On-chain derivation Battle Royale: dYdX/GMX decline, Hyperliquid dominates, who will get the next ticket?

GMX and dYdX have long fallen from the "Holy Grail", but decentralized derivation should still have new tickets.

Written by: Web3 Farmer Frank

Which on-chain derivation protocols have you used recently?

This is almost an awkward footnote in the DeFi derivation track. To be pragmatic, without Hyperliquid, which is represented by the giant whale James Wynn as the "best on-chain spokesperson", the once "holy grail" status of dYdX and GMX has long ceased to exist, and their rapid decline has nearly brought an end to the on-chain derivation narrative.

The reason lies in their long-term confinement to the identity of "CEX imitators": they replicated the contract logic and leverage mechanisms of centralized platforms, yet carried higher risk exposure and lower user experience. There are still significant gaps with CEX in key dimensions such as liquidation mechanisms, matching efficiency, and trading depth. Until the emergence of Hyperliquid, which relies on on-chain characteristics to reconstruct product forms and user value, it has been a rare opportunity to preserve the possibility of further evolution for this track.

In the past May, Hyperliquid's perpetual contract trading volume reached 24.8295 billion USD, setting a historical monthly high, which is equivalent to 42% of Coinbase's spot trading volume during the same period. The protocol revenue also hit 70.45 million USD, simultaneously breaking records.

However, from a longer-term perspective, Hyperliquid still adopts a typical contract trading model, and it has only taken the first step from optimizing "existing solutions" to exploring "native solutions." This article also aims to delve into deeper issues from the predicament of on-chain derivations and the development context of Hyperliquid:

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

Decentralization derivation's "new ticket"

From a data perspective, regardless of how the market fluctuates, cryptocurrency derivation has always been a super-sized cake of continuously expanding volume—only the knife and fork for slicing the cake are still firmly in the hands of CEX.

Since 2020, CEX has gradually restructured the original market pattern dominated by spot trading by taking contract futures as the entry point. According to the latest data from Coinglass, in the past 24 hours, the trading volume of the top five CEX contract futures has reached the level of ten billion dollars, with Binance leading and breaking through 60 billion dollars.

If we broaden our perspective, we can more intuitively perceive the penetration of derivation trading. For example, TokenInsight's statistical data shows that the daily trading volume of Binance's derivation accounts for 78.16% of the total daily trading volume of spot + derivation (500 billion USD), and this proportion is still rising. In simple terms, the current daily trading volume of CEX derivation is almost equivalent to 4 times that of spot trading.

However, on-chain, despite the DEX spot trading volume remaining at the level of tens of billions of dollars, decentralized derivation has never been able to break through the market gap: dYdX has an average daily trading volume of about 19 million dollars, and the once popular GMX has seen its positions and 24-hour trading volume both fall below 10 million dollars, almost forgotten by the market.

The only unexpected thing is that Hyperliquid, which is recently seen as a "victory of gradual decentralization"—has broken the deadlock with the posture of being the "new king" of on-chain derivation protocols, with its daily trading volume of derivatives once exceeding 18 billion USD, capturing more than 60% of the market share in the on-chain perpetual contract market.

Its revenue scale surpasses that of most second-tier CEXs, maintaining a month-on-month growth rate of over 50% for three consecutive months. If we closely observe the rise of Hyperliquid, we will find that the key to its success lies in the fact that it has reconstructed the value logic through a vertically integrated architecture:

The in-depth integration of the order book engine and the smart contract platform enables on-chain derivatives to compete head-to-head with CEXs in terms of transaction speed and cost for the first time, and establish structural advantages in cost, auditability, composability and other dimensions (I personally think it is a bit similar to BYD's structural advantages in the new energy market).

This also proves that on-chain derivation products are not lacking in demand, but rather in product forms that truly adapt to DeFi characteristics. In simple terms, traditional perpetual contracts rely on margin mechanisms, and high leverage leads to frequent liquidations, making it difficult for users to control risks. Previous on-chain derivation products have failed to create value that cannot be replaced by CEX.

Once users find that trading on dYdX/GMX carries the same risk of liquidation but cannot achieve the liquidity depth and trading experience at the level of Binance, their willingness to migrate will naturally drop to zero.

For this reason, decentralized derivation inevitably became disenchanted from the "Holy Grail" in the last round of narratives. Its decline is essentially a deep-seated contradiction between the decentralized framework and the demand for financial products — there is a narrative of decentralization, but no product ticket that users feel they "must have". This is also the core factor that allows Hyperliquid to take the lead.

So, on the surface, the crushing advantage of CEX comes from its user base and liquidity depth, but the deeper contradiction lies in the fact that on-chain derivation has never been able to solve a core proposition: how to balance risk, efficiency, and user experience within a decentralization framework? Especially as the industry enters the deep water of derivation innovation, how to minimize the entry threshold for new users and maximize asset efficiency?

Recently, Binance launched the "Event Contract," which actually provides a new idea worth referencing—essentially a variant of options products, confirming the market's strong demand for simplicity, ease of use, and "non-linear returns."

From my personal point of view, if you want to jump out of the red sea of competition in perpetual contracts, for mass users, options may be an antidote that is more suitable for the characteristics of the chain - its "non-linear return" characteristics (limited buyer losses, unlimited potential gains) are naturally suitable for the high volatility of cryptocurrencies, and the "small premium prepayment" mechanism can significantly meet the simple trading needs of mass users.

From contracts to options, the promised land of on-chain derivation?

Objectively speaking, in the field of on-chain derivation, options with the characteristic of 'non-linear returns' are actually the most suitable product form: they not only naturally avoid liquidation risks, but also achieve a better risk-reward ratio than futures contracts through 'time value leverage'.

However, due to the complex components of options such as exercise date, exercise price, etc., options are not as intuitive as perpetual contracts for retail investors. This is especially true given the structural contradiction between the complicated exercise rules of traditional options (such as expiration dates, spread combinations) and the demands of retail investors for simplicity and instant trading. This mismatch is particularly evident in on-chain scenarios.

Therefore, for decentralized options products, the challenge lies in how to build an on-chain options system that can balance "Crypto capital efficiency" and "product friendliness." Here, it is quite worth mentioning the "coin-backed perpetual options" mechanism proposed by Fufuture—attempting to reshape the underlying logic of on-chain derivations through "de-complexification" and "asset efficiency revolution."

If we break down the structure of 'coin-based perpetual options', the key points are actually in its literal meaning: 'coin-based' and 'perpetual options'.

Only with currency-based can the funding efficiency of "long-tail assets" be maximized.

The core starting point of "currency-based" lies in maximizing the capital efficiency of users' on-chain Crypto assets. After all, against the backdrop of the meme coin wave and the explosion of multi-chain ecosystems, most users' on-chain assets exhibit a highly fragmented characteristic, such as being dispersed across different chains and long-tail token assets.

However, the existing protocols often require settlement in stablecoins, which forces users who hold long-tail assets such as BTC, ETH and even meme coins to either not be able to directly participate in transactions, or passively bear the exchange loss (at present, mainstream CEXs also use USDT/USDC as the settlement currency, and all have minimum transaction limits), which is essentially contrary to the concept of "asset sovereignty and freedom" in DeFi.

For example, Fufuture, a decentralized coin-margined options protocol that is currently exploring similar products, allows users to directly use any on-chain token as margin to participate in BTC/ETH index options trading, thus aiming to eliminate the exchange step and activate the derivative value of dormant assets - for example, users who hold meme coins can hedge the risk of market volatility without liquidation, and even amplify their returns through high leverage.

From the data, as of May 2025, the margin trading supported by Fufuture shows that the total margin positions of meme coins such as Shiba Inu (SHIB) and PEPE account for a high proportion of active positions on the platform. This proves that there is indeed a strong demand from users to use non-stablecoin assets for options hedging and speculation, which also indirectly verifies that "coin-based" margin is indeed a significant market pain point.

The ultimate leverage concept of "end-date options" perpetualization

In another dimension, in recent years, everyone has become increasingly fond of high-odds short-term trading with zero-day options. Since 2016, small traders have been flocking to options, with the share of 0 DTE option trading rising from 5% to 43% of the total trading volume of SPX options.

Source: moomoo.com

The "perpetualization" of the end date options actually provides users with the opportunity to continuously bet on high odds "end date options."

After all, the setting of the "exercise date" for traditional options is severely mismatched with the short-term trading habits of most users, and the frequent opening of "expiry options" inevitably becomes overwhelming. Taking Fufuture's introduction of a perpetual mechanism in options products as an example—eliminating the fixed expiration date and instead adjusting the holding cost through a dynamic funding rate.

This means that users can hold put/call option positions indefinitely, only needing to pay a minimal daily funding fee (far lower than the financing rates of CEX perpetual contracts), which allows users to extend their holding period indefinitely, transforming the high odds characteristics of "end date options" into a sustainable strategy while avoiding passive losses caused by time decay (Theta).

For example, when a user opens a 24-hour BTC put option with USDT or other long-tail assets as margin, if the BTC price continues to fall, the position can be held for a long time to capture greater returns. If the judgment is wrong, the maximum loss is limited to the initial margin, and there is no need to worry about the risk of liquidation - at the same time, you can freely choose whether to continue to roll over when it expires within 24 hours.

This combination of "limited loss + unlimited profit + time freedom" essentially transforms options into a "low-risk version of perpetual contracts," significantly lowering the participation threshold for retail investors.

Overall, the deep value of the "coin-based perpetual options" paradigm shift lies in the fact that when users discover that any long-tail token in their wallets, even meme coins, can be directly transformed into risk hedging tools, and when the time dimension is no longer the nemesis of returns, on-chain derivations are likely to truly break through niche markets and establish an ecological niche that can compete with CEX.

From this perspective, the potential of "coin-based perpetual options" as a "new ticket" may be one of the important weights that could tip the balance of the on-chain and CEX game.

Will on-chain options yield new insights worth noting?

However, the widespread penetration of options, especially on-chain options, is still in the very early stages.

Visible to the naked eye, since the second half of 2023, new players in on-chain derivation have been exploring entirely new business directions: whether it is Hyperliquid's on-chain native leverage or "coin-based perpetual options" like Fufuture, decentralized derivation trading products are indeed brewing some seeds of significant change.

For these new-generation protocols, in addition to achieving head-to-head competition with CEXs in terms of transaction speed and cost, as well as the capital efficiency of releasing long-tail assets on the Crypto chain, including memes, the more important thing is that based on the on-chain architecture, the interests of the community, trading users and the protocol can be completely bound together to the maximum-liquidity providers, trading users, and the protocol's own structure can form a community of interests network (with Fufuture). as an example of the protocol architecture):

Liquidity providers earn risk-layered returns through a dual-pool mechanism (high returns from private pools + low risk from public pools);

Traders participate in high-leverage strategies with any asset, and the loss limit is clear;

The protocol itself captures the ecological value growth through governance tokens.

This is essentially a complete subversion of the traditional CEX "platform-user" exploitation relationship, where long-tail tokens held in the user's wallet can directly become trading tools without relying on CEX. When transaction fees and ecological value are distributed to ecological contributors through a DAO, on-chain derivations finally reveal the appearance that DeFi should have—it's not just a trading venue, but also a value redistribution network.

This is actually the long-awaited "DeepSeek Moment" of on-chain derivation that the market has been looking forward to for years — allowing decentralized derivations to break through the constraints of trading experience, gradually introducing on-chain native leverage and maximizing capital efficiency in DeFi, no longer relying on CEX as a necessary link, thereby potentially bringing a larger scale leap to the market, giving rise to more boundaryless innovations, and ushering in a new "DeFi Summer."

Historical experience tells us that each round of narrative explosion requires the resonance of "correct narrative + correct timing". Whoever can solve the most painful asset efficiency problems for users at the right moment will grasp the scepter of on-chain derivation.

Written at the end

I personally believe that decentralized derivation protocols are undoubtedly the "holy grail on the chain" and not a narrative false proposition.

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

The key issue, however, is that for on-chain users, the value of decentralized derivation lies not only in providing new trading tools but also in whether it can open up a path for "frictionless flow of assets - hedging of derivation - compound growth of returns."

From this perspective, when Meme coin holders can directly participate in trading long-tail Crypto assets with tokens, and when multi-chain assets can serve as margin without cross-chain, the form of on-chain derivations can be considered redefined. This is also the leap thought process of new-generation players like Hyperliquid and Fufuture.

Perhaps the ultimate goal of decentralized derivation is not to replicate CEX, but to create new demand using the native advantages of the chain (open, composable, permissionless), and the market may have already taken a crucial step.