left behind a graveyard of protocols that never found consistent demand.

So is this time actually different?

We asked four teams building in this market why onchain options never saw the adoption curve of perps, what’s changed this cycle, where the real bottlenecks still sit, who’s actually using these products, and what would count as genuine success moving forward.

Here were the main takeaways:

• The category spent too long trying to copy perps: Dan from Rysk argued that onchain options have often been framed as another exchange product, whereas users usually want a specific outcome: yield, protection, upside, income, or defined risk. His stance is: “options are not the product.” People don’t want an option; they want what the option does for them.

• Liquidity fragmentation is a real issue: Perps concentrate activity around one market, while options split it across strikes, expiries, calls, puts, collateral types and volatility assumptions. That not only makes options harder for traders, but also for the venues. Guillaume from Panoptic highlighted the problem: market makers are not maintaining a single price; they are maintaining a whole surface that changes every time spot, volatility, or time-to-expiry moves. That is hard enough offchain, but onchain, it becomes much more complex.

• The user still has to make too many decisions: Sean from Derive emphasised that most traders do not arrive wanting an “option”. They want to express a view on the market with the best risk/reward possible. If the product starts with an options UI, Greeks, expiries and strike selection, the audience is already narrow.

• Prediction markets may already be the mass-market options interface: Devin from GammaSwap describes them as “binary options that mimic a call or put spread,” but with the complexity stripped out. Ultimately, he agreed with Dan: “Complexity is the enemy. Simplicity trumps everything,” even though they are solving this by building different products.

As expected, there are a multitude of gaps, with each builder’s perspective shaped by their own experiences building, but we do keep coming back to the same core themes: UX, demand, collateral, and education.

The demand for options is growing. Traditional markets show this across both retail and institutional channels, while recent onchain traction suggests the same demand can emerge when the right strategy is paired with the right asset and presented to the right user, with HYPE options being a prime example of this

The early iterations of option protocols focused on education, teaching users about the value of options. In the current forms, protocols are instead focusing on simplifying options and framing them in terms of their utility and what they can do, ideally reaching the point where users don’t even know they are using options in the back end, while fully understanding each outcome.

If this has interested you, make sure to check out our flagship report on The Renaissance of Onchain Options, published in collaboration with Block Scholes.

Read it here: https://docsend.com/v/sjv2g/onchainoptions

The Risk within Prediction Markets

In our recent report, we argued that prediction markets are binary options in all but name. They are event contracts with a fixed payoff: a market resolves yes or no, and the position either pays out or expires worthless.

While that framing is a useful comparison, it is becoming a regulatory problem.

This week, the European Securities and Markets Authority (ESMA) released a statement reminding firms of their obligation to assess whether newly offered products fall within the scope of existing intervention measures on binary options.

If prediction markets are treated as financial instruments, the authorities state that they are derivatives and, due to their binary payoff, may be prohibited from marketing, distribution, or sale to retail clients; in some member states, they may also fall under national gambling rules.

Prediction markets haven’t had the greatest public opinion of late, so they aren’t exactly helping themselves.

Here are two of the main areas of contention recently:

• Resolution risk: Polymarket’s UMA-based dispute process is consistently in the news. The most recent example is the Strategy BTC sale market, where more than $85M in volume was tied up over whether Strategy had sold BTC by May 31. Strategy’s filing said it sold 32 BTC between May 26 and May 31, but the market resolved No after UMA voters backed the outcome with 98.6% of voting power, citing the sale not being publicly confirmed within the market window.

• Data manipulation risk: Prediction markets also create incentives to manipulate the underlying data source, not just trade the event. Last week was another example, where Spotify removed more than 500,000 artificial streams from Malcolm Todd’s Earrings after the song’s rise to No. 1 was tied to bets on Kalshi. The market attracted around $3M in trading volume and had already settled before the fake streams were removed.

As PMs continue to grow adoption, their product-market-fit comes with increasing public scrutiny and the risk of regulatory intervention. Prediction markets have given retail a simpler way to speculate on events, but the same simplicity, along with their mass marketing, has made them a target.

This is definitely a regulatory space to watch, especially in the EU where we can expect heavier intervention.

If you are interested in prediction markets, we published an article last week looking at open and permissionless prediction markets. In this report, we trace their permissionless evolution, examine why permissionless curation failed in the first place and why permissioned curation won, and look at how current products are trying to restore the permissionless nature of PMs.

Read it here: https://castlelabs.io/research/prediction-markets-from-curated-platforms

Lighter’s Horizontal Bet

LIT has risen more than 80% over the last 30 days.

Their recent uptick is due to two major announcements:

The first was a tokenomics update. On June 30, Lighter announced that all repurchased LIT from revenue would now be burned, equating to 15.5M LIT, or roughly 6.3% of supply. The protocol is also targeting a 6% staking yield, which at the current staking TVL of ~125M tokens would distribute roughly 7.5M LIT.

The second was distribution. The newly launched Robinhood Wallet will offer perpetual trading with USDG as the quote asset through a Lighter instance deployed on Robinhood Chain. This gives Lighter access to one of the largest retail trading brands without needing to convert every new user through its own frontend.

This is one of the first signs of a strategic difference between Lighter and Hyperliquid. Hyperliquid is pursuing vertical integration: one chain, one execution engine, and one native liquidity environment via HyperCore, which distributors can tap into. Lighter is now taking a more horizontal route, deploying separate instances and trying to meet liquidity where distribution already exists. Whilst this will fragment liquidity and likely require new incentives to bootstrap this instance, it could well suit platforms and brands that want to ensure a separated and contained system.

LIT currently trades around a $650M market cap against roughly $72M in annualised revenue, giving it a P/S ratio of about 9.0x. HYPE, on the other hand, trades around $15.6B against roughly $830M in annualised revenue, or about 18.8x P/S.

Lighter is still much smaller and less proven, but the market is starting to price the possibility that this new approach could close part of the gap. For the first time this year, Lighter has posted a MoM revenue growth figure higher than Hyperliquid’s, at 34%, following consistent negative MoM growth early in the year.

The question now is whether this increase in valuation can be matched by increased activity and sustained revenue growth under this new distribution partnership, and in any other instances they may be cooking in the background

Securitize (SECZ) Opens as Largest Tokenised Stock

The same day Securitize listed on the New York Stock Exchange under SECZ, eligible U.S. investors were able to access a tokenised version of the same common stock through Securitize’s regulated platform.

For Securitize, this is a great marketing campaign. The company’s entire business is issuing tokenised products and running the infrastructure that supports them. By tokenising its own public stock at listing, it is using itself as the case study.

Securitize is a regulated tokenisation platform, transfer agent and infrastructure provider for tokenised securities. Its wider platform already supports roughly $3.5B+ in onchain market cap across a range of products.

SECZ has quickly become the largest tokenised stock by onchain market cap, at roughly $239M. Although access remains permissioned, only for eligible US investors, and subject to onboarding, KYC/AML checks, jurisdictional eligibility, etc.

Securitize now needs to go one step further.

It has shown that a public stock can be tokenised in a way that stays closely aligned with the offchain share. The harder part is proving that the tokenised version has a reason to exist. SECZ needs to become more than Securitize’s flagship stock issuance. It needs to become a working example of what tokenised equities can do differently:

• be useful beyond holding

• be accepted as collateral

• support faster settlement or transfer workflows

• expand access across jurisdictions where compliant

• develop secondary liquidity or credit markets

That is what would turn SECZ from a strong marketing case study into a real shining example for RWAs, and Securitize is perfectly positioned to do it.

On Our Radar

• Variational’s Swaps product: Variational introduced Swaps, a new market type designed to bring more TradFi assets onchain with tighter spreads, larger OI limits and near-flat carry costs. The markets will initially mirror traditional market hours, with 24/7 trading planned later. This is one of the more interesting RWA trading updates because Variational is not just trying to add more synthetic markets; it is trying to solve the underlying liquidity problem. To see the model succeed, it needs to deliver better execution than normal crypto-native liquidity can.

• Spark’s stablecoin infrastructure role: Spark’s June update included BitGo institutional wallet access and the launch of its FX Layer on Uniswap v4, which we covered last week, opening with a $150M allocation and processing more than $70M in its first three days. It is also part of Robinhood Chain’s yield stack through spUSDG. We are now seeing Spark expand from a simple standalone yield product into new products and ecosystems.

• 1inch packages RWA routing: 1inch Business is now offering tokenised RWA and stock routing as a single API integration, bundling compliance filters, pricing feeds and liquidity access. Most wallets and fintechs will not want to build issuer relationships, compliance screens, pricing feeds and routing from scratch. So if tokenised equities become widely distributed, much of the value may reside in the routing layer rather than in the asset wrapper itself.

• Hyperliquid’s VALR integration: VALR, Africa’s largest crypto exchange by trading volume, is using Hyperliquid as the onchain infrastructure layer to bring perps to its users. This is the first centralised exchange to do so with the Hyperliquid stack and serves as a useful counterargument to Lighter’s horizontal model, which spins up separate instances for more traditional clients.

• Ondo’s execution-quality argument: Ondo compared weekend execution costs for tokenised CRCL, claiming a $100K trade cost $25.55 on Ondo Global Markets versus $1,168 elsewhere. It’s clear that tokenised stocks will not win only by existing onchain. They need to prove they can offer better access, settlement, liquidity, and execution than the offchain version.

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In our newsletter, we may discuss projects or tokens in which we hold positions. While we aim to provide informative content, our views are not financial advice. Please conduct your research and consult professionals before making investment decisions. Crypto markets are volatile, and past performance doesn’t guarantee future results. Invest responsibly, and be aware of the risks. Your capital is at risk, and we do not accept liability for any losses.

This article is an excerpt from our research on The Renaissance of Onchain Options, mapping the expansion of options (and prediction markets) as a trading instrument and the volatility that prices them, published in collaboration with Block Scholes.

Download the complete report here.

Options in Financial Markets

Most people don’t realise they’ve been trading options their whole lives.

If you’ve bought insurance, you’ve paid a premium for a conditional payout in the future. This is a put because you are protected against a drop in the value of whatever you insured. If you’ve taken out a mortgage, you hold the right to refinance early. This is a call because you hold the exclusive right (but not the obligation) to “call in” or cancel your current debt contract.

Options now dwarf futures in global exchange-traded derivatives volume, with options accounting for over 4x the contracts of futures in 2024, and in 2025, U.S.-listed options posted a sixth consecutive record year, with roughly 15.2B contracts traded, equating to ~$36B in premium traded daily.

Figure 1 (CL) State of Options Industry

Zero-day-to-expiry (0DTE) options on SPX alone topped $1 trillion in daily notional at their peak, averaging 2.3 million contracts daily and comprising 59% of the product’s total volume in 2025. 0DTE options expire on the same day they are traded; they are used to chase large, rapid returns on intraday stock movements, but they carry the risk of losing 100% of your investment very quickly.

In 2024, the NSE (National Stock Exchange of India) accounted for ~84% of global equity options contracts; however, in value terms, the total premiums paid by options buyers in the US were still around 4 times those in India. This suggests that the Indian retail public is trading a massive number of tiny contracts, whereas US participants trade fewer, but vastly larger and more expensive contracts.

The appeal of options is making its way into crypto products, too, albeit from institutions.

CME, the largest US-regulated derivatives exchange, is now offering 24/7 crypto options. This is an unprecedented shift from a legacy exchange seeking to retain its user base, one that recognises the appeal of crypto markets that trade around the clock. Furthermore, in April, open interest in BlackRock’s IBIT options, which launched just over 2 years ago, surpassed BTC on Deribit, rising from $26.9 B to $27.6 B, despite Deribit launching over 10 years ago.

Options are extremely flexible instruments which can be leveraged in a wide range of applications:

• Hedging: using options as an insurance policy against price exposure (buying puts to lock in a firm floor against downside losses, or calls to protect against missing out on a sudden upside rally)

• Income: selling options to steady cash premiums from the market. These are great for non-directional users, who can generate passive yield on their existing assets (covered calls), or get paid upfront while waiting to buy the dip (cash-secured puts)

• Speculation: expressing a view on price or volatility without buying the asset outright, whether on direction, timing, or specific price movements (this could be via a range of options strategies)

• Custom strategies: combining multiple options into structured products, commonly used by banks and asset managers to create yield products or downside-protection notes

User profiles are spread widely across financial markets. They range from institutional market makers hedging risk and banks packaging yield, to volatility funds trading market swings and retail investors speculating on cheap, same-day 0DTE movements.

Early Onchain Attempts

Given their prominent role in traditional markets, options were expected to be an instrument with natural product market fit in volatile, onchain crypto markets. Instead, they have been one of its most repeated failures.

This was in no way due to a lack of experimentation, as can be seen from the products launched in previous cycles:

• Opyn tokenised vanilla options on Ethereum in 2019, but thin liquidity, heavy collateral requirements, and high fees on mainnet held it back.

• Hegic attempted the peer-to-pool model in 2020, simplifying the experience for buyers, but pooled LPs took on risk that was hard to hedge.

• Ribbon, Friktion, and Dopex opened vaults in 2021, creating simple deposit-and-earn structured products for users seeking yield without having to manage positions, but volatility was sold into thin, cyclical demand, compressing yields until the premiums could no longer outweigh the risk.

• Lyra, Premia, Pods, and Siren experimented with options AMMs, trying to provide continuous liquidity across strikes and expiries, but struggled with pricing and hedging, so LPs inherited complex volatility and inventory risk, while organic flow remained thin.

• In 2022, Opyn launched Squeeth, a perpetual that tracked ETH squared exposure, giving users convexity without having to manage dated options. Launched on Ethereum at a time of high fees, the product was hard to explain and expensive to hold when funding was high.

Figure 2 (CL) Options Vaults TVL - DefiLlama

The sector has been repeatedly held back, primarily by structural constraints. Weak market-maker participation left venues with thin two-sided liquidity and pushed hard-to-hedge risk onto passive LPs. Poor capital efficiency was paired with unreliable volatility surfaces, while the user experience was left in no man’s land: too complex for retail but lacking the professional architecture required by institutions.

New Infrastructure & Refinement

Since these early attempts, conditions have been continually improving:

• Rollups and Ethereum scaling cut gas fees, making complex onchain actions affordable while improving execution and settlement.

• CLOBs and RFQs began to replace AMM models, fostering a more natural environment for professional traders and market makers, enabling them to quote specific strikes and expiries, update their prices in real time, and control their risk more effectively.

• Simplified products targeted narrower audiences as venues focused on shipping specific products for specific users.

• Prediction markets made option-like payoffs accessible for mainstream retail, normalising conditional payoff trading through binary outcomes

• Institutional demand for crypto options has been growing steadily, primarily through Deribit and, more recently, through IBIT and CME.

Figure 3 (CL) Deribit vs IBIT vs CME BTC Options

Conditions have also improved onchain, where stronger options markets are beginning to form, with 30d notional volume at ~$1.44B, and premium volumes posting all-time highs this year.

Figure 4 (CL) Options Premium Volume

The resultant category looks vastly different from the first DeFi options cycle. Protocols are no longer simply attempting to become Deribit onchain, and the ecosystem touches many parties from institutional venues and ETF wrappers to onchain vanilla options, new exotics, and binary options operational through prediction markets.

In the following sections, we will dive into the current options landscape, focusing on what’s happening onchain.

The Crypto Options Ecosystem

The crypto options landscape is a set of adjacent markets with different settlement and payoff types. The map below splits the ecosystem across these two dimensions:

1. Settlement: onchain to offchain

2. Payoff: vanilla to exotic

Figure 5 (CL) Options Ecosystem Comparison

Offchain vanilla options remain the clear leader, led by Deribit, IBIT, and CME, along with CEXs like Binance and OKX. Onchain vanilla venues are instead beginning to rebuild liquidity around CLOBs, RFQs, and more simplified user-focused products, whilst settling transactions onchain.

More experimental products sit within onchain exotics, using options or option-like payoffs as building blocks rather than simple listed calls, puts, and spreads. Examples include:

• Perpetual options: replace fixed expiries with a streaming premium mechanism. These allow traders to hold volatility positions indefinitely without the friction and gas costs of manually rolling over contracts.

• AMM-native options: create option-like exposure from AMM liquidity positions rather than listed calls and puts. These enable advanced yield farmers to hedge against impermanent loss and allow long-tail asset speculators to buy calls and puts on newer, unlisted tokens.

• Short-dated touch options: provide an immediate, fixed payout the exact moment an asset touches or breaches a specific price target. This structure is heavily utilised by retail day-traders, scalpers, and event-driven news traders chasing rapid feedback loops during short bursts of extreme intraday momentum.

The fourth quadrant, offchain exotics, is more opaque, dominated by OTC desks, market makers, and structured-product providers rather than transparent public venues.

This report focuses on the onchain side of the map, covering vanilla options venues and exotic options primitives before turning to binary option-like markets, most commonly expressed through prediction markets.

Onchain Vanilla Options Venues

There has been clear progress in onchain vanilla options recently, not through changing the payoff itself, but through the surrounding infrastructure, product design, and user experience. These venues have generally moved away from passive LP pools toward CLOBs and RFQs, making room for portfolio-margin and yield-bearing collateral, as well as more targeted income products that simplify outcomes for users.

This section will walk through the most prominent venues as they stand today.

Derive

Derive is a clear example of this architectural shift. It evolved from Lyra, an options AMM, into the CLOB-based venue we see today. Today, Derive runs on its own OP Stack L2, offering cross-margined options and perps through a professional orderbook interface. Derive does not attempt to hide the complexity of options from users and therefore targets pro traders, market makers, institutional users, and other sophisticated volatility traders. It looks much like a traditional options exchange, with an array of assets, strikes, and expiries that can be combined to create custom payoff structures.

Using an off-chain matching engine for instant execution and an onchain L2 for settlement allows institutional allocators to trade at the speed of a centralised exchange (CEX) like Deribit while maintaining non-custodial ownership of their assets. Derive also offers a range of vault products that, unlike previous attempts, harness the underlying exchange to execute a predetermined options strategy, aiming to earn yield on deposits.

Derive accounts for the majority of onchain options activity currently, with $1.142B in 30-day notional and $44.3M in premium, representing 79.2% of notional and 87.2% of premium across the category. These numbers should be accompanied by the caveat that Derive uses market-maker rewards, OP incentives, DRV rewards, and rebate programmes to support liquidity.

Figure 6 (CL) Derive Options Premium Volume

Despite the incentivisation of liquidity and participation, Derive highlights how the industry has developed over the years, with fully fledged options exchanges now running on performant appchains, accessible to institutions and market makers.

Rysk

Rysk takes a completely different approach than Derive. Built around covered calls and cash-secured puts, it uses options as upfront income products, whilst keeping strikes and expiries selectable, unlike option vaults of the past. It routes user demand through an RFQ system, where market makers quote on specific requests, purchase the options flow, and manage their own risk elsewhere. Rysk focuses on abstracting the complexity of option products, making them appealing to retail and institutional investors alike with strong asset selection, clearly defined outcomes, and a seamless user experience.

For users, the offering is simple. Earn yield on your assets while agreeing on a price level you are willing to sell at or buy at. This is reflected in a broad range of actual users. They all want to earn yield, but do so in different ways and with different strategies. Treasuries, DAOs and funds are long-term holders that already have a view on where they would be willing to buy or sell an asset, and if they didn’t want to, could still earn yield on much more distant strikes. Institutions, on the other hand, for example, Hyperion, a Nasdaq-listed HYPE treasury company, runs curated vault strategies on top of Rysk infrastructure. Its mandate is to accumulate HYPE, so a cash-secured put strategy is a natural fit, earning them yield while placing orders at lower levels.

Rysk generated $136.3M in notional and $1.94M in premium over the last 30 days, accounting for 9.5% of the category’s notional. Rysk’s monthly notional volume grew from $50M in January to $182M in May, remaining above $175M in March and April as well.

Figure 7 (CL) Rysk Finance Options Premium Volume

Unlike Derive, TVL for Rysk is much more relevant, as the product is based on collateralised option-selling strategies. To capture your premium, you need to deposit all your collateral, whereas in Derive, users can buy cheap options with a low premium to pursue large payouts.

Figure 8 (CL) Rysk V12 TVL by Asset Family, Weekly Average

Rysk has managed to find a different kind of PMF in options, reframing them from trading instruments into income products based on selling volatility. With yields compressed across the industry, this has become highly competitive relative to lending, staking, and basis products, as evidenced by the strong, sustained growth since launch.

Aevo

Like Derive, Aevo evolved from an earlier options product into an orderbook exchange. It emerged from Ribbon Finance, one of the first major DeFi Options Vault (DOV) products, before shifting to a broader derivatives venue. Today, Aevo offers options alongside perps, pre-launch markets, OTC and automated strategies on a custom L2, with offchain order matching and onchain settlement. Orders are matched in microseconds via an off-chain Central Limit Order Book (CLOB) to replicate a CEX user experience, but user funds remain secure in onchain smart contracts hosted on a custom OP Stack Ethereum Layer-2 rollup.

Launched in 2023, Aevo saw its strongest options activity during 2024. Since then, reported TVL and visible options activity have fallen from earlier highs, although options premium volume has recently started to pick up again.

Aevo’s primary unique selling proposition is its variety of products inside a unified margin account. This includes pre-launch tokens, allowing users to trade highly leveraged options and perps on hyped, unreleased tokens before they hit spot markets.

Aevo generated $45.1M in notional and $2.52M in premium over the last 30 days, representing 3.1% of onchain options notional. Monthly notional rose from $20M in January to $50M in May, but live options OI is only around $3.6M, far below Derive and below Rysk’s calculated open-notional proxy.

Figure 9 (CL) Aevo Options Premium Volume - DefiLlama

Incentives likely support some of this activity. Aevo distributes 1M AEVO per week through trading rewards, with 30% reserved for options, which may partly explain the recent uptick in options volume. Despite Ribbon being one of DeFi’s earliest options teams, focused on options vaults, Aevo’s migration to a broader derivatives exchange drew attention to perps, pre-launch markets, and trading campaigns. Options now look more like a secondary product with less focus, rather than the core business, and while the team are clearly trying to boost activity there, it remains to be seen whether these incentives can fully revive the options markets for Aevo.

Others

Beneath Derive, Rysk and Aevo, the rest of the market is smaller and fragmented.

Paradex is another broad derivatives venue, built by the Paradigm.co team, a provider of institutional crypto derivatives liquidity. Currently offering perps, options, and various Vault Traded Funds (VTFs), Paradex used to support perpetual options, but has recently paused this feature to focus on dated options, which opened in April of this year. To further encourage traders and gain market share, they have reintroduced zero-fee trading for makers and takers across perps, spot, and options.

Hypersurface looks more similar to Rysk, using covered calls and cash-secured puts to provide a yield product on HyperEVM. CallPut expands beyond crypto, differentiating from other platforms by offering a range of stocks, including SPCX, TSLA, NVDA, and COIN, in its vanilla call and put options exchange, which operates via request-based execution and protocol-managed liquidity.

Kyan has evolved from Premia into a wider derivatives exchange, using an orderbook-based model with support for RFQs. It offers portfolio margin and multi-leg combo trades to build more customised positions.

Ithaca offers a wide range of options, strategies, and structured products, and has recently integrated AI agents into its protocol for managing options strategies.

SOFA.org offers structured products, packaging option-like outcomes into products like Earn and Surge, rather than the user trading options directly.

Figure 10 (CL) Options premium volume in 2026 excluding Derive, Rysk, and Aevo

The market is becoming more diverse at the lower end, with new entrants like Kyan, Paradex, and CallPut capturing share of premium volume in recent months.

Many protocols are now building better infrastructure, but infrastructure is not enough. Orderbooks, RFQs, cross-margin and portfolio margin do not create demand by themselves. Users still need a reason to choose options over perps for direction or prediction markets for events. The clearest demand appears when options are tied to a specific asset-holder problem, as with Rysk and HYPE: they offered newly wealthy HYPE holders yield, the ability to manage their entries and exits, and a way to monetise exposure without simply selling the asset. To achieve stronger growth, teams need to craft user-targeted products that perps and prediction markets cannot easily replicate.

Onchain Exotic & Short-dated Options Primitives

By exotic and short-dated options primitives, we mean option-like products that go beyond simple listed calls, puts, and spreads. These may remove fixed expiries, derive exposure from AMM liquidity, or settle based on whether the price reaches a specific zone within a short time window.

Vanilla onchain options are no doubt becoming more sophisticated and professional, but they still largely replicate familiar offchain products. Exotic and short-dated primitives, on the other hand, expand the design space and case studies, experimenting with payoffs that are harder to deliver through standard listed options: perpetual convexity, AMM-native exposure, and ultra-short-dated touch markets. Most of these ideas remain commercially unproven, often solving an interesting payoff-design problem before they solve a user-demand problem.

Perpetual options

Perpetual options remove the expiry variable from the equation. Instead of choosing a fixed expiry, traders hold a continuous convex exposure funded over time, much like a perpetual futures contract, but with greater upside potential. Squeeth is the historical example that gave users exposure to ETH², while Paradex has also tested perpetual options, though its current live options markets are dated only.

The problem, especially when compared to traditional perps, is that removing expiry does not remove complexity. Users still need to understand convexity, but now also need to manage the ongoing funding or premium cost and decide when holding the exposure no longer justifies the payoff. That weakens one of the core benefits of a standard option: knowing in advance the premium you will have to pay and the payoff. Perpetual options remain an interesting primitive, but have not yet made the product simpler or more widely adopted.

AMM-native options

Traditional options platforms fragment liquidity across strikes and expiries, where market makers need to update quotes after every price move. Despite improvements in faster, cheaper chains, this still remains a difficult task, especially on Ethereum mainnet, and often relies on offchain matching. Panoptic and GammaSwap instead create option-like exposure using AMM liquidity.

Panoptic uses Uniswap V3-style liquidity ranges to create perpetual options. Instead of paying a fixed upfront premium for a fixed expiry, buyers pay streaming premia over time, while liquidity ranges act as the basis for strikes and option exposure. This way, options can be created for long-tail assets already trading on AMMs without requiring a separate orderbook. Panoptic V2 just launched, offering perpetual options trading on ETH and SPCX. On the other side, depositors can enter either the Unicorn vault, which remains delta-neutral and scalps gamma, or the PLP Vault, which uses deposited ETH liquidity to earn Uniswap fees, Panoptic premia, and lending fees.

Figure 11 (CL) Panoptic V2 TVL

GammaSwap took a different angle with its V1, allowing users to borrow AMM liquidity and create perpetual option exposure. This made it possible to hedge impermanent loss or speculate on token volatility without an oracle.

These products are among the most complex DeFi-native designs in the category. Panoptic, for example, whilst it removes expiry fragmentation, also introduces streaming premia, liquidity widths and AMM range mechanics, meaning users of the product need to be comfortable with Uniswap V3 and the complexities of providing liquidity. GammaSwap, on the other hand, has now moved on entirely, looking to overcome its capital-efficiency and complexity issues by creating crypto-focused binary markets using an order book. This gives users a simple, convex trade without the risk of liquidation. In these markets, users are either right and they win, or wrong and they lose.

Short-dated ‘touch’ options

This bucket is probably the furthest from standard calls and puts. Instead of buying upside or downside exposure at a fixed strike and expiry, the user chooses a simple condition over a short window: will the price enter this zone, finish above this level, or resolve in-the-money within the next few minutes?

Euphoria’s Tap Trading is the newest onchain example of this design. Users select a grid square representing a price range over a five-second window. The payout is quoted up front by professional market makers and varies with the distance from spot, the time to maturity, and volatility. If price enters the selected zone before expiry, the trade wins. If it does not, the trade expires worthless.

Figure 12 (CL) Euphoria Finance Perp Volume and TVL

This product moves in a similar direction to GammaSwap V2’s binary markets. The target user wants to bet on crypto prices over increasingly short timeframes, so the product competes less with traditional options exchanges and more with perps, prediction markets, and mobile betting. The appeal is simplicity: users can understand the trade quickly and access convex exposure without managing funding rates, liquidations, greeks or theta decay.

Why Options and Prediction Markets are the Same Instrument

The emerging popularity of prediction markets among retail participants is the first real example of non-linear payoff products gaining significant onchain traction.

But little known to the users trading them, prediction markets on financial assets, such as BTC Up/Down markets, are structurally identical to binary options, a well-known and well-studied instrument in Traditional Finance. Each contract pays out a fixed amount if a condition is met at expiry, and $0 otherwise.

This article is an excerpt from our research on The Renaissance of Onchain Options, mapping the expansion of options (and prediction markets) as a trading instrument and the volatility that prices them, published in collaboration with Block Scholes.

A follow-up piece will examine the prediction market ecosystem, analysing the top providers for binary outcomes (Kalshi, Polymarket, and Hyperliquid) based on the volume and spread of the BTC 1-day expiry markets they list.

Download the complete report here.

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In the last 18 months, Prediction markets (PMs) grew from roughly $2 billion in monthly volume to more than $30 billion, scaling rapidly from a niche category to a mature ecosystem.

PMs have slowly become a combination of information markets, a differentiated hedge tool, and a way to trade and predict on categories such as sports, politics, macroeconomics, and more.

From trading niche categories like “What will be said in a particular podcast” to predicting “Fed rate cuts decision”, a user can choose to trade anything and everything.

This growth came almost entirely from the curated model, in which a small set of platform-appointed entities determines which markets exist. Polymarket and Kalshi, the incumbents, built themselves within this model by tightly controlling what gets listed, and the market rewarded them for it.

The curated model works, but it isn’t the same vision as that adopted by earlier product iterations in this category. PMs initially targeted the permissionless creation of markets, where anyone could launch one on any topic. But most products (Augur, Omen, Zeitgeist, and others) built around this vision failed due to recurring problems with liquidity, resolution, creator incentives, and regulation.

The lesson the industry drew was that open curation doesn’t scale, but this conclusion is being tested again. A new wave of products is entering the market, aiming to solve issues earlier iterations faced through better oracle infrastructure, scalable liquidity models, and more deliberate designs.

This report traces this evolution, examines why permissionless curation failed in the first place, why permissioned curation won, and how current products are trying to restore the permissionless nature of PMs. Additionally, we use Limitless as a case study, which has recently expanded into permissionless user-generated markets (UGMs), and examine how it has adapted to fit UGMs.

Early Prediction Markets: The Permissionless Approach

The power of PMs was first brought to the spotlight when Polymarket and Kalshi showed more accurate odds for the 2024 U.S. elections. Since then, PMs have evolved into much more than that.

Since the start of the year, prediction markets have consistently produced a notional volume exceeding $20 billion, and last month crossed $40 billion, with the largest contributions coming from the sector’s current duopoly: Polymarket and Kalshi.

PMs were among the first experimental primitives in crypto, and they started with a permissionless approach given the crypto ethos of decentralisation and permissionless participation.

Augur was one of the first products to launch in this category in July 2018.

Founded in 2014, its ICO was the first in the space and raised $5.5 million.

On Augur, market creation was fully permissionless.

This permissionless architecture came with its own problems as, within weeks of launch, Augur’s UI surfaced markets on political assassinations, plane crashes, and other legally toxic event types. Additionally, the problem set expanded to include technical limitations, such as high gas fees on Ethereum and settlement delays (resolutions can take up to 90 days due to disputes).

An interesting aspect of the product was its native REP token, which enabled holders to report outcomes by staking.

Augur is now rebooting in 2026 under the Lituus Foundation, as a resolution infrastructure which other PMs can utilise. They are competing on infrastructure now. In their new resolution engine, participants commit their own capital in support of an outcome. Every time a dispute occurs, the commitments increase, making it progressively more expensive to sustain a dishonest position.

Gnosis, another early participant in this category, developed the Conditional Token Framework in 2017, which allowed anyone to curate markets and turn event outcomes into tradable tokens. Polymarket later adopted this framework. Gnosis closed its product due to issues similar to those Augur faced, including high Ethereum gas fees, scalability issues, and a lack of user-friendly tools.

Using the same framework developed by Gnosis, Omen launched in 2020, offering permissionless market creation with an Automated Market Maker (AMM). However, one of the challenges it faced was liquidity fragmentation: anyone could curate a market on any niche, producing hundreds of near-identical markets for the same event, most of them totally illiquid.

Apart from this, they also faced Oracle-related problems. Omen used Kleros for resolution, an external, decentralised oracle infrastructure. Kleros crowdsourced jurors were incentivised to vote with the majority, and the majority consensus did not necessarily reflect the truth or market outcomes. Apart from this, the resolution process was also very slow and high gas fees were common.

The problems so far have been a combination of technical and liquidity problems, but the platform’s economics and design also play a huge role.

In early 2018, Stox launched a permissioned prediction market for sports, finance, and news and raised $33 million in its ICO. The core failure of Stox was the lack of a revenue model and tokenomics alignment. While the platform collected fees, they were insufficient to sustain market-maker incentives. Moreover, holders of STX, the platform’s native token, were supposed to benefit from platform revenue through a fee split, but it was never mechanically enforced in a way that could attract more users and liquidity to the platform. In terms of technicalities, the Stox resolution oracle was centralised and company-dependent, raising concerns about centralisation.

Another permissionless platform, Hedgehog Markets, was built on Solana, allowing users to curate their own markets. They introduced “no-loss prediction markets” using principal-protected deposits. Users would stake either $100 or $1000 in USDC and get game tokens against their stake, which were used for actual predictions, and the yield from the pooled USDC was distributed to winners. While this model sounds unique, it reduced users’ earning potential from the market because only the yield was at stake. This created an asymmetry for users who were genuinely interested in participating in the market and were willing to risk their capital, as the yield was the maximum amount they could earn.

All these products highlighted problems in different areas, surfacing issues around liquidity, event curation, resolution, regulatory compliance, and more.

Discoverability Problem

Permissionless market creation allows users to produce any number of markets, which can lead to multiple identical markets, resulting in hundreds of low-liquidity, oddly worded, partially redundant markets for every major event.

This redundancy creates a bad UX and confuses most users. Sophisticated users may allocate funds to the market with the most liquidity, but this gap can only be fully addressed either by not creating similar markets or by building a frontend that effectively excludes low-liquidity markets and makes them available only via search.

Resolution Dispute

“A prediction market is only as good as its ability to determine truth.”

Augur REP staking-based oracle and Kleros (Omen) incentivised stakers to vote in line with the majority. Similarly, in UMA, the optimistic oracle (used by Polymarket) faces the same resolution issues as in any market dispute: UMA token holders vote to make a final decision, and these same voters can trade on Polymarket, creating a bias towards a decision in favour of their position.

In Polymarket, for example, the dispute resolution is currently dominated by 9 whale addresses whose decisions have consistently aligned with the winning outcomes. These addresses can easily manipulate a market in the direction of their own trade.

One recent example of such a case is the MicroStrategy BTC sale market. The market should have been resolved to “Yes”, given that Strategy sold 32 BTC during May 26th to May 31st in the market, but it resolved to “No” even after being disputed 2 times.

Liquidity Fragmentation

A permissionless curation model creates liquidity fragmentation as users curate across multiple competing markets on the same topic, dividing liquidity among them. For Omen, the biggest challenge was liquidity fragmentation, as users curated near-identical markets.

This can only be solved by having a stricter curation process, for example, allowing only 1 market for each event, or it can also be handled through the frontend, where the UI shows a topic and all the different markets in the same place, and the user can choose which one to trade in while it recommends the one with the most liquidity.

Manipulation Surface

PMs are inherently manipulable either with economics or information.

A user could dramatically move a market’s price by buying a large position, gaining significant voting power on the Oracle, and steering the decision in their favour.

This problem is replicable in both permissioned and permissionless models, but the attack surface expands far more quickly in the latter as users continue to create markets.

Recently, a Google employee was caught by the SEC for trading in Google search-related markets on Polymarket. He utilised information arbitrage since he already knew the correct resolution, making millions in the process.

Regulatory Issues

CFTC treats event contracts as futures contracts that require registration with a designated contract market (DCM) under the Commodity Exchange Act.

Many older PMs weren’t compliant, which was a major problem for scaling.

For non-compliance, Polymarket was fined $1.4 million in 2022. The U.S. is a huge market due to active sports betting and trading happening. This is why Kalshi always took a regulatory-first approach, and Polymarket followed by acquiring QCEX in 2025 to become U.S.-regulated.

No Curator Economics

Earlier iterations of permissionless market curation didn’t focus much on the economics of market curation or on how curators could benefit from building the market. This created an asymmetry between the platform and the market curators, as they had less motivation and no financial benefit if the market grew in popularity and liquidity.

But some of these were problems that newer platforms, now incumbents, understood and pivoted to by adopting a permissioned curation approach.

Permissioned Curation: Polymarket and Kalshi Approach

Polymarket launched in 2020, while Kalshi launched in 2021. Both platforms have taken different approaches, but recently they have begun to converge on regulatory compliance and on winning the U.S. market.

Kalshi and Polymarket have become strong competitors over time.

Until mid 2025, Polymarket maintained an 80% market share. Then, Kalshi established its own dominance through partnerships with platforms like Robinhood and now accounts for the majority of the volume PMs handle.

In terms of fees, Kalshi is currently generating annualised fees of ~$2 billion, compared to Polymarket’s ~$300 million. Additionally, in recent rounds, Kalshi and Polymarket were valued at $22 billion (Kalshi is currently targeting a $40 billion valuation) and $15 billion, respectively, making Polymarket overvalued relative to its competitor, as measured by their P/S ratios.

To scale to this level, both Kalshi and Polymarket solved most of the issues we highlighted above for early prediction markets.

Starting with regulatory compliance, Kalshi’s regulatory-first approach has been fruitful and has helped it grow in the U.S. Polymarket is also following up with Polymarket U.S., which is undergoing a phased rollout.

In terms of market curation, both platforms have active market curation teams and are permissioned, helping prevent problems such as liquidity fragmentation and duplicate markets.

While the permissioned nature of these platforms has been a successful approach so far, it doesn’t mean a permissionless model cannot co-exist in this category, as it is still required by many users to have control of the market, creating niche markets about the topic they are interested in, share curator revenues, and participate in building liquidity.

The permissionless model and early iterations of PMs surfaced multiple problems that incumbents addressed.

Even as incumbents have existed for some time and scaled sufficiently, users still cannot create and trade in the market of their choice, which is the ultimate goal for a Prediction market to become a source of truth for any and every topic backed by a financial stake.

Given that, as the solution space grows, permissionless curation is witnessing a great revival.

In the following section, we discuss how permissionless market creation is emerging as a category and how user-generated markets (UGMs) could scale.

The Permissionless Turn: New-Gen PMs

The permissionless curation sector has grown over the last year, with new players entering the market (Melee, HIP-4, XO Market, and more), and older products like Limitless also entering the category as they expand to provide UGMs.

Limitless recently went live with permissionless markets. They haven’t fully opened permissionless curation yet, but are initially allowing only crypto-related markets and will gradually expand into other categories to better understand demand and scale accordingly.

Additionally, Curators on the platform receive 50% of the revenue from the markets they curate, creating direct alignment between the platform and the market curators.

HIP-4, Hyperliquid Bounded Markets are capital-gated and require market deployers to stake 1 million HYPE to access a deployment slot. Builders can set an optional fee share of up to 50% on top of Hyperliquid’s base fees (fees are currently zero to incentivise trading in this initial phase, as they launched in early May). This approach helps Hyperliquid completely remove spam markets, as the threshold for deploying outcome markets is very high.

An additional structural advantage HIP-4 markets have is that they run natively on Hypercore, sharing the same orderbook, account structure, and margin engine as Hyperliquid’s spot and perpetual markets, meaning traders can access prediction markets and hedge their portfolios without fragmenting capital across separate accounts.