Crypto Options Market: History, Present and Future

Seven years have passed since the official emergence of crypto options.

During these seven years, the crypto-asset market has gone from a geeky, non-mainstream niche to a behemoth with more than a 3 trillion dollar market cap. The crypto options market has become a seemingly small but integral part of growing.

Many financial products are all backed by a large number of options contracts. Investor sought-after structured products(dual currency investment, shark-fin options, theta vault, etc.) are built with options. Market makers and asset management funds use risk reversal portfolios based on options to hedge against risky positions. Various fixed income products, zero-interest lending products, and risk-free products available on the market are also supported by options.

As the market expands, crypto-asset options positions are rapidly increasing. In 2022, the market will rival major options products in the European and American capital markets, with market liquidity sufficient to support asset management-related needs of more than 100 institutions in the options market.

Unlike other components of the crypto-asset derivatives market, the high threshold of the options market and first-mover advantages have led to a relatively significant flow aggregation effect in the options market. In Q4 2021, Deribit held 87% of the options market, with crypto asset managers such as Amber Group, Babel, Matrixport, GSR, and QCP Capital all entering options-related transactions primarily on the Deribit exchange.

The on-chain options market is a new attempt to de-centralize options on crypto assets. Since the on-chain options market's independence from the insurance market in 2020, more than 50 options projects have explored various aspects of contract mechanism design, liquidity, and products. Finally, a market pattern of 'focusing on structured products, OTC trading, and risk hedging' has formed. At the same time, many innovations are made in the direction of options-like products, structured products, etc.

2022 may represent a new growth opportunity for the crypto asset options market, despite the macroeconomic tightening cycle already underway. On the one hand, investors tend to favor products with substantial and relatively stable returns in an overall weak market. The management and hedging of risk have become the market's focus again. At the same time, as the crypto asset market matures and the overall market volatility tends to decline, many exchanges have launched options products for more underlying assets to meet market demands. Additionally, options-like products represented by "Squeeth" are more adaptable to the on-chain environment and bring new possibilities to the on-chain option market while having some of the benefits of options.

We look forward to the performance of the crypto-asset options market in the coming year.