Hello everyone, great to be here. My name is Cole, and today I will talk about the history and evolution of on-chain and evolution of on-chain derivatives. On-chain derivatives. On-chain derivatives have become ubiquitous in cryptocurrency. Things like lighter and hyperlquid, and the whole ecosystem was built around these protocols.
So today I'll talk about the evolution from the early days to where we are today, and where we're headed. My name is Cole. I am the founder of Volmex Labs. At Volmex, we are a leading company in the development of benchmark in the development of benchmark indices for cryptocurrencies. We created the BV index and a number of leading volatility indices.
I was one of the first employees of the company that is now part of Kraken, and I have been following DeFi since early 2018 and doing some research, so I have a unique perspective on where the industry came from and where it is going. So quickly, Volmex, as already mentioned, became a benchmark index development company. We were pioneers in developing cryptocurrency volatility indices, including the BV Index and the EV Index, which are analogous to the VIX Index but relate to Bitcoin, Ethereum, and other assets. We also have families of other indices, including rates and other things that will be coming soon. Our indices are available on the Bloomberg terminal, Poly Market, Refinitiv, Bybit Trading View, Coin Market Cap, and others.
We have great investors and we have been working on this for the last few years. What are on-chain derivatives? It is actually an on-chain It is actually an on-chain platform that makes derivatives such as futures options available for trading in a DeFi context. On-chain markets are global markets, they are frictionless and permissionless frictionless and permissionless , and they are completely transparent. Here are some of the advantages of on-chain the advantages of on-chain derivatives.
On the other hand, there are also some disadvantages: everything is very public, liquidations, thresholds are public, and they usually have higher latency than centralized exchanges or traditional ones. They once said that pioneers are killed and settlers are made rich. So, here are some of the different verticals of on-chain verticals of on-chain derivatives before moving on to the different generations. Perpetual futures are, you know, things like Lighter, Hyperlid, uh things like Lighter, Hyperlid, uh , other different platforms, variations, which were essentially implemented by exchanges like Buy Bit, Bit, uh, Bitmax, uh, Binance, into a perpetual swap format, which has become the most common type of derivative in the cryptocurrency market. Now they are available on the blockchain.
There are other form factors such as options, prediction markets and real asset derivatives trading stocks, commodities, currencies in a perpetual wrapper. So, in my opinion, there are four generations of on-chain generations of on-chain derivatives. The first generation is something like 2017 and 2020-2019 . You have generation 2, which falls on 2021, 2023 . Uh, you have generation 5, generation, um, you know, generation 3, which is around 2023, 2025 , and then generation 4, which is probably where we are now.
So, you know, some of the pioneers in the early days of D5 derivatives development are companies like DYDX, Synthetics companies like DYDX, Synthetics , Open, Augur. Um, you know, those early protocols had a lot of the right ideas, but they were too early. And so, you know, they had order books and synthetic tokens, prediction markets. Um, Augur in particular, which I'll talk about a little later, was a kind of early version of a polymarket or Calhei, and so despite significant innovation, many of them didn't make it to the next phase of growth. Um, Dydx was a good example.
He was right about the order book being specific to the chain, uh, you know, the application chain. Hmm, it all started with the Bitcoin and Ether margin protocol, which moved to constant payments, but ultimately it's still around, and, you know, they do, um, a pretty good job, but it's not the greatest protocol. They were very early, and, um, you know, he was a little ahead of his time, but ultimately his idea with a constant his idea with a constant , um, focused circuit, um, which was kind of its own L1, was actually the right idea, roughly corresponding to what hyperfluid or lighter stuff looks like today. Hmm, and a few other protocols from the first generation. Hmm first generation.
Hmm , there are synthetic protocols that were, um, synthetic, um, for trading stocks and commodities, which were very capital inefficient, but were very early for this RWA sector. And then there were things like Augur, which was actually, um, Poly Market, before Poly Market did an ICO, one of the first ICOs on Ethereum. Hmm, he was way ahead of his time. I think they did an ICO in 2016, and did an ICO in 2016, and , you know, they launched in 2018 launched in 2018 . They had a token called or rep, and eventually they created their own oracle, their own infrastructure.
They had to create a lot of tools that weren't in the market today, with things like, you know, alchemy, chainlink, and other platforms. And again, like once upon a time , you know, another protocol is just ahead of its time. Generation 2, I think one of the distinguishing features was automated market makers and AMM options repositories. So you had protocols like GMX, Gains, Ribbon, which offered unique exposures unique exposures , but were, you know, suboptimal in many different aspects. Um, you know, GMX and the GLP model were this really interesting first step into the perpetual options market outside of, um, you know, DYDX, and before, like, hyperliquid and lighter came along.
Um, so essentially there was this very capital-intensive system where liquidity providers could provide collateral and be a kind of counterparty to traders in the system. Um, you know, GMX was also one of the first kinds of protocols to be bootstrapped; Um, you know, they didn't have venture capitalists, they had tokens, and so it came about as a result of this kind of mass movement. But ultimately, AMM automated market makers for derivatives are very, you know, they're not as scalable as order books, and order books have much more expressiveness for market makers. You can expand quotes during times of volatility and eventually scale beyond simple TVL. Option vaults were another distinguishing feature of the second-generation cohort.
Um second-generation cohort. Um , you know, basically there were different options strategies that were bundled into vaults. I think storage is very relevant these days. Um, but option repositories, um, you know, were extremely ahead of their time. After all, there were, um, you know, some protocols that worked pretty well for a long time but didn't reach the next phase of growth.
And the third generation, I would say, is largely, um, you know, classified by things like hyperliquid, polymarket, lightchain. There's really this ecosystem of scalable derivative protocols, ahem, that have their own chains. Which are attached to ecosystems, or, you know, adjacent to them, such as HyperVM or the lighter EVM. And indeed, there has been an explosive growth in volume, reaching trillions of volumes, over tens of trillions in the last few years. And I think that's really the same, you know, that, uh, that, point where derivatives will bridge the gap into DeFi.
So let's look at perpetual futures in 2025. Many of them have dedicated chains. If you look at Hyperlquid again, Lighter, they have a dedicated environment that gives them more bandwidth and more, uh, capabilities than a general purpose chain, maybe L2 or, uh, remainteret. So, you know, I think these dedicated chains or the rollout of exchanges, uh or the rollout of exchanges, uh , have unlocked a lot of scalability for these different protocols. Again , these protocols also have, you know, kind of ecosystems kind of ecosystems built around them.
Hyper EVM, a lighter EVM that allows building DeFi-related protocols, lending protocols, stablecoins, other types of protocols than DeFi around the framework and the perpetual futures exchange primitive. And one of the other important things that has become very popular in this third generation is RWA protocols. Stocks, commodities, currency; centralized exchanges have begun to reflect this. And there have also been some innovations in DeFi, such as the pre-market perspective. So I think these RWAs, sort of real- world asset protocols, have become very common in cryptocurrency, and a lot of that started with DeFi and on-chain derivatives.
So there were about 20 billion volumes and on-chain periods in the last 24 hours. There has been about 650 billion in the last 30 days, and the current open interest across various DeFi protocols, er, perpetual contracts, is about 14.7 billion. So, in fact, the market saw a historic high in perpetual trading volume on October 10th, which was a very volatile day for cryptocurrencies with many different swings. But about $80 billion worth of perpetual transactions were made that day .
So, the data from DeFi Lama is, uh, a great place to track, but, you know, these protocols are at a large scale. Thousands and tens of thousands of traders trade on the blockchain, and these systems have really started to compete with exchanges like Binance, Coinbase, and Tratify. As mentioned, on October 10, transactions worth 78 billion, 80 billion were made. Hmm, this was an important milestone for DeFi. Obviously, it was a very volatile day to feel like a failure, but, you know, it's still a notable milestone.
And many of these protocols have stood the test of volatility. And again, real assets such as stocks, commodities, currency, perpetual options have become very popular. Hyperlquid now has a sort of protocol built on top of it called Trade XYZ, which is mostly a protocol for trading stocks, you know, and real assets, like an exchange built on a hyperliquid hyperliquid backend. And they currently have, um, six markets with daily volume exceeding nine figures, and they have, um, an official S&P 500 perpetual contract with over $500 million in volume in the last 24 hours. There are also perpetual options in the foreign exchange market.
Lighter is seeing significant growth in this space. Um, you know, the daily transaction volume was 200 million at various times, and there's been a wide expansion into different types of, uh, stocks, commodities, currencies, perpetual options. And another sign of this third generation is prediction markets: polymarkets, Cauchy, other prediction markets have become ubiquitous, they are everywhere. They cover culture, prices, and sports. And these are things like binary markets, yes/no markets, multiple choice markets, categorical markets, uh, range number markets.
And, you know, at the end of 2024, with the presidential election, you saw election, you saw these prediction markets really bridge the gap in terms of what they were, you know, what they could do, and what information, you know, was coming out of these platforms. Um, there were a lot of signals from the 2024 election. So, this is one of the famous markets on the polymarket that operates on the polygon and therefore trades on the blockchain. Hmm, you know, at this point, a screenshot was taken that recorded a transaction volume of $2.7 billion, and that gave a lot of signals about where the US presidential election was headed.
You didn't have to look at the polls anymore, you could look at, you know, the markets where money was actually at stake, and, you know, put your money where the user was talking. Hmm, you know, there are also other types of markets that cover different economic events. The Fed decision events. The Fed decision is a popular, uh, type of market on Poly Market and some other platforms. And then there are things like Bitcoin price markets, Ethereum price markets, other asset price markets that really abstract the user experience of typical and traditional options contracts to a simple green- to a simple green- red button with a question mark.
And, uh, it's a really intuitive benchmark for retail investors, institutional investors, uh, you know, for accessing and trading, some options and different things. And of course, uh things. And of course, uh , Volmeax has some markets on Poly Market. We have a B-viv and EV contract with a monthly term and a yearly term. Um, and here's a screenshot.
Where are on-chain on-chain derivatives going? I think we are at a tipping point where we are truly at the fourth generation level fourth generation level . What will happen next? I think we're going to see, you know, more privacy, you know, more expressiveness with these different contracts, maybe new types of derivative contracts that didn't exist before cryptocurrencies and onchain. Um, and ultimately onchain.
Um, and ultimately , I think we're going to see, yeah, just a lot of innovation, and it's a very exciting time in cryptocurrency to be a developer, to be, well, an investor, a trader. There are a lot of different types of, you know, market participants here, so, um, it's really interesting to see where the market is going. And there has been a lot of innovation over the last few years , and we are very excited to be a part of that at Volmex. So, the key takeaways: DeFi onchain derivatives are global, they're always available, they're transparent, the systems run in real time, you know, everything is auditable in real time on the blockchain. And you know, there's actually a convergence of different designs, particularly with chains that have higher throughput and different architectures that allow for these innovations and scalability.
And again, you have the first generation pioneers, you have the second generation, you have the third generation you have the third generation , and then you have the next generation, which roughly corresponds to where we are today. And I'm looking forward to seeing what gets built and where things go. It was great to be here. My name is Cole. You can follow me on Twitter or our company Volmmex Finance.
Our website is Volmex Finance, and if you want to send me an email, I'm Cole from Volmmex Finance. So thank you Et and Kardik for inviting me, it was really nice. Thank you.
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