Blockspace is No Longer a Business Model: The Castle Chronicle
The verticalisation of chain revenue, Ostium’s price-feed exploit, the abstraction of options, and other updates on our radar
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.
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