RWAs Are Missing Their Options Market
Hyperliquid RWA growth has recently peaked with $2.68B in open interest.
People are seeing that RWAs now have a real market fit in DeFi, and this is something institutions can grasp and use to enter the onchain markets. The pivoting point has finally arrived in DeFi.
We Now Have 24/7 RWA Markets… But Only Directional Exposure.
Perps allow for leverage, 24/7 access to trading, and creating long or short positions. But there is no volatility layer, no convexity markets, and no volatility trading. Continuous markets create continuous volatility, but most users can still only trade direction.
Steer Protocol has noted that “options are especially important” because they prevent assets from being “exposed to simple spot dynamics alone.” That distinction matters more when markets are available 24/7.
Traditional markets pause overnight, risk resets daily, onchain RWA markets do not. Continuous trading creates continuous volatility, continuous inventory risk, and continuous repricing pressure. In that environment, options become more than speculative tools. Perps are already great for speculation, but options then become core market infrastructure.
DeFi Markets Are Evolving, But Are Not Complete.
What’s wrong with current systems? Perps are not a complete market structure. Mature markets require hedging, market makers require inventory management, and volatility itself needs to be tradable.
We’ve seen this in mature equities, oil, FX, and commodities markets in the past. Options markets emerged around every major asset class because directional exposure alone is incomplete.
Naturally Evolving The Ecosystem...
The above image published in a Castle Labs RWA report delineates the evolution of futures trading on the Chicago Mercantile Exchange (CME). However, what is missing from this progression is how the associated volatility trading markets matured alongside futures on the CME. While the DeFi derivatives niche has historically been inundated with the window-dressing and repackaging of esoteric TradFi OTC (Over-the-Counter) products into retail vaults, perpetual options are representative of the natural progression within the DeFi derivatives ecosystem.
Perpetual futures/swaps are crypto/DeFi-native derivatives products that attract inordinately large trading volumes when compared to other instruments. Perpetual options are simply an added layer to the robust foundation that has already been established by perpetual futures.
A logical parallel to this line of thinking for expansion of the DeFi derivatives markets can also be found in that of natural gas derivatives markets. Locational basis swaps are instruments designed for trading the expected differential between natural gas prices at various North American hubs. Options on these locational basis swaps are thus the next extension in natural gas derivatives trading.
Perpetual options can therefore be viewed as akin to basis options through the intuitive prism of financially engineering and securitizing products based on the native or eccentric properties of the underlying. While basis swaps and perpetual futures can be harnessed to address the linear speculative/hedging demands of natural gas and DeFi traders respectively, basis options and perpetual options merely serve to address the nonlinear demands.
A research study found that the price discovery share of CME natural gas futures options gradually dominated that of CME natural gas futures ranging from January 2016 through December 2017. Price discovery is an empirical reflection of how quickly certain instruments impound information into prices, and with the information leadership share (ILS) price discovery measure for futures options in the above graph quickly approaching 1 toward the end of the selected sample period, it is fair to note that CME futures options on natural gas simply overwhelmed CME natural gas futures by the end of 2017 in the incorporation of new market information. Natural gas derivatives markets are far more developed than onchain RWA markets, so price discovery for the time-being in RWA derivatives is exclusively confined to perps trading. Although, as with the highlighted precedent in the maturation of CME natural gas trading, is it unreasonable to also expect perpetual options to eventually overtake perps in RWA price discovery? Nascent derivatives markets such as onchain RWAs often lead with futures in price discovery, but with the rollout of 24/7 volatility trading in the form of perpetual options, overall RWA market efficiency will be enhanced and price discovery will be sharpened.
24/7 volatility markets also allot the opportunity to capitalize on more turbulent onchain or DeFi-native dynamics. The below table reveals an analysis of how much more lucrative and volatile CME BTC carry (futures minus spot differential) is than several CME-listed counterparts belonging to various other asset classes. CME Gold pales in comparison to CME BTC in both the standard deviation and range of 1-month carry spanning from February 2018 to July 2024.
Our normative view on the necessity of RWA perpetual options is threefold in that they constitute the next phase in onchain RWA derivatives evolution, will holistically improve RWA price discovery, and are readily capable of exploiting the outsized volatility that onchain RWAs display relative to their offchain TradFi analogs. Panoptic will be leading the charge in making this next frontier of RWA derivatives trading a reality. 24/7 RWA volatility markets are not just some neat abstraction to mentally toy around with, but a fast-approaching, paradigm-changing onchain inevitability.
Once Markets Trade Continuously, Volatility Becomes Continuous Too.
In traditional markets, there are overnight closures, periodic resets of risk limits, and liquidity is fragmented by geography. Onchain RWAs are always accessible to trade, continuously reprice, continuously stem on volatility, and continuously expose market makers to inventory risk. We see institutions moving towards structured products and risk management.
The most important part of Wintermute’s new vaults is “DeFi yield is only as good as the risk management behind it”. Yield alone is no longer enough, the market now cares about risk-adjusted returns. And that is the transition toward mature markets.
As markets mature, the need for managing risk becomes more apparent, and if Wintermute is realizing this now, we know DeFi is ready. Other teams have made the distinction as well. In a recent Castle Labs report, they prove how vaults have been evolving from yield and speculation to structured exposure to different assets.
They noted that vault infrastructure is beginning to unlock “net new financial products beyond simple lending yield.” This turns into instant redemption facilities for RWAs, permissionless DeFi Earn vaults, transparent loan books, and programmable financing systems.
Looking At Onchain Data…
With a long synthetic perp strategy in both XAUT and PAXG Uniswap pools, we are seeing continuous volatility opportunities even in these infantile stages of tokenized gold. Volatility markets around RWAs already produce meaningful opportunities.
Hyperliquid enabled continuous exposure. The next step is perpetual options. They enable what the market is still missing: continuous hedging, volatility pricing, structured products, market making, convexity, and inventory management. Spot markets create access, and volatility markets create mature financial systems.
Zooming Out Completely.
Equities, commodities, FX all attained critical mass as asset classes through some form of volatility or optionality trading. We now see that RWAs are beginning the same transition onchain.
Hyperliquid unlocked 24/7 RWA trading, but perps are not enough for a complete market. What will be unlocked next? Volatility markets. Steer described this progression clearly in their recent article, “advanced yield does not emerge from a token launch alone. It depends on a deeper market stack being built underneath an asset.” RWAs are beginning to follow that exact path onchain.
Markets will continue to evolve. First comes spot access and liquidity. Then perpetual leverage. Then lending and structured products. Eventually, volatility itself becomes tradable as markets mature enough to support hedging, inventory management, and more expressive financial structures.
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