Kool Krypto：匿名 DeFi 投资者的故事，以及他在本轮周期押注什么

People kind of just forgot to believe a little bit in the industry. Everybody's been so battle-scarred over this horrible stretch of months that a lot of people forget that what we've been thinking about for the last 5, 6, 7 years is finally coming to fruition. Things happen a lot slower than a lot of people anticipated.

I actually think that the options market is a great example of that. The amount of toil and torment that the Derive team, or any options team, went through thinking, “This year is going to be our year”—they probably thought that for 5 years. A lot of these things just take a lot longer to build and mature than people realize.

I really do think very strongly that we're hitting that tipping point on a lot of institutional adoption and on a lot of these different types of products—really hitting the point where they're actually net useful to the world and are actual improvements. I think people need to raise their expectations quite significantly. Everybody's so quick to sell a 10% pump, but for a lot of these fundamentally mispriced tokens, I think the really big mistake is selling too early.

I'm sure I'll round-trip a bunch of them. That's just kind of how it is and how I've always been. But a lot of these things that I'm betting on are fundamental reratings, not small little price jumps. These are massive, massive, massive cap-expansion types of things, and they're the kind of bets that are pretty easy to underwrite.

For most people who follow along with these types of bets, I would just say: raise your expectations, learn to believe a little bit again, and zoom out, essentially.

1. From mining BTC at 13, to trading, to fund manager

Guys, I don't think this has ever happened before, but we just talked for close to an hour with Kool before going live. I wish we were recording the whole time. I think we've stumbled upon what's going to be an absolute gem of a podcast. I don't say this every time, but you have to listen to this podcast. So, coming into this podcast, we were going to do a new show format called The Thesis, featuring traders and investors with real skin in the game and showing real edge in the open. We're still going to do that, but I think there's a lot here about Kool's background that we have to get into. So why don't we just start right there?

2. Why Kool doesn’t trade memecoins

You told us some absolutely crazy stories before we started rolling, but maybe take us back to a bit about your background—who you are and how you got into this crypto journey you've been on.

I've been around for too long. I was joking with you guys that I'm 29 now, and I've been in since 2010. I've spent over half my life in this godforsaken industry.

I used to build computers for all my friends in high school. This was back in 2010, and I would compete with other people on the Tom's Hardware forum and try to get the best build for the lowest price. That was kind of my first introduction to Bitcoin. I was also a pretty hardcore anarcho-capitalist libertarian. I was making spreadsheets trying to fix Social Security back then. I was a bit of a nerd.

The whole Bitcoin thesis resonated with me instantaneously, more as an asset class—a decentralized dollar alternative—without really appreciating what it would fully become or the rest of the DeFi ecosystem. I mined a bunch of Bitcoin from 2010 to 2014.

3. Kool’s bull thesis for KNTQ and its Hyperliquid L2

People always ask, “Why are you still here?” To be fair, the real answer is for the love of the game. But it's so hard to have made a ton of money at that point in time and actually have kept a ton of it. Back then, you were lured into Peercoin, Dogecoin, Mt. Gox, and all these other things. There were so many pitfalls, and even if you could have gone back with all the information you have right now, a lot of people would still have lost everything in one of a dozen different types of Ponzi schemes, coins, hacks, and everything else from back then.

From 2015 to 2017, I started running a whole different business and was a bit more checked out of crypto. I still held a decent amount, but I wasn't as actively interested day to day. My focus was elsewhere.

Then, especially during very early DeFi summer—around late 2016 and early 2017—everything really clicked for me with Ethereum. I became a huge ETH bull. I switched everything I had over to ETH, ETH DeFi, and ETH beta, and I was a super-early user of ETH and all the other very early iterations of ETH DeFi.

The whole thing for me was being able to borrow against my crypto without having to sell it, creating a taxable event, and then deploying that money into other yield-generating businesses—or using the crypto I had to generate yield for the operations of my business. There was this very synergistic cycle that I went through for a couple of years.

Then, in 2021, I had a very lucky situation where I met some very high-net-worth individuals and some TradFi hedge fund managers at a poker game. They set me up with a very prominent family office in New York that was very interested in crypto at the time, and they seeded a fund for me that I've been running ever since. That's my origin story in crypto.

4. The light bulb moment with DeFi and Ethereum

Maybe we can go back to some of the early convictions you held that led to winning trades and investments. There's a lot in your background, without doxing you, that we want to dig into here.

It sounds like you were very early to Bitcoin, but it also sounds like you were very early to primitive DeFi. I think you mentioned ETHLend to us when we were talking before recording. What can you recall? What were some of the major light-bulb moments after doing so well with Bitcoin?

It was the ability to borrow. Coming from my business, I remember how hard it was to get a small-business loan. There were mountains of paperwork. You had to prove this, show that, and deal with everything like that. When I realized, “Wait, I can just load up $1 million of ETH into a wallet and take a $500,000 loan at 2% interest,” I thought, “This is insane. This is going to change the world.”

That was my biggest “aha” moment in realizing that Bitcoin wasn't just a pet rock. This was the building block of a much, much larger digital ecosystem. That was when my conviction flipped almost on a dime from, “This is cool. I was early to Bitcoin, very lucky, woohoo,” to, “There's actually a business to be made here. There is a lifestyle that you can fund from yield generation, and there's trading that can be done here.”

Prior to that whole ETH summer, I didn't really consider myself much of a trader. I was a very fortunate investor, and more in the textile business. I was just a very early miner of Bitcoin, but there wasn't really anything trading-related about that. I wasn't swing-trading it at that point in time.

When ETH summer came along, that's when I really threw myself into understanding what it meant to trade all these different types of assets and generate yield. What does liquidity provision look like? I was entirely self-taught. I didn't go to college at all, and I had no financial background whatsoever.

Having to teach myself all of those different primitives early on was what really got me into it, because I realized that if I could get into this sort of stuff, anybody would be able to access it. It was going to be very accessible for the entire world to use. That was the big thing for me.

5. The poker game that led to his fund

I want to go back to the family-office meeting. We talked a bit about this story offline, and I will say it's a very notable family office. You may have heard of it.

I want to get into that meeting just a little bit more because, the way you phrased it, you were just rubbing shoulders at this poker game. I think you said you realized that you and the guy you were sitting with at the poker table were both shorting the dollar.

Maybe just take us back to that moment, then back into this meeting with the family office and how that relationship has evolved over time.

6. Pros and cons of options vs perps

Sure, yeah. It’s actually going to be a bit of an interesting tangent. There were a couple of really big TradFi guys who were quite early to Bitcoin and got it very quickly. I think what really got this conversation going was that I had this thesis—and I didn’t actually get into this a ton with you guys before this—that the United States was going to really go after stablecoin proliferation as a way to maintain dollar hegemony over the rest of the world.

It’s also a very timely thesis to talk about right now, because this is exactly what we’re seeing. The United States has really thrown itself into wanting to proliferate as many stablecoins across the world as possible to maintain dollar dominance. It’s also a very important trade because they’re just trying to completely sell out of duration, and they need to have this sink, essentially, for all these short-dated Treasuries. That’s kind of what stablecoins are—the whole vision.

When you see Bessent, Trump, War, and all these guys be extremely pro-stablecoin, that’s the exact thing. It’s a very important piece of the puzzle for them in order to get rates down. That was the topic we were talking about. The whole thing was, “Why isn’t the United States more pro-stablecoin?”

This guy had a background working at the Fed and everything like that. He was like, “I’ve only ever regarded crypto guys as these stupid bros who are like, ‘Oh, meme coins and Bitcoin,’ and everything like that.” He said, “This is the first time I’m hearing someone talk about it as a meaningful way to actually change the position of the dollar in the world, potentially.”

That conversation clued him into the fact that this was maybe a little more of a mature conversation that we could potentially have about crypto. I was also talking about throwing around terms like delta-neutral returns and risk-adjusted returns. It’s not like you’re just YOLOing your account into Bitcoin; you’re actually looking for arbitrage opportunities and edge in the crypto markets.

7. How much is TradFi “in the arena” with DeFi?

I think that was a very good Trojan horse to get a lot of these TradFi guys interested: acknowledge that crypto at that time was silly, but point out that there were many arbitrage opportunities as a result of how silly it was. I think that’s how they squared that circle in their heads. For a lot of them, there was this level of career risk where they didn’t want to be the first guy to come into crypto in a big way and look like an idiot to everybody else. But if you told them, “We’re actually going in to take advantage of other people’s stupidity and all these inefficiencies that are inherent to crypto,” it was a much easier sale at that point in time.

Would you say traditional finance is more involved in crypto—specifically DeFi, and stablecoins in particular—than folks assume, or would you say there’s still quite a bit of ignorance about the state of DeFi?

It’s both. When you saw how well the Circle IPO did, I think it’s because a lot of people don’t realize this, but secondary to Bitcoin’s store-of-value, gold-alternative thesis, I actually think most TradFi institutions got the stablecoin thesis much faster than they’re currently getting perps, RWAs, and tokenization. Those are now the big themes that a lot of them are starting to catch on to.

Stablecoins were the second-most-understandable thing. When you talk about cross-border remittances and payments, and everything being much cheaper, faster, and more quickly settled, that’s a very low-hanging fruit. It’s not extremely esoteric for these guys.

That’s why you saw the Circle IPO skyrocket. All these guys had 2 mandates in their portfolios. At first it was, “Okay, we missed Bitcoin. Not great.” But secondly, “We can’t miss stablecoins, because that’s where the money is really going to be made.” At least, that’s what a lot of them thought.

A lot of them have very nuanced, very good—probably even superior to a lot of crypto-native—views on stablecoins specifically, because they really understand the regulatory side and the distribution side. That’s why you see so many different banks and institutions trying to spin up their own stablecoin, too.

It’s the sexiest business in the world. Who doesn’t want to collect Treasury yield and maybe pass the float, maybe not, depending on regulation? That’s why so many of those guys immediately got interested in it. That was the first thing they looked into.

Something else we were talking about was how people in crypto, or crypto natives, sometimes think the TradFi world is perfectly priced—that everything is priced in. You were also talking about the Robinhood launch, and how you were speaking to people at this family office and filling them in on what was happening—basically, how big a line item Robinhood Chain was becoming for Robinhood, or HOOD, the stock. It felt like they were totally oblivious to what you were saying. Maybe walk us through that.

You don’t even really need my word for it. It was pretty easily demonstrable just from the price. If you go look at a DeFiLlama chart of their TVL and revenue from sequencer fees for 2 or 3 weeks before the price really started to re-rate, you can see it.

I actually know exactly what happened. There was an article put out—I forget by whom—on a Friday afternoon, and a bunch of people finally saw it. They needed someone to bring it to their attention, and then on Monday morning, HOOD was up 10%+.

Nobody was really pricing it in. In their defense, I’m talking about a time frame of days here. They weren’t weeks or months late, like they have been to some other narratives in crypto. They were days, maybe a week or 2, late to this. But to this day, there just aren’t enough eyes on crypto taking it seriously.

You’d be surprised. You would think all of these guys were looking at pre-IPO pricing markets on Hyperliquid. Don’t get me wrong, there absolutely are some extremely sophisticated TradFi guys out there who are incredibly keen on looking at crypto for signal. But there are guys with multi-billion-dollar precious-metals positions who had no idea what funding rates were on copper, gold, and silver earlier this year.

It’s just not something they’re really looking at for signal, and they’re not gleaning as much as they could from it. I think the TradFi guys are incredibly good at the new meta that’s coming up in crypto, where we’re talking about P/E ratios, P/S ratios, and all these sorts of things. That type of meta really fits their skill set.

But there’s still a ton of edge to be had against a lot of TradFi natives, because many of them don’t really use a lot of this stuff. There’s a lot of insight you can have just by being on the ground floor of these things.

8. How Kool got into onchain perps: GMX, Gains, Hyperliquid

Can we go back to Hyperliquid for a second? You mentioned to us earlier that you clearly did well with the airdrop. It sounds like you had a lot of conviction in Hyperliquid, but walk me through some of the thoughts you had on on-chain perps. It sounds like you were betting on GMX and Gains at one point. You had experience on BitMEX in the very early days of its glorious run, until, again, I feel like the on-chain perps took over.

Just talk us through that evolution. There are a lot of folks who probably missed the Hyperliquid airdrop but believed in on-chain perps. Where did that conviction for that setup come from?

For us, it was one of those things that, when you’re at the fund level, a big thing for us—one of our mandates—was that we wanted to generate a lot of risk-off carry, essentially. That’s a huge topic that TradFi guys love: generating carry, delta-neutral yield, and these types of concepts.

The really easy version of that was basically doing what Ethena did before Ethena even existed: carry trades and basis trades. GMX at the time was absolutely amazing for GLP yield back then.

You literally got to beat the house relative to a casino in that analogy, and it was obscene. You had such an amazing run there where it was generating multi-dozens of percent of relatively good yield. It was just a good basket to hold.

The original iteration of GLP was amazing. That was half the fund, just letting it be in GLP, and it was a very, very good trade. But I think we also very quickly realized that this was such a zero-to-one step toward an actual instrument.

I think even now, this is why TradFi is just starting to realize how superior perps are as an instrument compared with the rest of what the world has used all these years. For us, getting early into perps, like you said—Gains and GMX especially on the decentralized side—we realized, “Wait, there are going to be tokens tied to these protocols.” These were the first value-accruing tokens. These were the first tokens that did buybacks and burns and distributions.

It was actually a funny thesis. I kept sending out these emails to investors saying, “Currently, value-accrual mechanisms and tokenomics don’t matter, and things aren’t being priced properly, but eventually they will.” Then I sent out another email the next quarter saying, “Currently, things are not being reflected in price, but eventually they will.”

GMX had a really great run, and that was a good performer for us. But it took a long time for people to realize that the tokens tied to these protocols just printed money. It was incredibly obvious to us from the beginning that the TAM of these protocols was going to be biblical, but the ability to have a token that internalized all of these excess trading fees and potentially liquidations and all these other things was going to be astronomical as well.

We longed Gains, and it went okay. We longed GMX, and it went quite well. For the Hyperliquid trade, it was an extremely high-conviction thing. I was trying to scrounge up buying points from people in the market.

9. Running a liquid fund, yield generation, and a little VC

A funny story is that we had to mark our points internally in the fund because these points were what we had to credit investors with. We had to say, “Okay, there’s a value to these points.” I kept marking them on the high side, but it’s one of those things where it’s way better to be low than high. I didn’t want to tell people, “I think they’re going to be worth X.” I was saying, “These are going to be worth $8 a point,” which was extremely bullish at the time, but I really thought they were going to be worth quite a bit more.

I remember every month just rerating them up and up and up, to $2 a point, $4 a point, and $8 a point. At one point, there were really early primitives of those protocols—different things like L point and the whale thing—where people were trying to OTC points from one another. I was trying to find as many different ways as possible for us to find points.

What we found that was incredibly good for generating points was doing very rudimentary market making on the perp spot market. If you did a lot of perp volume back then on the spot ticker, you got thousands of points a week. It was extremely incentivized, and the moment we found that out, we went incredibly hard into it.

Looking back on it, the P&L of that particular trade is revolting. I think we might have spent $2,000 in fees market-making the perp spot market but gotten 20,000 or 30,000 points from it, which is now worth—I have no idea how much, but tens of millions at this point. That was a very large maker trade for us, essentially.

I will say, too, that it was interesting. My partner wouldn’t love me telling this story, but it’s funny because the TGE was at 4 a.m. He was in a different time zone from me. I wanted to buy more at TGE, and he wanted to sell some of our point allocation at TGE.

He was completely well-reasoned in why he wanted to. He was like, “It’s going to come out at a $2.5 billion to $5 billion FDV. That’s the ceiling for perp DEXes. It’s going to be like every other airdrop, and it’s just going to dump. We got a nice, chunky airdrop. Let’s just sell.”

I was like, “No, no, no, no, no. This is going to go to a minimum of $20 billion.” He was like, “No, there’s no way. That’s crazy.”

Up to that point in time, our biggest positions were 10% positions. We had these caps on what we were allowed to hold. As HYPE went up to $4, $6, $8, $12, and $20, our position kept creeping up. I kept adding to it as well.

Then everyone at my fund was like, “Okay, we have to sell now. We actually have to sell. We literally have to sell.” I was like, “Okay, everybody, shut up. We’re just going to keep holding this.”

We even broke some of the previous rules we had set for ourselves because we thought it was such a generational trade. At that time, I didn’t have a Twitter account, so I wasn’t putting it out there, but I was probably one of the few people who genuinely believed it. I remember telling my partners, “No, this is a $20 billion to $50 billion TAM thing. It really hits what it is.”

The fact that it’s even trading north of that now is very gratifying, but we were extremely high-conviction that it was going to get to this point.

Dude, what an epic story. I’m trying to go back to your headspace when you were writing these investor letters and talking about the value of the points you were accruing. They must have thought you were absolutely crazy.

But that is the world we’re in, right? We’re right out on that bleeding edge, and to realize that massive prize, you had to be a little bit crazy in that moment. I want to ask you a bit more about the makeup of your fund. I don’t want to dox your fund, but who’s in the fund? Who’s part of it, and what are the broader strategies that you’re involved in?

I believe it’s a liquid fund. Are you doing any sort of VC or early investing as well? Maybe just break it down for us.

We do a little bit of everything. To give a little context, when we first started, the mandate we gave ourselves was to shoot for around 50-ish% exposure and try to subsidize that lack of exposure with a lot of yield-generating strategies.

The thesis was basically that Bitcoin—or crypto in general—was such a high-volatility asset that it was always good to have a ton of dry powder ready to deploy, and deploying at those extremes was worth much more than having a static, high-exposure number. A lot of other liquid-token funds might have a mandate to be fully exposed at all times, for example.

I think that’s a mistake in an industry that pretty habitually has 80% or greater drawdowns. For us, the whole thesis was to have a band of exposure that rebalanced between generating yield and buying at the lows. That’s a very oversimplified version of it.

The nice thing about that is that it fits naturally with the way crypto works. When crypto is trading extremely bullishly and there’s a ton of euphoria, there also tends to be a really large amount of delta-neutral arbitrage trades. Funding rates were 15%+ annually, especially back then. On dYdX, there would be hilarious rate dislocations of multiple triple digits for weeks at a time on pretty basic assets.

It was nice because when you wanted to go risk-off, there were a ton of very juicy arbitrage opportunities. There were even multi-month premium basis trades on the actual Bitcoin futures that existed back then and don’t really exist now.

At the lows, it was much more attractive to do a little bit more liquid VC. We never got extremely into actual VC because it’s just not really our area of expertise. That’s changing a tiny bit now—we’re looking into more VC-style deals.

Crypto has also morphed into this interesting situation where there’s actually not as much pure VC as there used to be. A lot of it is this very liquid VC. You’re farming points, you’re going to teams and working with them, and there’s a lot of stuff in between.

We participate in some of that—liquidity-farming deals and things of that nature. We’ll do some of that, but our edge is more in liquid markets and actually trading.

For me, I’m much more of a fundamental investor. I probably should have mentioned this before, but my guiding principle for everything is literally: use everything, own what you like, and own what you use.

I traded a ton on GMX, so I wanted to buy a ton of GMX. I traded a ton on Hyperliquid, so I wanted to buy a ton of Hyperliquid. I traded a ton of Drift, so I wanted to buy a ton of Drift. I think I have enough experience using these different instruments that if I really like something, I probably should own a lot of it.

And that's been a pretty good guiding principle for us this whole time.

Before we start getting into some of the ideas for trades and long-term holds that we've seen you post about on Twitter, one thing that's been in our industry news lately is the mania on Robinhood Chain. A lot of that activity is being driven, I guess, by the FOMO mobile app. You can trade on multiple chains through FOMO, but Robinhood seems to be the favorite there, and there are lots of memecoins trading.

We've seen this play out with Ethereum, where there was a whole memecoin era that played out on Ethereum mainnet, especially during DeFi Summer. What can you tell us about what's going on there right now? Do you trade that? Are you buying and selling memecoins, or do you avoid them? What are your thoughts?

No, I don't really touch memecoins particularly much. There are a couple of different reasons. On a more fundamental level, I just don't have a ton of edge on memecoins. I think if you have a really good pulse on culture and just know which one is going to take off, some people may have that and some people don't. I don't even think that's as real as people give themselves credit for.

I think it's so much survivorship bias. You see the people making millions on memecoins, but you don't see the other billion people who lost everything they put into all these different memecoins. I think it's extremely extractive. On a more spiritual level, I kind of hate how much it distracts from all the good things happening in crypto.

For those of us who've been around this long, it's finally feeling like we're on the precipice of really hitting what we've been building toward for more than a decade. Every time we have some stupid memecoins getting a ton of attention, like the laptop situation, it's such a distraction from an industry that's really cleaned itself up over the past couple of years. So I kind of hate them on that level.

I also have nothing against people who love trading memecoins. It's totally fine. It's just a pure beta asset; it's complete degenerate gambling. If that's what's interesting to you, then absolutely fine. I think the protocols that monetize it are extremely good investments. If this is what people want, those protocols are going to print a ton of money doing it.

But it is one of those things where we should just be honest: this is a casino. This is just another version of a casino. Let's not try to dress it up as anything. I do take some issue with the fact that people say, “Oh, this is such durable revenue. Look at how much money they’re making.”

The reason Pump.fun was valued at such a low valuation wasn't even because people didn't think the revenue was real, per se. It was because they don't know how sustainable it is. It's so easy for that whole thing to dry up practically overnight. It's hard to put some multi-year annualized P/E ratio on Pump.fun compared to Hyperliquid, because I can feel pretty confident people are going to be trading Hyperliquid over the next year, the next 2 years, potentially the next 3 years. I have no idea what's going to happen with memecoin appetite.

I think, especially with memecoins, it's such a wealth-effect type of thing. In the same way that the regular economy views Bitcoin as a sponge for excess liquidity, it's kind of the same thing for crypto natives. When there's just a bunch of hot money sloshing around in crypto, people say, “Hey, you know what? Let's just blast it into memes.” I always kind of see that as a top-ish signal as well.

So, yeah, I have nothing extremely against them. Well, I guess I kind of just ranted about how much I do have against memecoins. But I don't personally trade them. I don't really have any edge there.

Yeah, same here. I've made a few trades over the years, and more recently I did try FOMO. There were some infrastructure plays there on Robinhood Chain. I mean, they've been wild. Obviously, plays like the launchpad pawns have gone up a lot.

That said, I get why folks turn to memecoins because they see the fast money. I think you make a good point about making sure more people realize that there's a lot of unrealized P&L. There's a lot of round-tripping—unbelievable trades turning back into an actual loss. You pointed out that you don't really have any edge in making that memecoin trade.

10. The DRV bull thesis

That's where I think, if anything, the memecoin trading happening on Robinhood reminds folks that there's a 24/7 market available through crypto. In most cases, you have the freedom to buy and sell whatever the hell you want. Although some people may be overindexing on memecoins, there are really undervalued protocols that are still in the earliest innings of their development and growth.

One of those, in our opinion, has been Derive. We've covered them twice on the podcast in the past 6 months. We literally just released an episode on some of what we know about Derive V3, which is expected to ship sometime in September. Full disclosure, I'm holding a small position in Derive, but I just want to call that out. Anytime we hold a position in a token we talk about, we disclose it.

You have been very vocal about Derive much earlier than I am being here right now. Tell us what's given you the conviction to bet on Derive. Derive as a project almost got bought out by Synthetix. Derive has had to go through some challenges and recapitalization. I think they had to mint 500 million tokens before really having this run-up over the past year. Just tell us a bit more about your thesis on Derive and what's played out there in DeFi.

Yeah, as almost a direct segue from memecoins, options have that same level of, quite literally, optionality in terms of how convex the payoff structure ends up being. I think a lot of what attracts people to memecoins—“I want to put in $10 and make $10 million”—is similar to what options were initially there for.

I think that same trend, where people want to have these extremely convex payoff structures, was a big thing going into the Derive trade. People thought, “Well, people like this. It's significantly better for people to just put money into some super-deep-out-of-the-money calls on Derive instead.”

The way the whole Derive trade came about came from 2 different lenses, essentially. First, as an actual fund, it was incredibly unpleasant to access options at an institutional level. It was annoying to get onboarded onto Deribit. They're very stringent with regard to their KYC and KYB, and there are certain countries that are completely normal but that you can't access them through.

For us, Deribit was one of the last exchanges we were able to get onboarded onto, and we had to do it through a prime broker, which added extra fees and complexity. After that, we predominantly switched to doing over-the-counter options.

For reference, that's when you call up a Wintermute, a Flowdesk, Galaxy, or whatever, and say, “Hey, in chat, what's this call priced at? What's this put priced at?” They come back in an hour or so—maybe, who knows, maybe not at all on the weekends—and they'll respond to you. The whole process sometimes takes 2 or 3 hours. Sometimes it's super fascinating.

Then they'll send you a trade confirmation, and at a fund, you have to have administrators and auditors who see everything you're doing. They make sure all the transactions you're doing are legitimate.

They see all these things. They have to audit everything, and the problem is that when they see these complex options transactions, they have no idea what’s happening. You have to explain, “This part’s the premium, this part’s this, and this part’s that.” It added so many hours of extra work and hassle.

It quite literally is the entire thing that DeFi and on-chain finance were built for: everything being done seamlessly, automatically, and in a trustless fashion. An auditor could literally see, “Okay, you did these 3 options trades. We can see them on your Derive account.” It’s incredibly easy.

Funnily enough, most of these OTC desks are now building out something along the lines of Derive, but they’re not able to face retail traders. This is actually a concept I don’t know how much we want to get into, because a big thing about Derive that I want to convey to people is that Wintermute, Flowdesk, and others are never going to face you directly. They will not trade directly with retail people. It’s not possible from a regulatory standpoint, and they just don’t want to deal with people who don’t have essentially $1 million accounts with them.

What they do is go onboard through Derive as an RFQ partner and quote whatever you put in there. I’m trying to think of a good way to explain this concept to people, because it’s hard to convey that Derive is probably the purest expression of regulatory arbitrage. Wintermute, Flowdesk, and all these other firms want to face retail traders on options, but they can’t. They don’t have the infrastructure; they would need teams of thousands of extra people to trade with everyone saying, “Hey, I want to buy 1 call.”

Derive allows them to do that, and it’s actually an extremely important part of the bull case. The problem is that when I get into the weeds of that, everyone’s just like, “I have no idea what you’re talking about, dude.” They don’t really have the context. If you’re describing what you think is Derive’s edge at almost a first-principles level, I think it’s worth trying to get that explanation out.

I followed that, and I honestly think people watching this episode are going to be able to keep up with it. I would encourage you to get it out there if this is what you think is Derive’s material edge, because it’s important.

When it comes to your bull thesis around Derive’s token, DRV, what do you think is widely misunderstood about Derive? To me, Derive is a very complex platform. A lot of us don’t have a background in trading options, and there’s a lot of the architecture that’s hard to understand. It seems like you have a better understanding of that, and this is maybe part of why you’re so bullish on their outlook over the next few years.

I think there are a couple of really big misconceptions around on-chain options in general. The way I stumbled across it was when it was trading at around a $50 million FDV, give or take. I looked at it and thought, “This just seems like such a fundamental mispricing.”

I think one of the reasons it was trading so low is that on-chain options had been tried repeatedly. You had Ribbon, which then turned into—you had all these other different things—and everything failed. Everything was horrible. Everything went to zero. A lot of people had this very jaded view: “Okay, on-chain options are never going to be popular.”

I think guys like Flood, for example, put it in people’s minds that on-chain options had been obsoleted by perps, which is an incredibly oversimplified view of the dichotomy between them as actual instruments. I think perps and options are amazing when used together, and it’s silly to look at them in isolation. They’re very much meant to be used in conjunction with each other. This whole debate—whether perps are better than options or options are better than perps—is silly.

A lot of people thought, “Okay, on-chain options aren’t going to be a thing.” Derive was trading incredibly cheaply, so I looked at it and thought, “We trade a bunch of options at the fund right now, but we do a lot of options OTC, where we go directly to funds or directly to Wintermute and others.” We were dealing with this incredibly laborious process: we’d ask for a quote, they’d come back in an hour, we’d execute on it, and then they’d send us our tokens, or we’d send them our tokens, 2 hours later. Then we had to do all this other off-chain accounting.

It was a massive pain every month with our fund administrators. They would have to see what trades we did, how they settled, when they settled, and what each strike settled at. It was a very unpleasant process.

I started trading more and more on Derive organically. I went back to it and thought, “I haven’t used Derive in a long time.” I had a conversation with Nick, the founder, because when we were more focused on yield generation, they had a strategy called sUSD Bull and a bunch of other things back when they were called Lyra. We had a ton of Lyra tokens and always had a bunch of money on the platform.

He said, “We always wondered who that wallet was,” and I said, “That was me.” Then I came back and started trading options instead of just using it as a yield-generation engine.

I started trading on it and thought, “It’s actually pretty good.” When they added their RFQ system—which is another misconception we’ll get to—it immediately made everything much easier. For people’s information, RFQ means “request for quote.” You put in, “I want to buy 100 calls,” and a bunch of market makers respond with their prices. The best one gets shown to you.

That’s different from an order book, where you have to manually go in and place a limit order against whatever resting liquidity people have left. When they added RFQ, which is particularly conducive to people trading larger sizes, everything became much easier. You can ask for whatever structure and whatever size you want, and within 5 or 15 minutes, a market maker will respond to your quote and you’ll be done.

We started putting in a lot more volume, and I found myself using options much more as an instrument than I had in the past. One interesting misconception is that I was some options guru or market maker from the past. I hadn’t really traded options heavily before this year. I did a little bit last year, and they’re intuitive enough that you don’t need to be a genius to put on a basic structure, but you do kind of need to be a genius to be particularly good at them.

I sit at a very retail level, I would say. I know what I’m doing with options, but I didn’t trade them at some other fund previously or anything like that. There was a lot of learning for me, and AI has been a great tool to help me learn which structures are best suited for different environments and regimes.

We started dialing up the volume on Derive very organically, and we realized that it was actually a superior instrument and experience, even relative to perps and the alternatives. That’s a pretty controversial take, but I think if people haven’t experienced trading options OTC or on Deribit and then move over to Derive, they’ll see a notable improvement—more so than going from the first-best perp exchange to the second-best perp exchange, for example.

It was a huge quality-of-life improvement for us, and then it kept getting better. Liquidity begets liquidity, and attention gets attention. Because we started trading more size there, more market makers became interested. Quotes started becoming much tighter because there was more competition for them, which created more liquidity. Then we started doing more volume because there was better pricing, and it became this very virtuous cycle.

It’s really hit a crescendo for them in the last 2 or 3 months. Liquidity has gotten dramatically better.

It feels like they own the HYPE market these days. In fact, nobody even trades HYPE on Derive, for example. There’s no price discovery happening on Derive; it’s a teeny-tiny market for HYPE. I think you’re going to see that more with altcoins that keep getting listed on new options markets, like ZEC, for example.

Some OTC desks aren’t even allowed to trade ZEC. That’s a thing a lot of people don’t even know. You can’t go and trade ZEC with some of them because it’s a privacy coin, and from a regulatory standpoint, they’re not even allowed to.

A whole other topic, which we talked about before, is the fact that, from a regulatory standpoint, a lot of these options market-making desks won’t even face retail people at all. They’re not allowed to; you have to be an institution, and you have to be a certain size. For Derive, the huge advantage is that they’re basically allowing all of these desks to face retail without there needing to be any real structure on their end.

That allows both retail traders to get access to an instrument that they just didn’t really have before, but it also allows all of these desks to get an entire consumer base that they didn’t have before. That’s a pretty huge component of it.

11. Breaking down Kool’s $3.5M BTC call spread in Sept

Okay, cool. I think I saw a reply to something Base 16z said. He was asking, “Hey, how are you getting filled on Derive?” I think you replied, “99% of your orders through Derive are now through this RFQ.” But I want to get into a trade that you shared recently where I think a guy called you out, or was trying to clown on you, by basically saying, “Everybody who likes the Derive token isn’t actually trading on Derive.”

Basically, he was insinuating that you might be a liar, and then you flashed this card up where you had a $3.5 million win on a BTC call. We’ll put this up on the screen so people can see it, but I want you to walk us through what you actually did here, what your insight was, what this position actually was, and break it down for people listening. What is the anatomy of this trade, essentially? Could you walk us through that? Do you know what I’m talking about—the one I’m talking about?

Yeah, very much so. That was a good one. It was right around when Bitcoin was ranging at 62K to 65K. I think it was around 64K, that one in particular. We had a thesis that extreme upside was very mispriced in Bitcoin.

I think you see these very choppy, consolidation-type summers happen all the time in crypto. All the TradFi guys are on vacation. We’re all just here wallowing in misery in a 5% range in crypto.

A lot of people have recency bias where they look at what has been and assume that it will continue to be. That’s extremely prevalent in options markets. The way volatility gets priced is forward-looking to a degree, but it’s also incredibly influenced by recent price action.

Bitcoin was trading in a tiny range at that point. Volatility was trading at its 1st, 2nd, 3rd, 4th, and 5th percentile in the last couple of years. It was incredibly low. What that essentially means is that future price movements were being priced incredibly conservatively and very pessimistically. A huge move might be a move to 66K or 68K.

We thought it was 2 things, basically. We wanted to express a long-volatility view, but the way people tend to express long views is with what are called straddles or strangles. They say, “I’m going to buy a put and buy a call at the exact same price. It’s going to go in one direction, and if it goes extremely in one direction, I’m going to make a bunch of money.” That’s a pretty pure way to express a long-volatility view.

But we didn’t really want to express it to the downside. I was pretty comfortable with the fact that I thought we had bottomed out. I think we had climbed the wall of worry around all the Saylor overhang. I really liked what I was seeing. I didn’t necessarily love his exact handling of selling a little bit of Bitcoin and buying back some STRK and everything that he was doing, but I think it had gotten to the point where the worst was behind us.

I only wanted to express the view that if we broke out, it would be extremely meaningful. It would be what’s called a gamma event, essentially, where all these people would be caught offsides. Tons of people would have to chase the move, and a lot of people would be feeling underexposed.

When it was around 64K, I bought a ton of 70K calls and sold a bunch of 80K calls for September to help pay for it. It’s called a call spread. The reason I mostly do call spreads on Derive is 2-fold. One, it’s generally better, in my opinion. It may be an oversimplistic way of putting it, but it is the way I perceive things: let’s get levered exposure to a chunk of price action.

You’re overpaying massively if you don’t sell those 80K calls, because now you’re getting all this exposure to, “What if the coin happens to go to 100K in some 7-standard-deviation crazy event?” That’s a part I’m willing to say, “I’ll forgo that,” if I only want levered exposure to that 70K-to-80K move.

Those calls were extremely cheap at the time because volatility was quite cheap, and they were also quite out of the money. We loaded up on a ton of them at that point. That’s why the P&L was particularly high on that trade, because pretty shortly after, even before the expiry, we rallied exactly to 80K and a little bit over.

I slowly trimmed out of those calls since then and basically booked the entire trade as P&L. I still have a little bit of the 80K calls left sold for the end of the month, because my view is rangy and slightly bearish toward the end of the month. I’m leaving a few of them sold for now.

12. The benefit of Derive’s RFQ-powered trading

It was basically just a view that people were radically mispricing extreme upside, and it was a very cheap, asymmetric bet.

So when you’re profiting from that strategy, are you normally selling those calls? I guess what I’m trying to get to is: who is ultimately the buyer of those puts and calls when folks have these extremely profitable trades on Derive? That’s where, again, it’s probably my own ignorance, with very little experience with options.

You’re actually asking an incredibly good question because it’s a very good source of alpha, especially for people who are doing a bit of size and know how to navigate Derive. Everybody that we’re trading with on Derive is an OTC market maker. One of the cool things, too, is that they don’t have to be a market maker; it could be anybody.

Occasionally, I’ll make positions if I happen to see an RFQ pop up and I’m just there at my desk thinking, “Oh, I’ll bid on that.” The whole point is that anybody can go in there and be a maker.

This gets into another concept that we didn’t really touch on before. The guys at Flowdesk always complain that their BD sucks and that they have really poor order flow. They want more people like me coming to them and executing options through them. Wintermute, on the other hand, despite being crooks, are incredibly good at BD. They have a lot of family offices go to them and do this sort of stuff.

The nice thing about Derive is that anybody can not only stumble upon it as a user, but anybody can also stumble upon it as a maker. They don’t need to have a team of 20 BD people going and sourcing these things; they’re just going to come in passively from people accessing it.

The big thing that I don’t think Nick talks about enough is that, in the future, when people have AI agents and bots and people are getting generally more sophisticated, you can just have an AI agent or a bot over there that sees these RFQs come in, prices out what you think the option should be trading at, and can just go trade. This is an incredibly lucrative business to be in because, for some context, the way it works on Derive—and I think something that puts people off trading options in general—is that you have a mark price for an option. It’s like, “This call should be trading at $2,” based on what’s called actuals pricing.

Then the market maker will put on what is generally a pretty chunky bid-ask spread. What should be going for $2, they will buy from you for $1.60 and sell to you for $2.40, right? People will put on an options trade on Derive and instantaneously see that they’re in negative P&L because it’s being marked against that mark price. It’s because the market maker is generally putting a spread on it, and the spreads are a lot chunkier than what people are used to in terms of perps.

There’s no reason to say that a retail person couldn’t have a different view on volatility or a different view on what that option should be priced at, and they could just automatically quote that via the RFQ system. The RFQs literally pop up in a super-easy way for people to be able to see them. Sometimes they’ll ping me and be like, “Hey, there’s a really big RFQ on.” I’m not an options market maker, but if someone says, “Hey, I want to sell a bunch of 80K Bitcoin calls and I want to buy a bunch of 90K Bitcoin calls,” we can actually just meet in the middle, cut out a market maker, and both get the best price, for example.

That’s an incredibly underrated part of what Derive is building out. It’s becoming much more peer-to-peer, because options have historically been extremely opaque. You go to a desk and they rip your eyes out and price you disgustingly. For some context, I went to sell AERO puts and buy LIT calls last night, and you go to Wintermute and they’ll be like, “Okay, this AERO put—we’ll pay you 1 cent for it,” and you go to Flow Traders and they’ll pay you 2 cents for it.

These spreads are sometimes astronomical between what one desk will quote and what another desk will quote. We were selling some January $6 calls on LIT, for example, because unlocks happen in January and we’re kind of bearish on that. The options are kind of ripping like crazy right now. At Wintermute, they were paying us 75 cents for these calls, and at Flow Traders, they were paying us 55 cents.

There’s no way to know who’s going to have the best price, because it’s going to vary across the board on every different asset all the time, and it’s going to change constantly. The whole point of an RFQ system is that everybody comes in and you just get shown the best price. I don’t have to copy and paste, “Hey, Wintermute, what’s this? Hey, Flow Traders, what’s this? Hey, STS, what’s this?” into all these different chats and wait for them to manually respond.

13. AI agents are a massive tailwind for onchain options adoption

Sometimes we might be in very different time zones, so it’s hard to convey that whole apparatus to people and let them understand the benefit and value of RFQs without really getting into it. Our mutual friend apparently is, according to the Derive team, the only guy who has developed an AI agent that can open RFQs and close open trades on Derive V2. Maybe there are others doing it.

Making options—not even just options for dummies, but making them more accessible and enhancing them for even a savvy options user—makes a lot of sense. I’ve been going to ChatGPT and sometimes I’ll copy and paste an options order book into ChatGPT and say, “Explain what my best pricing is for what I want to do.” Collapsing that into one terminal makes a lot of sense to me. This thing is doing RFQs, it’s getting filled, and it’s pretty cool.

Yeah, I’m massively bullish on that. There is a VC fund that we like and talk to fairly often called Variant Fund, and they were also quite early to Derive. You might occasionally see some of their stuff out there about it. They always like my Derive posts.

They were the ones who, because they also invested in a lot of AI startups, really put me onto the thing that I talk about a lot these days: AI agents are such a ridiculous tailwind. I think Nick talks about it a lot more now, too, as a result of our conversation. A lot of options guys are too smart for their own good, and they don’t understand how esoteric and complicated approaching options is.

When you have these AI agents that you can literally just type into, “I think Bitcoin will range between $70K and $80K for the next month. Give me an options structure,” to them, that’s obviously when you would just put on this structure. But for most people, it’s not obvious. I think the accessibility of options vis-à-vis these AI agents, and just generally speaking much better education out there, is such a ridiculous tailwind that nobody is properly pricing in right now.

I think, too, that a lot of AI agents will actually opt to execute via options. It’s a much more risk-defined and very good way to generate yield, for example. In an industry where yield is drying up a lot, I would say that much of it is going to turn toward having to express a directional view on volatility in order to generate yield.

Gone are the days when you can just put money into SushiSwap or Anchor on Luna and generate 20% APR. You actually have to express a view, saying, “I’m willing to short vol, but I want to get paid 20%, 30%, or 40% APR to do so.” When people make user-generated vaults and run these things with AI agents, I think that’s why Nick talks about how this isn’t billions, it’s trillions.

14. Options trading tools: Derivatives Monkey, DeFiLlama, Claude

That’s really what he’s getting at: the entire apparatus around yield generation and carry trades is going to turn toward options once there’s better infrastructure for them. I’ve seen you on the timeline talking about using AI to help formulate these trades, and you’ve talked about it on this podcast, but what other tooling are you using? Do you have a stack that you could walk through briefly and share the value of each piece that helps you figure this out?

Yeah, for sure. I’d say that I’ve mentioned or given some shout-outs to the Derivatives Monkey platform. It shockingly should not be free whatsoever, and I don’t say that lightly. I’ll gladly pay that guy if he asks us to pay. It’s astonishingly good.

I don’t think people realize how expensive more institutional-facing, deep-data options products are. Some things are charging $50K or $60K a year for a pretty similar data set to that. I think it’s an incredibly good place to start. To be fair, with options, you just have to have a couple of pieces of information. You have to know what the current implied volatility level is, and that’s pretty readily displayed on there.

There are some good calculators to use, especially on Derive. One thing that maybe Derive could improve about the RFQ system—and I think I’ve asked for this in the past, and they might actually do it—is displaying the implied volatility of the quotes that you’re getting. They do it on the order book, but I’m not sure that it happens on the actual RFQ side of things.

Basically, you want to know what volatility you’re paying and where that would rank relative to historical realized volatility. You can go into the Derivatives Monkey platform, or you can even ask Claude or ChatGPT. I really think DeFiLlama does a good job of it, too. You can just ask it, “What’s the historical realized vol of this asset?”

For example, if you look at an asset like Aerodrome—or, I guess, to make it easier, ETH or Bitcoin—and say, “Currently, I’m getting priced at 30% or 40% vol for these assets. What’s their historical realized vol?” If you see that we’re at, say, the 10th percentile of all time, it’s quite low. Then you probably want to skew a little bit more toward long-vol trades.

There’s a bit of nuance there, too. A lot of times, short volatility is the trade that tends to pay in the long run in options trading. Long vol is less frequent to hit, but it’s also a lot more asymmetric. There are entire funds that are just short-volatility funds in options, and that’s a very lucrative trade for them.

Generally speaking, you want to have a sense of what the vol is currently being priced at and what it has historically been priced at. Those metrics are quite easy to find. Other than that, you don’t really have to have much more than a pretty fundamental view. I think getting an idea of the structure that you want to express can be very easily done just by talking to an AI agent.

So, if you go into Claude and say, “Bitcoin is at 77K right now. Let’s hypothetically say that my view through the end of the month is that Bitcoin is going to rally to 80K but not go above 80K,” it’ll give you a couple of options. It might say, “Hey, it makes sense to do what’s called a ratio spread, where you buy one 78K call but sell two 80K calls.” Your maximum P&L point at that point is 80K, and you actually start to lose a little bit of money as it goes dramatically above 80K.

You might have a different view: “I think Bitcoin is going to crash dramatically this month. I think we’re going to totally retrace the entire pump that we just had.” It might say, “Go buy some 72K puts and sell some 66K puts, for example.” It’ll give you a very good sense of what structures make sense, and it’ll give you a good sense of how richly those structures are priced relative to historical volatility levels. At the end of the day, there’s no magic in options. It’s all just a fundamental view that you have to have, and it’s still just a trade. Having a conversation with any sort of AI agent is going to get you quite a bit of the way there.

Let’s go back to what you were saying earlier. I think it was Flood mentioning that perps have won as the form factor to speculate or position. I don’t think, from what we’re hearing, that you see it that way. Can you explain, in your words, the difference between options and perps, and how you like to use these different instruments?

Yeah, definitely. I see it as a hammer and a screwdriver. You wouldn’t really want to hammer in a screw or use the handle of a screwdriver to hammer in a nail, for example. They’re very much meant for different purposes.

I’ll give you a good example. In India, zero-DTE options absolutely dominate the market. They do trillions and trillions and trillions in volume. I think there’s actually this innate idea that whatever you grew up with, you stick with. Crypto seems to have that problem, where everybody has gotten used to perps, so they don’t really want to switch over to options because they are interchangeable to a degree.

I think perps really replace zero-DTE options more than anything, because that’s where people want to have extreme leverage and express a pure delta view: “I think this is going to go up a ton” or “I think this is going to go down a ton.” They offer extremely asymmetric payoffs, and there isn’t really that much of a liquidation concern on that type of view because your thing is trading at zero the next day anyway, essentially, so it doesn’t really matter.

Where perps really fall short is when people want to express any sort of view that’s orthogonal to delta, which is essentially just price direction. If you want to bet on a range, for example, or have any sort of nuance to your view where you want to say, “I think it’s going to stay in a range, and I want to make money if it stays in this range, but if it breaks out of this range, I think it’s going to break out exceedingly,” those are types of views that are very nuanced and complicated, and you just can’t really express them through perps.

I think the way to use them is very much together. This is a good tip for people who are trading on Derive. Generally speaking, I don’t tend to close out a lot of my options positions. I hedge the delta with perps, and I actually think this is part of a bull case that a lot of people miss on Derive as well: most people benefit significantly from trading this way.

If you trade into an options position, you’re paying a pretty chunky spread at one point, and if you trade out of an options position, you’re also paying a pretty chunky spread at that point. Trading in once and then hedging the delta via perps is a much better way of doing it in a lot of cases.

The other thing is that options are inherently a bit slower and more illiquid to trade, whereas perps are amazing for what I call stink bidding and wick catching. This morning was a great example. I had a bunch of bids set much lower where I had shorts open, and I was just trying to close them out on the most obscene wicks possible.

It’s kind of hard to do that with options. You can’t really go in there, submit an RFQ, and wait for them to respond on a wick that lasted all of 10 seconds. For example, on 10/10, you’re not necessarily getting filled on some crazy options fill. You’ll get great prices, but you won’t really get the same degree to which those wicks went down disgustingly close to zero, whereas you would have gotten filled on perps. Perps had much more instantly available liquidity there.

The way I see it is, let’s say you’re long a 70K call. I’ll put a concrete example to it. You don’t have to sell that 70K call when it goes up a little bit. As that 70K call gets in the money—well, a better example is Bitcoin at 64K. If you buy a 70K call like I did, your call is quite out of the money at this point, so it has relatively low delta. As it approaches 70K, it’s going to have a lot more delta.

The exposure you’re adding as you get closer to 70K and then above 70K is increasing dramatically. What you can do is set a bunch of limit orders on Bitcoin that say, “Sell some at 72K. Sell some at 74K.” You can hedge most of the exposure that you’re getting, but hopefully do so on extreme wicks instead of actually closing out your option.

People do something called gamma scalping, which is quite common and quite profitable. This is what options market makers will do. When you have an options position open, one of the Greeks that people get a little bit confused by is called gamma. I’ll try to make it as simple as possible, but it’s the “you’re always right” Greek, essentially. The really dumb way I put it is: as price goes up, your exposure goes up; as price goes down, your exposure goes down.

There’s an intuitive way to think about this. If you have a 70K call, the more above 70K you go, the more it’s trading like Bitcoin. If Bitcoin is trading at 80K, those 70K calls are basically trading as though you have spot Bitcoin. They’re so deep in the money that every dollar Bitcoin goes up, the calls go up by approximately a dollar.

Conversely, when Bitcoin is at 60K, the price of those options is so low, and it’s not really going down that fast because they’re giving you so little exposure to Bitcoin. They’re so deep out of the money, essentially. A good analogy is if Alabama is in a football game against some other small school and they’re up 81 to 3, the prediction-market bet isn’t really going to change all that much. The line isn’t going to change that much if it goes from 81 to 3 to 81 to 6, right?

When you’re super deep in the money or out of the money, the line doesn’t really move all that much. When you have an option that’s very close to being at the money, it has very high gamma. That’s where gamma peaks, essentially.

Gamma is the second derivative of delta. Delta is how much the price of the option moves with a dollar movement in the underlying asset, and gamma is the movement in delta. Basically, when you have a 70K call and it’s trading at 70K, if price goes up, you get a ton more delta; if price goes down, you shed a ton of delta.

You can offset that with perp positions. I feel I’m probably getting too much into the weeds here, and probably not in the most clear or constructive way for people. I specifically didn’t want to get into gamma scalping, but I was going to mention it at one point because it’s very core to options trading. I was like, “I’m going to get too much into this,” and now I’m over here explaining football games.

Actually, the football analogy is the one thing that made all of that make sense to me, so thank God.

That was probably the best part.

15. Managing risk and closing options trades

I went to Alabama football—yeah. Also, when it comes to these sorts of setups, I’m wondering about the September calls. What did you stand to lose if you were wrong versus the profit that you made there? I’m thinking in terms of a risk-reward ratio.

Yeah. On those setups, they’re all defined risk. I don’t really tend to do anything called naked calls or puts on Derive, because that’s where you have infinite loss in either direction.

The other reason for doing spreads is that they’re much cheaper. Options market makers don’t really want to have tens of millions of dollars of collateral on a decentralized platform. That’s how much they need to margin those positions when they’re selling them to you, so they’ll quote spreads quite a bit cheaper. Basically, if that $70K–$80K call spread cost me about $300,000, and it expires at $60K, it’s worthless, so I lose everything on that trade.

I think one of the things that people get wrong with options is that everyone just looks at the expiry P&L graph that Derive gives you. It’s a bit misleading because you don’t have to trade them until expiry. In fact, you generally don’t really hold options to expiry a lot of the time. For example, hypothetically, if I did have that $70K–$80K call spread and Bitcoin went up to $80K just like it did, then crashed back down to $65K, I wouldn’t need it to end there.

I could have sold out of it in the meantime, or I could have hedged it on purpose. A lot of people think, “Oh, you only make money if it ends in this range at that time.” No, you can close it well before then. The option is repricing dynamically, obviously, so the option value went up tremendously before I even sold it. It doesn’t need to expire there.

16. Closing

I think another interesting way of answering the question you guys had before is that options are really, really, really useful for looking at where the market is inappropriately pricing in the amplitude of a certain move. That’s the good way of putting it. They’re great for saying, “Okay, I think it’s going to go up. I think it’s going to go down.” But you can’t necessarily express via a perp the degree to which you think the market is offsides.

When I say the market was really offsides, nobody was really betting on extreme upside from Bitcoin at that point in time. If you wanted to get that level of exposure, that was like a 500-Bitcoin position. You would have to just be long 500 Bitcoin, and to do that, you’d have to have, let’s say conservatively, at most 2x or 3x leverage. You’d need an insane amount of money notionally in order to keep that solvent and not be liquidated. The problem is, if you do get liquidated, you lose everything, right?

Whereas on that position—I forget the exact premium of that trade, but it might have been about $300,000—my maximum downside was only $300,000. My maximum upside, given the size of the position, was about $5 million. So it was about a 20-to-1 payoff.

17. Forecasting a bullish October, and uncertain end of year

What are you forecasting right now for the rest of the year? Have we officially bottomed? Is it number-go-up time? Are we in the bull market?

Yeah, I think there’s this kind of unstoppable trend in tokenization that’s really hitting mainstream minds a little bit more. I do think that there’s a world where the CLARITY Act not being passed is actually more bullish for a lot of our bags. I’m not terribly bullish, and the market’s not terribly bullish, on the CLARITY Act being passed, but I do think there’s an interesting hot take that not passing it would actually be more bullish. It might be better to have specific SEC and CFTC rulemaking that’s a little bit more bespoke.

CLARITY was this whole, very monolithic type of bill. I don’t want to make it sound this way, but I would actually say CLARITY was much better for consumer protection, while it might have been overly punitive toward crypto builders and protocols. More bespoke CFTC and SEC regulation is probably going to be a bit more understanding and lenient toward crypto builders, and probably a little less overly stringent on consumer protections.

I actually think there’s a world where CLARITY not being passed is maybe a slightly negative headline but a possibly positive catalyst for crypto. That’s a bit of a hot take, I think.

I kind of have this thesis that October—I think you guys mentioned it—is going to be Uptober, and I’m not so sure about the rest of the year. I think there’s a pretty good confluence of events for a bullish October. Especially on Hyperliquid, that’s when the actual USDC from AQA V2 starts rolling in. I think a lot of people have been misinformed or have mispriced it as though it’s already starting to occur, but it’s not actually being deployed toward Hyperliquid right now. I think that might also be when you get this top in what HYPE is able to buy relative to the amount of money that they’re able to raise for Hyperliquid.

I have a lot of option structures expressing very, very, very bullish views for October, so I guess that gives you some context for how I perceive things. I want that very specific date and set of prices. I want to bet on Hyperliquid going from $85 to $100 in October, and that’s all I want to bet a ton on. I want to bet a ridiculous amount of notional money on that exact type of bet.

But I don’t want to hold a ton of HYPE, because I think that maybe by the end of the year we do have some kind of sell-off. Every year, we delude ourselves into thinking there won’t be people selling for taxes or people at funds trying to lock in a good year, and then we always have some kind of meltdown in December or early January. It kind of depends.

I think we’re probably much earlier in terms of price and maybe a bit later than some people think, if you want to use an inning-type of example, which I’m not the biggest fan of. Some people like to use the whole inning analogy. I think prices probably have quite a bit higher to go still, and we’re still betting on a lot of upside, especially on the bags that I’m particularly bullish on.

From a time perspective, I wouldn’t be surprised if there were a bit of a breather toward the actual end of the year. I think midterms, the more looming threats of rates, and our 50th peace deal with Iran tend to weigh a little bit longer as they draw on. But I do think there’s a very, very, very positive window before midterms and after digesting a lot of this news. There are no hikes possible in October, so I think October is a really interesting time to get quite long. Then who knows for the rest of the year.

This is funny because there was that meme of basically everybody calling the bottom in November, right? And because that's what lined up with the other cycle. And of course, we're just, you know, if this plays out how you say, it's the inverse of that, which, you know, I feel like it happens every time.

I forgot to bring that up because I really do view the markets in this almost storytelling way: What would be the funniest or most painful outcome for all the participants in the market? Everybody who’s been sidelined this entire time, everybody waiting on the four-year thesis, people like the Ben Cohen guy or whatever, are saying, “You’re an idiot if you buy until the four-year cycle is up. You have to wait until October.” If October is actually the peak top, with all of them trapped and a big blowoff top that everybody feels FOMO to buy into, it’s such a thematic outcome. It checks out so much with crypto history, so I kind of like betting on that.

At the same time, these are all path-dependent views. Something that happens today could completely change all of this. Giving views on these things is just saying, “That’s what I think today.”

I actually think a guy like Arthur Hayes gets a lot of flak for this because people think he changes his views so often on tokens. But in reality, a lot of times he makes a post about a token, the token price goes up 10% or 20%, and your view on that token should change when it prices up 10% or 20%. It’s the same thing here. I could say this now, we could shoot up to $86K tomorrow, and then all of a sudden I’d say, “I’m pretty bearish now.”

18. His viral ETH call spread for March 2027 on Derive

So, it's one of those things where you would have to check in pretty frequently. Currently, I'm still risk-off until the end of the month and then betting on more upside for October.

Are there any setups that you've shared publicly that you can remind us of? We're talking about Bitcoin, we've talked about HYPE and the HyperEVM, and another one that's top of mind for me is always ETH. Any setups there that you've shared already? I'm trying to get to your specific view on some of these majors. I am aligned with the bottom being in, but we went through a different cycle last cycle, and I think there have been a lot of calls for ETH to redeem itself and outperform this cycle. I can't recall what you've said publicly.

You guys would like the trade I put on this morning, but—

Oh, yeah. Please.

This very morning, I put on a large position on Derive that some people saw. I bought 10,000 $5,000/$7,000 call spreads for ETH for March 27.

I saw them tweet this. I literally saw them tweet this. That was you? Okay.

That was me. Yeah, that was me. I actually wanted to do 20,000, so I might go back and do more later. Please don't fun me.

That's a great way of framing how I view options. I don't actually find an ETH catch-up trade to breaking its all-time high all that interesting. I think ETH, Bitcoin, and Solana are all trading somewhat similarly.

I think the Solana bull thesis has soured for me a bit because of Robinhood Chain in particular. I think that really almost takes it over to ETH to some degree. At the same time, Robinhood Chain is almost a bear case for ETH because ETH is making $6 and a pair of shoelaces for what Robinhood is making, which is $6 million a day in sequencer fees. ETH needs 6,000 different Robinhood Chains to really have a solid economic model. That's a counterpoint to what I'm saying.

I do think, though, that ETH is one of the more digestible, already-kind-of-digested theses that a lot of sophisticated money can enter into. I think having a staking yield—which is a whole different conversation; I don't want to get into the fact that they were trying to reduce that or get rid of it—and being tied to activity, like gas, are all fundamental drivers for what I think a lot of institutions want to see in an asset. Bitcoin is not productive. It's not really tied to usage, et cetera, et cetera.

I think there's a world where ETH's extreme upside is mispriced, and I'm trying to go pretty far out in duration for that because I do think that maybe we have a bit of a sell-off toward the end of the year. I want to push it out a bit further.

I don't think it's all that interesting to bet on ETH hitting $4,000 again, for example. If ETH—if Bitcoin—hits $100,000 or $120,000 and ETH goes back to $4,000, then it's like, “Okay, cool. Everything kind of went up commensurately.” It's not that interesting to bet on it as having asymmetric returns.

Where I think the asymmetric returns come from on ETH is an all-time-high break, followed by a lot of people rotating into ETH and really feeling the FOMO. That's why I went for the $5,000/$7,000 call spread—basically going for a near double, I guess not quite double, but a 50% pump over the all-time high. Anything above that is like, “Okay, I'm cool sitting that out.” That's why I sold the $7,000 call to make it cheaper.

To put exact numbers to it, the $5,000 call by itself was about $40, and the $7,000 call being sold was about $10. That reduces my price for the whole unit from what would have been $40 for just buying the $5,000 call to $30 for the spread. I'm missing out on the upside over $7,000, but I have bigger problems if ETH is trading over $7,000 at that point in time.

I quite like that trade. I might add more to it, but you have to understand that this trade is fundamentally extremely asymmetric. It's kind of a lottery-ticket trade. I think they even posted on the thing that this trader is risking around $330,000 to make $20 million. That payoff is not misleading; it's not by accident. The odds of it hitting are quite low.

The nice thing about options is that they're priced very probabilistically. You don't really have fundamental data being put into options pricing all that much. Obviously, the market impacts pricing, but especially as you go out, most of these things are priced based on volatility. Nobody's really betting on this whole ETH renaissance, essentially, so it's not being priced into the options. You get to express a very bullish view extremely cheaply.

For a lot of ETH maxis out there who think there will be this whole ETH resurgence, to me, it's like, is it really an ETH resurgence if it just goes back to its all-time high while everything else is trading well north of it? Not really. It's not that interesting to bet on it just going back to its all-time high, but a breakout over its all-time high is a lot more interesting to bet on.

I'm going to be playing this over and pausing it multiple times, trying to put on this same trade this evening, probably.

I actually saw a couple of people throw it on right after I put it on. Someone bought 100 of the same thing.

You can copy-trade now, right? Is there a copy-trading platform, or are they opening that up?

Yeah, exactly. Derive is going to put out a lot of what they're focusing on, which is building out vaults. I don't necessarily encourage people to copy-trade me because there's a lot going on behind the scenes. With that $5,000/$7,000 call spread, it's like what I was saying earlier: if ETH hits $3,000 or $4,000, I make a ton of money on that structure anyway. I don't need it to hit $5,000. As long as it does that well before expiration, I'll make way more money than I paid for it.

To put numbers to it, if ETH hits $4,000, that $5,000 call that I paid $40 for should be trading at around $300. I probably 10x on that alone. It doesn't need to be that I'm going to make the full $20 million. In fact, it's incredibly unlikely that I will.

There is a copy-trading feature. I think there's a whole new channel that allows you to copy-trade some of the bigger trades on Derive, too. They're trying to build out their social-trading feature. Options are probably a little less well suited for it than perps. Perps are pretty simple, whereas if you copy-trade an options trader, he can blow up his entire account incredibly easily.

Figuring out how to properly implement options in more of a social-trading, copy-trading setting will be a bit of a challenge. It's not an impossible challenge, but there will definitely be some risk guardrails you have to set on it. I definitely think it's what gets people going. They want to see someone turn $2,000 into $500,000 or whatever. Those sorts of asymmetric payoffs are what can really get people excited.

I was about to ask you about Kinetiq. I think we should talk about that as well because I know that's another position that you're pretty vocal about. You and I are as well. We're investors in Kinetiq, but maybe walk us through your thesis on Kinetiq and why you're so vocally bullish about it.

A lot of these altcoins you almost have to treat like options positions. Over a long enough time horizon, they're going to go to zero, or they're going to 10x, 20x, or 50x. It's all the same kind of shades of these payoff curves that are extremely asymmetric, and that's why you want to be pretty well diversified.

Kinetiq is one of the only really viable HyperEVM beta plays. I think it's bad to be contrarian, but I think you have to know where consensus lies to be good at this whole trading game. People look at the HyperEVM as a total dud, and you have to think: is Jeff going to allow that to be something that just happens? Is Jeff going to allow there to be a completely defunct HyperEVM, with all the fun happening elsewhere on Hyperliquid's mainnet, threatening the whole house of finance?

It would be like if someone drove a car through his living room and just left it there. I have a hard time believing that we're just going to let there be this mark on what he's deeming the house of finance, which is the current iteration of the HyperEVM.

I think Kinetiq is the best beta to that, specifically because of Elysium. Prior to Elysium, you were already getting a pretty competitively priced token based on the fact that it is quite literally perfect beta to Hyperliquid. When Hyperliquid goes up, the staking and fees go up, and Kinetiq goes up. It should literally trade quite closely with Hyperliquid based on that alone.

When you add the whole Elysium Layer 2 and the activity that unlocks, that’s significant because HyperEVM is actually fairly unpleasant for people to deploy onto and use. It’s not really well suited for RWAs. It’s not suited for HFT right now, and it’s not suited for memes, especially. When you add that Elysium Layer 2 on top of it, that’s actually built in a very creative way to the HYPE token itself, so it doesn’t have the whole cannibalizing issue that Arbitrum, Optimism, and all these other previous L2s had. I just think it shoots the TAM up so dramatically.

My mental model for it was that I used to think a bullish move for Kinetiq would be hitting $1. I don’t necessarily know that I think it’s more likely that Kinetiq hits $1 than I did before. But now I think that if there is a bullish move for Kinetiq, it’s $5 or something like that. That’s the way that I framed it.

The upside for it in the TAM is so much higher. I made that cheeky post where I was basically saying, “Go to DeFiLlama: how much would Kinetiq rerate to if it did 10% of Robinhood’s sequencer fees?” For reference, I actually think 10% is probably a pretty lofty goal. That’s a bullish target as it is right now. That’s quite a bit of activity coming over, and so that might be what peak season on Elysium looks like in the bull case.

This is objectively a bullish proposition. It over 10x-es the token, just to spoil it for people. It goes up to around $2.60 or $2.70, or something like that. I think that was the price it would rerate to if it kept the exact same revenue-to-market-cap ratio that it has right now.

It’s going to give people a taste of what it means to bet against HyperEVM ever being a thing. You have to bet against HYPE itself because Kinetiq, as I said, is intrinsically tied to HYPE, basically purely on the actual staking revenue. You have to write down the Markets app and the Kinetiq team being extremely good at distribution, in my opinion. You have to write all that down to zero.

You have to think that sports betting, for example, will never be a thing on HyperEVM. You have to make all of these assumptions that there will never be anything but perps on HYPE, on HyperEVM. Kinetiq is actually, funnily enough, trading pretty fairly. The way I frame it is that you’re basically getting all of these bets for free.

Maybe it’s trading a little bit rich if you just look at staking revenue, but when you add all of these free bets you’re getting on top of it, I think it’s such an asymmetric trade that it’s actually one of my favorites because of that. It’s the definition of what you want out of an altcoin. It can get a narrative so easily, and it’s so easy for institutions to look at it in the future and say, “Why are we not bidding on the biggest and most easily accessible altcoin to Hyperliquid, as far as beta goes?”

It’s such a layup trade, in my opinion. It’s not to say it’s more or less likely to succeed, but I think it’s hard to be bullish on HYPE and not be bullish on Kinetiq. I’ll just add one thing.

If people are listening to this, I’ve realized that using the Markets app is the best way to generate Kinetiq points right now. I’m not a big trader, but the amount of points I’m getting versus just holding kHYPE and doing some other little things is significant. I have 2 different wallets: 1 wallet holds my kHYPE, and the other one is purely on the Markets app. The Markets app is absolutely killing what the other one is generating in points. Obviously, this isn’t financial advice, but I’d say go put on a few simple trades, and, yeah—

You’re giving away the juicy alpha there. There are a lot of people getting diluted, right?

For folks who have been following the story of Robinhood Chain with FOMO, this is a different play that I think is probably going to get more attention. Again, there’s that Robinhood Chain mania. When it comes to the Markets app, it’s a very similar setup. It’s very easy to use. Again, it’s super user-friendly, but instead you’re able to trade all of the different spot markets on Hyperliquid. That’s a huge unlock.

Yeah, a lot of people don’t realize, too, that Hyperliquid is explicitly not really trying to nail the distribution game. That’s their entire thing. They’re basically meant to be liquidity as a service, and they want a lot of builders, wallets, and applications to build on top of them.

It’s one of those bets where I think the Kinetiq team is extremely good at understanding memes, culture, and communities. It’s also kind of a bet on the founder. I think they just have a really good team that really gets it. It’s a bet that I’m totally happy to write off and say, “Yeah, at the end of the day, it might only have a 10% chance of 50x-ing, but that’s an amazing bet.” You take that all day long.

At the end of the day, that’s how these portfolios are made: you have to take those types of bets. Anybody who doesn’t have Kinetiq exposure but is very bullish on HYPE, I would say they probably don’t fully understand the implications of Elysium. That’s why I said this is an instantaneous rerating.

Funnily enough, I also bulled AERO a little bit. I think there’s a similarity between Elysium and AERO. When you do too many things at once and have all of these moving parts, sometimes it’s hard for investors to fully digest the bull case because you’re talking about all these different elements and all these different ways of accruing value to the token.

Kinetiq is saying, “We’re going to have sequencer fees and burn here, and then these markets, and the mobile app,” along with all these different ways of accruing value to the token. I think it’s one of those things where, when it gets too complicated, the investor just wants to see it happen and then act.

The more esoteric these things get, the less front-runnable they are. I think that’s why you have such a good opportunity on Kinetiq right now. I just don’t think people fully appreciate the bull case enough to really get in right now. But when they see it, it’s going to be one of those things that’s very retroactively obvious.

19. Derive V3’s ability to list new options markets (ie LIT)

People will say, “Wow, Elysium is generating $100,000 a day in fees. This makes Kinetiq trade at a 3x P/S ratio. This is ridiculous.” Then you’ll see people pile into it. I think it’s going to be one of those things that people want to wait to see first, and then they’ll go ape.

On this last podcast that we would have published—recorded, depending on when you’re listening to this—the co-founder and CEO of Derive, Nick Forster, mentioned one of their advantages as a platform: the ability to potentially list new tokens or new options markets for newer tokens. Given what a power user you are on the platform, is there anything you can share? Are you actually in their ear about something like Kinetiq options?

Yeah, it’s not even really a Derive thing. If you go to any of the OTC desks right now, they wouldn’t sell you Kinetiq options. There’s just not a liquid enough market. Kinetiq is usually trading around $1 million a day, so there’s not enough liquidity to really do any sort of meaningful size.

I will say that with the Derive V3 update, from an infrastructure perspective, it’s going to be extremely easy for them to list new assets. They’ve kind of been holding off on listing assets that I would want them to list and that I would personally trade because why dedicate a month to listing a bunch of new stuff when you could just build out V3 and make these things listable in a couple of days?

I think there’s going to be this massive explosion of listings once their V3 update is live in 2 weeks or so. I’m actually quite excited for them to list LIT options, for example. I would trade those. I think VVV, like Venice, is interesting. People might want to trade that. These aren’t necessarily things that I would trade, but they’re things that other people would trade.

It’s also cool because, let’s say you’re a big ZEC bull. ZEC was trading at such egregious levels of bullishness, with regard to how calls were being priced, that you kind of have to look at it at a certain point. I can even check right now because I’m curious personally. I actually kind of missed a lot of the ZEC move.

But let's say that you're a big ZEC bull and you want to sell some. December 25 $1,500 calls are trading for about $160 right now. So that's $1,500 as a strike, by the way. That's not even at the money. Your breakeven point is $1,660.

I think that type of opportunity is extremely attractive to a lot of people in DeFi. More people should be looking at it and saying, “Would I sell ZEC at $1,500 at the end of the year?” If yes, you probably should just sell the call now. Pocket the $160 in premium, which is a crazy amount, obviously, annualized.

I think it's one of the clever things that risk finance did, for example, and a couple of other things have done: they started displaying option premiums not as a notional amount, but as a percentage APR. It's a little bit misleading, to be honest with you, but it's also a good way to show people in DeFi that if you're selling this call that's 10 days out—or let's say a month out, just to make it easy—and you're making 10% notional on what you're selling, that's a disgusting amount annualized. You're making a literal 10% ROI in a 30-day time period. There's no vault in DeFi, there's nothing you can do here, that even comes close to that.

20. What if Hyperliquid or Lighter launch options trading?

So I think a lot of people, when they look at their bags and whether they're extremely bullish and say, “I would be a buyer at this level,” or extremely bearish and say, “I would definitely be a seller at this level,” more and more of that is going to be expressed through options, and not just through perp limit orders or anything else. I think that's the very exciting thing: as they list a lot more of the universe, because there is a lot more of a universe for them to list, the TAM expansion is huge.

So cool. After talking about all of this, something I've always thought about—and I've seen other people talk about it too—is this idea: What if Hyperliquid does options? People are now starting to do that with literally everything: “What if Hyperliquid does this? Who are they going to eat next?” I'm wondering if Derive is in any jeopardy of being under threat from that massive juggernaut, Hyperliquid, stepping into the options market more intentionally.

Yeah. I know this—by far, I swear every post I make that's bullish on Derive, I get someone in there saying, “What if Hyperliquid puts out options?” Or, “What if Lighter puts out options?” I'll say, as a preface to all that, I'm more scared of Lighter than I am of Hyperliquid at the current moment. I'll get into that.

Hyperliquid's infrastructure is not really super well suited to putting out options. That's a very technical answer that would get extremely deep. But people understand that when you're listing an options market, you are having dozens of different strikes and dozens of different expiries all at once. When you have a Bitcoin perp, there's a Bitcoin perp: one market, one order book. It's incredibly easy. When you have a Bitcoin options order book, you have 17 different strikes and 12 different expiries, and they all have to have different order books themselves. It is incredibly different.

A counterpoint that a lot of people would bring up is that Deribit has lasted as the premier options platform for years, between the centralized exchanges, and has zero perps—no altcoins, zero perpetual liquidity. Why did the options-specific platform dominate options for so long when Binance has options, OKX has options, and Bybit has options, but still Deribit is the one where most options are traded? I think there are very specific reasons for that.

I would also say that people really are very hand-wavy about how much of a lead Derive has, but also just how much of a moat they have. Sometimes I say that Derive has an advantage over Hyperliquid, and it's not to disparage the Hyperliquid team. Obviously, I think they can practically do anything that they set their minds to. It's obviously going to be part of the bear case in the future that, sure, they will probably try to do this down the road.

But Derive has built out a system that probably takes months, if not potentially even over a year, for Lighter or Hyperliquid to build. They've integrated with a ton of market makers that have to go through tons of different hoops to try to get onto them in a way that has actually worked. They've built out this distribution where they have 95% market share.

You really have to look at, for example, when Lighter listed RWA perps. They had stretch listed before Hyperliquid; they had SpaceX listed before Hyperliquid, and nobody traded it. It was doing hundreds of thousands of dollars of average daily volume. It's not just enough for these places to list these things. They have to solve a lot of inherent problems with options markets themselves, too. They have to educate users on how to properly use them, get the distribution for them, and build out a better UI/UX than Derive currently has.

I think there's a lot for Derive to still work on, but there is so much for them to play catch-up on. It is a monumental task for them to really easily catch up on that. I think there's actually a pretty clear tell, and it's the reason why I think both of them are not really going for directly competing with Derive on it. They're just saying, “Let's list binary options first,” or going heavier on RWAs, which I think is what Lighter's approach is going to be.

I think they know that it's going to be a bit of a cold reception relative to Derive, and they don't really want to look like they lost instantaneously when they list. So they'd rather go for something that's a bit tangential to what Derive has already done.

I think there's a whole other piece of this case, too, which is that everyone talks about what happens when Hyperliquid gets options and what happens when Lighter gets options. But what happens when Derive's perp market becomes a lot larger than it is right now? There's such a large advantage for me as a Derive trader to hedge my positions natively on Derive, and I think a lot of people also don't fully understand how great of a tool Derive has been for a long time.

They've been the cheapest place to borrow against HYPE for ages now. Nobody talks about this, but they actually have a pretty well-capitalized and fleshed-out lending market there. They've been paying yield on deposits for longer than Hyperliquid has. This has been a long-standing thing. I enjoy checking my little balance every day and seeing that I'm making $12 or whatever it is on my balances on Derive. It's been like that for a while.

They're actually quite ahead of the game in a lot of this infrastructure. I think their perp markets have been quite bad, but that's actually a much easier thing for them to fix than it is for Derive or Lighter to build out options.

If Derive is getting a rerating as not just an options market, but as one of the derivatives behemoths in crypto, that rerating is kind of gigantic. I think perp DEXs are trading at a massive premium right now because they're very easily understood.

If you see Variational come out at a $1.5 billion, $2.5 billion, or $3 billion valuation, at the end of the day, what is Variational's impact going to be on the market relative to, let's say, being the third- or fourth-biggest perp DEX? I would say something like Derive probably deserves to be up there in that conversation for what that valuation should look like if they start to build out a really well-built-out perp market, especially on the RWA side.

Their gold RWA options have really taken off recently. What happens if gold becomes an extremely liquid perp market specifically on Derive? What happens if Derive becomes a really—maybe Derive is only really liquid for RWAs and majors, and they don't really have good long-tail support for really crazy meme coins. But what happens if Derive is an amazing place to trade the majors? A lot of institutions want to trade there because it's all commingled together with their capital and options, too.

These are all questions I think a lot of people are missing, and they're just saying, “Hyperliquid, Hyperliquid, Hyperliquid.” At the end of the day, if Derive is trading at $2 or $3 and Hyperliquid announces that options are going to be ready in 2028, maybe I'll make a different decision at that point in time. But I don't think you want to miss the maturation of this right now just for the potential that somebody will list something.

It's kind of like saying, “What if Nasdaq lists perps?” Okay, well, we'll deal with it when we get there. But for right now, Derive has 95% market share, and I have a hard time believing it's going to decrease very much.

21. Why Kool remains bullish on LIT

I feel badly—we keep asking you just one more question.

But there is a token you mentioned there, which is Lighter. I think I understand: you must have earned the airdrop, and it sounded like you sold around TGE, but then it sounds like you've reversed course since then. As long as I'm framing that up correctly, why are you bullish on Lighter? We've covered Derive, Kinetiq, a bit of Hyperliquid, ETH, and Bitcoin.

Lighter's had an incredible year here. I think it bottomed out just below $1, so now it's trading around $5 as of this recording. What can you tell us?

Yeah, I think that's a really great example of just not being tribal or overly stuck in your ways and being flexible on your views. I was pretty vocal that I thought Lighter was launching at a horrible time in the market—not anything that they could have necessarily fixed—but I was like, “Everybody's going to dump this expeditiously.” It's just one of those things where I claimed my airdrop; it was like 280 or 275, and I immediately sold the entire thing.

That's very contrary to how I am on the Hyperliquid TG, where I'm like, “Oh, we need to buy way, way, way more of this business.” It's one of those things where it's just such a different environment. I didn't look back at it. The platform had a couple of instability issues. I remember during TGE, and a couple of other times, I had orders that didn't go through or got canceled because I was still using it lightly.

I was like, “Okay, I'm just going to— all my trading was still in Hyperliquid for the most part, and Derive, obviously.” I just didn't really find that much of a use case for it. It didn't feel all that applicable. I think people also overindexed on fee compression as a thesis for Lighter.

When you go from 1% fees to 10-bps fees, it's like, okay, cool, this is a super meaningful difference. That's kind of what we saw going from centralized exchanges to the initial perp DEXs. Then you go from 10-bps fees to 1-bp fees, and it's like, okay, cool, this is what we saw going to some of Hyperliquid's highest fee tiers.

Then going from 1 bp to 0 fees, at the end of the day, you're not really saving all that much money at that point. Fee compression only goes so far as the whole underlying thesis for, “Why should I use this?” I'm over here getting way better liquidity on Hyperliquid, and I'm paying, I don't know, like, a fraction of a fraction of a fraction of my P&L in the year for what is still a better platform at that point in time.

But because I'm an on-chain options bull and I saw Lighter's connection with Robinhood pretty early on, it's like, okay, they're probably going to have a better crack at it. I think also, just from an architecture and infrastructure standpoint, Lighter is much better suited toward building an on-chain options book than Hyperliquid currently is with its architecture. That could change, but I expect Lighter probably will have options live by the end of the year, maybe early next year, whereas Hyperliquid—I don't know that it's really on their immediate roadmap.

At that point, I was like, okay, this is almost like a hedge to my bets on Derive on the options side, but it's also an interesting play versus Hyperliquid if there is some sort of ostracization and we just kind of choose to anoint Lighter as the US regulatory haven. A lot of Lighter bulls put out the thesis that this is going to get a CFTC license way ahead of Hyperliquid, and because it has this Ethereum escape hatch, it's going to be trusted much more institutionally. All these little things—I didn't read into it a ton—but I think it was also trading at a lower ratio.

It was trading cheap relative to Hyperliquid based on the revenue they were generating, and I thought it was a super easy trade. Right around $1, I think my cost basis on LIT overall, because we added a ton over time, was about $1.40-ish, and we've pretty much just ridden it all the way back up. It's one of those things where conditions change, valuations change, and I changed my opinion when those things changed.

I still have tons of LIT, and I'm pretty happy to bet on this whole duopoly-type of thing. I think you're going to see an environment that's not that different from centralized exchanges, where you have Binance being the behemoth, Bybit being large, and Deribit being options. I think you're going to have Hyperliquid be the behemoth, Lighter, which is quite large, and Derive doing options. Those types of dynamics establish themselves for a reason. I think it's going to repeat to some degree.

I think this is a great place for us to start to wrap up. First, thank you so much for your time. I think this is the longest episode we've recorded, and I think it's needed because we're in this moment where everyone is wondering what's next, up or down? The market has potentially bottomed, and there's just been a lot of noise about the market having to bottom and absolutely rug everyone, with MicroStrategy going under and all sorts of pretty radical theses.

This was a good level-set conversation to talk about a lot of what's broadly happening in the market, but more specifically some of these more nuanced platforms like Derive. We're definitely Derive bulls. We've been really excited to have you on the podcast, and I feel like you're one of the folks out there who's using the platform and can speak to those advantages, in addition to what we got to discuss about Kinetiq and other tokens.

Kool Krypto, thank you for joining us. Any final words before you go? We'd love to have you back in the future. I can't wait for a future episode with whatever updated thoughts you have.

No, I think all I'd say is that people kind of just forgot to believe a little bit in the industry. Everybody's been so bearish over the past horrible stretch of months that we've had, and a lot of people forget that a lot of what we've been thinking about for the last 5, 6, 7 years is finally coming to fruition. Things happen a lot slower than a lot of people anticipated.

I actually think that the options market is a great example of that. The amount of toil and torment that the Derive team, for example—and any options team—went through, thinking, “Oh, this year is going to be our year.” They probably thought this year was going to be their year for 5 years. A lot of these things just take a lot longer to build and mature than people realize.

I really do think very strongly that we're hitting that tipping point on a lot of institutional adoption and on a lot of these different types of products—really hitting the point where they are actually net useful to the world and actual improvements. I think people just need to raise their expectations quite significantly. Everybody's so quick to sell a 10% pump.

For a lot of these really fundamentally mispriced tokens, I think the really big mistakes are the people who sell too early. I'm sure I'll round-trip a bunch of them; that's just kind of how it is and how I've always been. But I think a lot of these things that I'm betting on are fundamental reratings, not small little price jumps. These are massive, massive, massive cap-expansion types of things, and they're the kind of bets that are pretty easy to underwrite.

I would just say, for most people who follow along in these types of bets: raise your expectations, learn to believe a little bit again, and zoom out, essentially.