KEYTAKEAWAYS
- Protocols such as Pendle, IPOR, Lyra/Derive, and Stryke represent multiple tracks of decentralized derivatives—from yield tokenization and interest rate swaps to options and structured products—reshaping the landscape of on-chain finance.
- The new generation of protocols focuses more on capital efficiency and risk management, adopting mechanisms such as unified liquidity, portfolio margining, and RFQ models, enabling DeFi derivatives to gradually compete with CeFi.
- Token economics are shifting from short-term inflationary incentives to long-term value capture, with real fee sharing, compliant products, and institutional participation driving decentralized derivatives toward maturity.
CONTENT
THE FOUNDATION OF YIELD AND INTEREST RATES
If spot trading is the entry point of DeFi, derivatives are the advanced class. Since 2024, yield and interest rate products have taken the lead. Pendle’s story is often cited: it splits an interest-bearing asset into two parts—Principal Tokens (PT) and Yield Tokens (YT). PT converges to the underlying at maturity, while YT decays over time, representing future yield rights. This design translates traditional “rate swaps” on-chain, with AMM curves pricing them autonomously. For users, it was the first time they could trade “future yield” directly on-chain. With the rise of LSTs and restaking, Pendle’s TVL crossed $7B in 2024, with user count growing fourfold. Its AMM was not just a matching engine, but a “yield curve factory,” anchoring interest expectations in code.
Element, by contrast, took a more academic route. It also splits assets into principal and yield, but its yield token grows through compounding. In Pendle, YT is a decaying ticket; in Element, YT is an appreciating share. This makes it suitable for recursive strategies, appealing to advanced DeFi users. Yet without Pendle’s custom AMM and incentive flywheel, Element’s liquidity remained thin. At the same time, demand for rate hedging surfaced. IPOR introduced a “DeFi LIBOR,” aggregating Aave, Compound, and others into a transparent benchmark, then built swap markets for “fixed vs floating.” By 2024 it executed over 600k interest rate swaps across Ethereum and Arbitrum. Term Finance went even simpler: weekly auctions where borrowers and lenders meet at a clearing rate, bringing “term deposits” on-chain.
These seemingly dry mechanics laid the groundwork for everything else. Pendle’s yield curves and IPOR’s benchmarks became the concrete on which more complex products could be built.
THE STRUCTURE OF OPTIONS AND VOLATILITY
On this foundation, options and volatility formed the skeleton of the market. Lyra was the first to try on-chain AMM-based option pricing, combining Black-Scholes with adaptive volatility curves. LPs were delta-hedged via Synthetix, lowering directional risk. This gave on-chain options price realism close to Deribit. But AMMs hit limits: too few strikes, low capital efficiency, shallow depth. In 2024, Lyra reemerged as Derive, launching an OP Stack app-chain with a central limit order book, portfolio margining, and partial liquidation. Users now experience CEX-like performance but with on-chain settlement.
Stryke (ex-Dopex) took another path. Its CLAMM model lets LPs earn both AMM fees and option premiums from the same liquidity, while Atlantic options allow collateral to be reused before expiry for things like liquidation protection or treasury hedging. LP yields can top 30% annually, turning options from “expensive insurance” into “efficient cash flow.” The risk is clear: can the system hold up under stress when mass exercise happens?
Structured products are options’ public interface. Ribbon’s Theta Vaults automated covered call strategies, peaking with $500M+ in TVL and $50M+ in premiums earned. Later it spun out Aevo, a dedicated orderbook chain for perps, options, and pre-launch futures. Thetanuts, focused on altcoin options, shifted toward RFQ, inviting market makers to directly quote illiquid assets. The common goal: turn volatility writing into a sustainable business, not a one-off gamble.
By late 2024, data confirmed the shift. On-chain options’ notional volume hit $866M in September, 11x year-over-year, with seller premiums tripling. Lyra and Stryke dominated market share, while structured vaults brought volatility products back to the masses. Options were no longer experiments—they became the skeleton of DeFi markets.
THE WATERWAYS OF INFRASTRUCTURE
Once products became systems, scale depended on whether the infrastructure could carry the flow. HMX showed a “borrowed ship” approach: reusing GMX’s GLP liquidity while layering on cross-margin, multi-collateral, sub-accounts, and custom oracles. With this design, users earned dual yield from GMX and HMX, and Arbitrum perp traders found an efficient off-ramp. By 2025, HMX handled $50B+ in trades, quietly competing head-to-head with GMX.
Polynomial built its own canal: a Derivatives Superchain on OP Stack with unified liquidity for perps, options, and prediction markets. Gasless trades and <3s settlement brought it close to CEX speed. By mid-2025, it logged $7B+ in volume, 13M gasless trades, and over 10k active stakers—without even launching a token. Its points system anchored long-term users in place of short-term inflation.
Aevo, Ribbon’s spinout, leaned fully into “exchange mode.” It not only offered perps and options but pioneered “pre-launch futures,” letting users trade tokens before listing. This unique product pushed Aevo to $30B+ in early volume and attracted both speculators and institutions. Ribbon fully merged into Aevo, unifying vault execution and exchange liquidity.
All these paths converged on the same goal: unify speed, depth, and risk management in a verifiable ledger. Whether borrowing liquidity (HMX), building superchains (Polynomial), or running app-chains (Aevo), the race was to make derivatives scalable, usable, and trustable for both retail and institutions.
RISKS AND LONG-TERMISM
With complexity comes risk. Pendle’s contracts grow heavier as more assets integrate. Stryke’s Atlantic options need real-world stress tests. Derive and Aevo’s orderbooks face scrutiny on sequencer decentralization and matching transparency. IPOR and Term must prove their swap pools can withstand sudden rate shocks. None of these are binary risks—they are inevitabilities that must be managed over time.
This is why new tokenomics skew toward long-termism. Pendle’s decaying low-inflation model avoids short-term dumps. Stryke returns 80% of fees to stakers. Polynomial delays token launch, rewarding users with points. HMX restructured its token supply, cutting team shares and redistributing to community. All signal a pivot away from inflationary bribery toward real fee capture.
Cooperation and modularity are also key. HMX reuses GMX, Polynomial taps Synthetix, Thetanuts plugs into RFQ market makers, Ribbon/Aevo built its own exchange for vaults. Rather than each fighting alone, protocols now interlock, lowering cold-start costs and strengthening liquidity networks.
From a wider lens, compliance and institutional entry are the next catalysts. Pendle builds KYC markets, Aevo eyes regulated vaults, and IPOR positions itself as a fixed-income hedge tool for funds. These moves show DeFi derivatives maturing from “expert games” to “mainstream tools.” The turning point is here: real income, robust risk engines, and long-horizon governance are replacing yield farming hype.
Looking back at 2024–2025, the key change wasn’t a new buzzword. It was that performance finally met complexity, risk management got its stage, and long-term value replaced short-term speculation. That’s what it looks like when decentralized derivatives truly stand up.
