The price is the product

Crypto’s reflexivity never ceases to amaze me. Price rises, the protocol captures attention, new users try the product, and fundamentals improve, reinforcing the narrative that attracted everyone in the first place. Derive is the latest example.

Last week, a few prominent voices on X argued that Derive remained undervalued, while traders shared screenshots of OTM positions executed on the platform. The resulting attention helped drive a more than 170% rally in DRV last week and drew more traders to the product, contributing to an all-time high of $1.26B in weekly options volume. Through Sept. 20, monthly options volume had already reached $2.37B, 24% above the previous record with 10 days still remaining.

To assess whether higher volume was accompanied by broader participation, we looked at daily active traders and the number of options trades. Derive averaged 459 daily traders last week, up 68% week over week and the highest full-week average since February 2025. Options trade count increased 83% to nearly 11,800.

ETH reclaimed its position as Derive’s largest options market after an extended period of BTC-led activity, generating $632M in weekly volume versus $520M for BTC. Activity also continued to expand beyond the two majors, with HYPE contributing $58M and ZEC reaching $37M, nearly four times its prior week’s volume. ZEC traded throughout all seven days, while both trade count and average trade size increased sharply.

The increase in activity was accompanied by greater demand for upside convexity. ETH traders bought roughly $95M of outright OTM calls measured by underlying notional, including sizable exposure to $4,000-$5,000 strikes for 2027, although some of the largest prints formed part of structured call spreads. ZEC offered an even clearer example of speculative positioning, with traders buying calls struck as much as 145% above spot. The flow was not purely short-dated speculation, but it clearly included traders reaching for cheap, far-OTM calls offering highly asymmetric payoffs.

Despite the low probability of these far-OTM bets expiring in the money, that is precisely where options differ from perps. Once the premium is paid, a fully paid long option cannot be liquidated because of an interim drawdown. If ZEC fell to $1,000 before rallying to $7,000 by expiry, the call’s payoff would still be determined by its terminal price relative to the strike. A comparably leveraged perp position would likely have been liquidated along the way. The tradeoff is that the option premium can expire entirely worthless, making these far-OTM calls function much like lottery tickets.

In any case, the increase in options activity translated into record revenue for Derive. Fees net of rebates nearly doubled to $184K, while options generated an all-time high of $157K in weekly net revenue. Through Sep. 20, Derive had generated $332K in monthly net fees, already 19% above August’s full-month total.

I published my original Derive thesis in March and revisited it on Sept. 1. With DRV now up more than 250% since the initial report, this will probably be my last update for a while. The fundamentals have improved and the thesis has largely played out. At these prices, I would be looking to scale out rather than initiate a new position if sidelined, although bull markets have a habit of pushing assets higher than expected.

Bull markets also have the psychological effect of making everyone revise their targets upward. This is precisely where discipline matters most. Based on 30-day annualized revenue, DRV’s price-to-sales multiple reached a record 76x last week, while FDV-to-sales briefly set a new high of 113x before ending the week above 100x. Multiple expansion is not necessarily a signal to sell, but eventually price can move faster than even optimistic growth assumptions can justify.

Zooming out, we should expect to see this reflexive loop across other protocols in the current market environment: price attracts attention, attention drives activity, and improving activity reinforces the price narrative. Nowhere is this more true than in crypto, where a rising token price is often the best marketing. In my opinion, this is what justifies buybacks even for early-stage protocols, whereas stock buybacks at comparably early-stage companies would typically represent a poor allocation of capital. But that is a topic for another day.

— Carlos

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