# Derive CEO on On-Chain Options, RWA Yield, and AI Integration

**Podcast:** The Milk Road Show
**Published:** 2026-08-04

## Transcript

We're kind of one of the only teams that's equipped to build the sort of product that we're building.
And the market is just so much bigger.
It's more subtle.
It's going to take more time.
But that's exactly why we're putting so much time into it.
On-chain products have been taking off in a big way recently.
But why are options finally seeing adoption?
How big is the market for these?
And what do investors need to know about all of this?
Hello and welcome to The Milk Road Show, the podcast that knows that nothing says out of the money like selling your whole portfolio to Ken Griffin before your wedding day.
I'm your host, John Gill, and today is Tuesday, August 4th, and today we are joined by Nick Forster.
Nick is the co-founder and CEO of Derive, formerly Lira, and the leading on-chain crypto options platform that he has been building since 2021.
Nick is a former equity options trader from Susquehanna with a mathematics degree who is...
working hard to bring traditional market making expertise to decentralized finance nick is going to share a ton of alpha with us today about on-chain derivatives products and options so if that all sounds good to you make sure you like and subscribe share this episode with somebody who's going to enjoy it a reminder that our podcast today is free and that would not be possible without our wonderful partners at securitize the regulated rails for tokenization so keep an ear out for more information about them later on in the show but for now welcome to the milk road show nick forster how are you sir hey john doing well thanks so much for having me on I'm really excited to talk to you.
I want to start with the basics.
Derive has been around for a long time, but what is Derive and what are the products you all offer?
Just lay out the basics for our audience so everybody's on the same page.
Yeah, Derive is the largest on-chain options exchange.
So the way it works, we support trading for options, perpetuals, spot, and a borrowland market all within the same risk engine.
The predominant markets on Derive right now...
particularly for options are Bitcoin, Ethereum and Hype.
We also have markets listed for some of the other altcoins like Solana and Zcash and recently just listed gold or XAUT markets for the first time.
So we've been at it, as you mentioned in the intro, like five years.
We have an architecture that settles and has strong guarantees on cryptographic guarantees on chain, as well as like some off chain components for for auto matching.
So that's kind of it from top to bottom.
Okay.
I saw on Twitter, you described this in a different way.
So I wanted to ask you about this.
You said, we are building the infinite payoff factory, any payoff, any asset 24 seven.
I thought that was a really sizzly way to describe this.
But what do you all mean by that?
And how do you differentiate yourselves from other players like a Deribit who are also offering options?
Like talk to me about that.
Yeah.
So I think the reason we're on chain in the first place and the reason we got.
got started in 2021.
We wanted to be the largest liquidity source for options on chain.
The reason is you can create any payoff for yield generation, hedging, or speculation out of a different combination of calls and puts.
They're kind of like these money Legos, like in the purest sense that you can recombine, repackage, and build at an institutional scale for any of those use cases.
So you put...
those money Legos in a programmable environment like the blockchain, it just makes a ton of sense to expand the TAM of the whole product and really create new and interesting and efficient kind of products and business lines on top of it.
And that's where the infinite payoff factory comes from because they are like in some ways.
Payoff complete as a financial primitive and within this risk engine, you can build any of those products.
That's what we're trying to do is manufacture those payoffs in a way that like no one else kind of can.
You can't do it with the perp stacks.
You can't do it with just a borrow land market.
It requires this level of granularity and specificity and some of the other properties that our options have to really get to that vision.
And so we're getting closer than we've ever been to realizing that vision.
I think it's all kind of coming together now.
Why do you think it is that you have such a dominant market share of the on-chain options space?
Is it just because most people are not trading options?
Is it because most people are doing this on centralized competitors like Coinbase and Deribit?
What's giving you the dominance here and how are you defending that market share?
Dogged persistence.
It's something that we believe in the thesis.
It's a very difficult problem.
Options are the last vertical always to mature in financial markets.
kind of like some degree of sophistication for the people who are holding assets for an asset to become like a liquid options market.
You need people coming in trying to like, you know, generate yields by selling options.
You can sell calls or sell puts or take a view.
Like I think this, you know, I think Bitcoin's going to 100K, but not above it.
I don't think Bitcoin is going to go lower than 40K this year, and I'm happy to buy it if it does.
And I'm going to earn money in like 5, 10, 20 percent in USD terms in the meantime while I express that view.
But to even express that sort of view, you kind of need to hold Bitcoin for longer than like a week or two weeks.
And for a lot of crypto markets history and particularly in the last five years, most of the hot trading activity has been concentrated around coins that kind of last for two to four weeks.
It's just not enough time for those sorts of flows to develop and it makes options equity difficult to build.
So for us, we've struggled with that at times, but in the last year, it's become a lot better as other sources of yield in crypto have died out or dried up.
So like the basis trade, 15, 20% market neutral yield is difficult to compete with if you sell it options.
Other sort of things like TVL deals around new token launches that were debuting at a billion dollars with $10 of revenue a day, like that kind of stuff.
again, much more attractive place for capital to go, but ultimately a sign of like market immaturity, those sorts of markets.
It was part of the sort of speculative development that got crypto to where it is, but it's no longer going to dominate the next five years.
And so that's where options really start to take over is, hey, you can actually, like you have to take some risk, financial risk, you have to have a market view.
But if you have those two things, you can manufacture any, you know, any yield profile, any hedging profile, or you can take a bet and get, you know, a ton of leverage on it um if you're correct and often and most often in finance when you're specific about the trade you want to put on and express it specifically you get more money um and that's kind of what options allow you to do Hi everyone, this is John.
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I'm really curious to go back to where you started that answer, which is this dogged persistence about options and on-chain options in particular.
Well, I'm really curious.
You've been building this since 2021.
In the meantime, there's been a huge explosion in popularity of things like prediction markets of perpetual futures contracts.
Why haven't you pivoted to go after one of these other large markets that have gotten a lot of retail attention?
Why have you stayed so doggedly persistent and focused on options on-chain?
Because I think like the opportunity, I'll admit, like I thought the opportunity was going to be kind of on us a little quicker than what it was when we started in 2021.
But at the same time, I can see the opportunity kind of, I think we see it in a different way to most other participants in the market.
It's not just like the value of being on chain is not just sort of reg-obbing and allowing for intense speculation.
And speculation is useful for financial markets.
It creates liquidity.
But I think we can, we are now, particularly with the advent of like high quality assets, tokenized coming on chain RWAs, we can now offer a genuinely better product than what exists off chain with the stack that we've built for options because of how programmable and accessible kind of like the liquidity that Derive generates is.
You can imagine a world where As I said, you have distribution for yield generating structured products that are tailor-made to local jurisdictions that a developer in Thailand can spin up in two or three hours of work, if not like 30 minutes of work now with clawed code.
You can imagine a world in which hedges are extremely precisely tailored and delivered.
at the exact time that they're needed, whether it's for like, you know, a stable coin that's collateralized in Bitcoin or a variety of like whatever hedging use case you have, you can then source that options liquidity on demand in a very precise, specific way and get the exact hedge you need 24-7 in real time programmatically.
I think AI is tailwind that benefits all of these things.
And I think options are like the only instrument that can fill that role.
Prediction markets are great.
They are predominantly in terms of the financial aspect, like so far being adopted for sports.
Perps are fantastic speculative instruments.
But again, the market is finding out in real time that there are more, there's more to on-chain finance and finance generally than having a view and expressing it, you know, kind of simply in a one or two day period.
And I think there's room for all three of them.
I think at the same time, we're kind of one of the only teams that's equipped to build the sort of product that.
we're building and the market is just so much bigger it's more subtle it's going to take more time but that's exactly why we're putting so much time into it because those kind of like that expertise and those network effects i think compound a lot harder it's a lot harder to spin up an options exchange than it is i think a perp market and i think most people operating a perp market would agree with that Okay, so the perps barrier to entry is lower.
The options market needs maturation to get there.
You kind of answered this a little bit, but I want to hear you kind of crystallize this idea for me in terms of why would a user, a trader, an investor of any kind prefer to use options to express a thesis in the market versus a perpetual versus spot?
Can you just give me some more specificity on that?
And are you looking for a specific?
type of user or customer that you have in mind there that fits that profile?
Just walk me through a little bit of that.
Yeah.
So a few reasons.
If you're someone who is trading on pubs and you're sort of, you have a view on a, you have it most of the time people put a trade on, they have an idea in their head of what they think is about to happen in the market.
If you're going long, like a Bitcoin pub, you might think, you know, Bitcoin's at 65K today.
Like you might think, I think Bitcoin's going to 75K.
at some point in the next, you know, I think it's going to 75K in the next two or three weeks and I want to get long.
You can express that via perp.
If you do, you might want 10X leverage, right?
So you pull the slider up, you do 10X leverage long on your perp and you get into a long position.
And that's great.
If Bitcoin does go up to 75K, you're making a lot of money on your 10X leverage long.
The problem is if, you know, Trump decides to bomb Iran tomorrow, and Bitcoin dips down 10% over the next two or three days and then rallies back, you get taken out of your position on a liquidation.
So you can't actually express that thesis.
It's very much path dependent.
Whereas with an option, you can just buy a sort of...
And if you want to do more leverage in that, you're...
in especially big trouble, right?
If you go 20, 50x, it's just anything can take you out of your position.
Any random market move and the probability that you get taken out is super high.
With an option, what you sort of give up by, you can be specific about it.
You can say, hey, I'm going to buy the 70,000 strike call.
You can actually get way more leverage depending on which strike you select.
And it expires in two weeks.
So you've got two weeks for this bet to come off.
And if it doesn't, you're out of your entire premium.
That's the trade-off, right?
Like you lose your entire premium if the market stays flat.
Whereas in the perp, if you don't get scam worked down or you don't get liquidated on the way down, you're kind of flat.
But if you do have a trading opinion, you think you're correct, you can get more leverage.
You can get paid more and you are not path dependent in the way that you would be with a perp.
And that's just for speculation.
There's a whole category, other categories of users around.
yield generation, which you just can't do with perps.
Like if the basis isn't on, if you're not, if the natural perp rate isn't 10, 12%, you're not getting any yield out of like 99% of assets with options.
Again, you can sell the volatility inherent within the asset, kind of like selling insurance.
And you can get paid, you know, depending on what risk you take, anywhere between like 5% to 30%.
if not higher in stablecoin terms on that asset at an institutional size.
It's just not a payoff that really can be replicated in perps unless you're kind of gamma scalping the perps and trading in that, which 99% of market participants aren't equipped to do.
So there's a whole host of like use cases that you just can't access with perps.
But even for speculative ones, as I said, if you're more specific general with how you express a trading opinion, you generally can make more money.
Gotcha.
Okay.
So I'm hearing you say there's granularity that's offered, there's specificity, but there's a lot of things about how you can configure this that differentiates this from other products.
That makes sense there.
I appreciate that.
I'm curious if you see more adoption or demand for this in a bull market versus a bear market, or is it roughly consistent?
Is it sort of agnostic to what the market trends are?
And like, yeah, what kind of demand do you see in those different market environments for on-chain options?
Yeah.
I think to some extent, historically, it's been more counter cyclical.
So we do better in a bear market than a bull in some ways.
It's the trends that I described, right?
Like the basis trade and all of those sort of TVL yield deals that were prominent in crypto take off in a bull market because everyone's flush with cash and all these teams can incentivize these programs that are unsustainable.
Like that sort of stuff crowds out like longer term, you know, riskier, but like.
sustainable products like options whereas in a bear market like you have all these funds that have mandates of trying to make bitcoin plus seven or eight percent or ethereum plus five percent um or just some level of you know delta neutral yield and they can't find it those opportunities are gone so options you know you start to have to compete in in kind of like down the risk curve so to speak on the financial product stand so we we tend to do better um i would say We will be better positioned for a bull market this time around, though, than we ever have been.
We have a new version coming out in the next couple of months, and that will make it, I think, we've never tried to attract retail traders directly.
Reason being is, I think, step one is creating that liquid infinite payoff factor environment.
And what we want is for other teams to come and build on top of us.
offer that experience to their users, get these options integrated, and then have them distribute them because we're not so good at like TikTok marketing and growth hacking and things like that.
We are good at manufacturing like, you know, complicated derivatives at scale and in a secure way with a five-year track record.
We think there's like a natural harmony and equilibrium between those two business models and approaches.
Gotcha.
Okay.
You alluded to something that I'm going to try to bait you into leaking some alpha on, which is derive v3.
There's a rumor that this is going to be launched sometime in Q3.
I don't know if a date has been published yet, but is there anything more you want to tell us about what's coming in v3 and what to expect there?
No date yet.
But I would say it is the final form of what we've been building towards the last five and a half years and that idea of the infinite payoff factory.
So it's not just enough, which I think we've done with V2 to build liquid on-chain options markets.
You need a way to distribute them and make them as programmable as possible.
And I think V3 is going to be the most integratable programmable exchange in the world on or off-chain.
I think the types of products people can build on Derive V3 are like...
truly game changing.
And they do actually start to really use the benefits of being on chain to make the experience better than, you know, owning an option in a Robinhood account or an interactive workers account.
I think the TAM as well for, you know, what we can access with RWA markets that are coming up and scaling on chain combined with this kind of highly programmable, integratable risk engine, which does options, perps.
portfolio margin with Spot and a borrow lend as well.
It really is the full suite of tools.
And, you know, we've had a lot of interest in kind of teams that have been building very unique and different and interesting things on top of that.
And that really is what V3 is all about.
I can't get too much into the details of like specifically, you know, some specifics of it, but it I think is.
I'm super, super excited about it.
I think it feels really good to kind of have this platform now.
I think it's a stack that is just going to be very, very difficult to replicate, both from a technical perspective, but also from the integrations that we have coming up and already integrated and all of that kind of like unsexy work that's been going on for multiple years now behind the scenes.
It all adds up.
It's not, you know, it's death by a thousand cuts in some ways.
Yeah, well, it sounds like it's life by a thousand cuts at this point.
I'm going to keep trying to trick you into leaking some alpha on this, but for now, I want to ask about something else that you guys have recently launched, which is options on XAUT, which I believe is Tether's tokenized gold product.
And if I'm not mistaken, I believe this is the first RWA options market you guys have launched on Derive.
And I'm curious why you decided to start with tokenized gold and just what the product launch experience has been like with that.
What's the response you've seen?
Tell us about this.
Yeah, I think like tokenized gold is one of those markets that is proven to have a lot of traction in some of the perp Xs.
There are a lot of holders.
It has like a ton of TVL on chain as well.
And I think for me, we've always been built from day one to be a fintech and we want to start tackling the traditional markets too over time.
I think that is, it's the, you know, we're not kind of like here to just trade Bitcoin and ETH.
endlessly for years and years like we want this to be the back end almost like the stripe for derivatives for um you know global fintechs neobanks and um you know retail trading applications and whatnot and i think that's what b3 cheese so listing all of these markets is paramount to like kind of achieving that penetration and accessing those new um those new markets globally and with XAUT it was kind of the obvious first choice we worked a little bit with Tether on some of the the go-to-market launch it's still early days it only launched properly like a week ago you can come and trade and win a physical some physical gold if you do well but over time right that's going to look like vaults on gold options and yield generating strategies for gold and you know, more integrations into different trading front ends and whatnot.
But excited to have that one live.
I think it's kind of like a watershed moment for us stepping over that threshold of just being a crypto exchange.
What is the overall strategy you have around RWAs?
Because tokenization is like a huge meta-narrative in the space, in the industry right now.
There's a lot of new products being launched, a lot of capital going in this direction.
What's the strategy for Derive when it comes to RWAs?
Yeah, we want to be...
integrated and providing yield, percentage dollar yield on RWAs at scale.
And I think if you think through like, okay, I have a tokenized stock or an index or, you know, take a tokenized stock, tokenized Apple on chain.
What can you do with it?
You can maybe post it as collateral and trade pubs.
That's kind of useful.
That is useful, but it's not like kind of game changing.
You can, you can trade with it um maybe you can lend it out and i think like i don't know how familiar most people would be with the yields that you get from lending out your stock but it is typically five basis points um like 0.05 per year or less if anything if you get anything like certainly that's the rate in traditional finance there is no way to generate yield on top of those holdings really in any meaningful way at scale or at any scale with you know, most tokenized assets, most RWAs, anything that isn't really like a stable point.
And that's where we come in, right?
Like that is exactly where options come in and structured products.
That's why that industry is massive in traditional finance.
There's trillions of dollars of assets that kind of get like collateralized and used to trade structured products.
It's just a market that's kind of out of sight.
It happens at the top levels.
of private wealth and investment banking, kind of at investment banking desks and they route directly through to market makers and a lot of it happens OTC.
We can make those strategies and products accessible.
easy to use and easy to understand crucially.
Like I'm certainly not going to be here trying to get people to put, you know, their assets or money into products they don't understand or don't understand the risks.
Like it's about giving them the suite of tools to like look at the risk and take a trading view and say, Hey, like I think Apple stock isn't going to go down more than 20% or 10% in the next three, four months.
I'm willing to take that opinion and get paid to, you know, to kind of like.
commit myself to buying if it drops more than 10%.
And that's effectively what selling a put is.
And as a, you know, I'm giving the simplest examples here.
There's a million different structures and configurations you can make out of this.
Like I think Apple stock is going to stay in this very specific range.
I think it's not going to move, you know, more than five plus or minus 5%, or I think it's going to move exactly 10% up, but no more than 15.
Like those sorts of like granular fine-tuned views are perfect.
for generating yield and giving that, you know, it's a way, I think we're probably like the only team that can generate that yield at scale on chain with RWA.
So I think we have a direct route and interesting go to market around that.
It's certainly not just going to be throw off a market and hope people will click trade it.
I think you have to do better in 2026 to really start to compete with some of these more established fintech players.
Real world assets like funds, treasuries and private credit are still running on rails built decades ago.
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Everyone's talking about tokenizing them, but far fewer can actually do it and do it without cutting regulatory corners.
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I like the aspiration towards better things and better experiences and not just trying to trap retail.
So thank you for that.
Nick, I want to get your thoughts on something that I've been thinking about a lot and that the Ethereum community has been talking about a lot, which is this.
movement to migrate back to the Ethereum L1.
Derive, as I understand it, is in the Ethereum, the EVM ecosystem, but you are an L2 that is built on the OP, the Optimistic Rollup Stack.
And I'm curious your thoughts on this.
Do you think it is important to have this migration back to the L1?
Do you think that L2s still fit a role in the ecosystem?
And how do you think about that in terms of what's best for your users, your customers, and for Derive itself?
Yeah, I think The current version that's live is on an app chain.
It was state of the art back in 2023 when we designed and built it and kind of launched it, which was December 2023.
But we're designing it really from like February, March 2023.
But the problem with that is you have to force everybody, like everything you do is kind of custom.
It's a custom bridge.
It's a custom like onboarding flow to make it feel like a, you know, seamless.
Like it's a great experience for click traders at the moment, but it's not so good for anyone building.
integration, structured products, front ends, like the kind of stuff that really makes this idea of an infinite payoff factory commercially viable.
And because of that, it is like, you know, the velocity of the types of products we can launch and, you know, kind of the growth of the exchange and then, you know, the network itself is constrained.
It takes, it's just all these little layers of friction for people to come on in.
and onboard that really shouldn't exist.
And I think at the same time, now Ethereum has come a long way and some of the zero knowledge technology has certainly come a long way in the last three or four years, kind of quietly, if anything, it was super hyped three, four years ago, but it's now very much out of the hype cycle, but it's actually great tech now.
And so that has matured enough where you can build.
like a globally competitive exchange that settles to the L1.
We haven't made a final call on this, but I will say that like it is hard to match Ethereum in terms of, you know, a attractive settlement venue for a sufficiently, you know, a business of sufficient scale.
If you're thinking through the trade offs, kind of like if you're in my seat and you're like, okay, well, we have this, you know, leading on chain options protocol.
We have big ambitions, but at the same time, like, you know, there's all these corporate chains.
Like, do we take our whole stack and kind of like create a core dependency or create a potential competitor that's like, you know, a couple of clicks away?
I think the answer is it's just very, it's very tricky to want to do that.
If you have that degree of ambition, there might be sort of limited things you can do with corporate chains or other chains or other L2s.
particularly if it's just like product lines or whatnot, or you have an application that can be split to it.
But to me, our number one product is liquidity and liquidity is best when it's unified.
And so the idea of fragmenting it and taking multiple instances of derive and splitting it across chains also doesn't make much sense to me.
So we're very much a make a bet, stick to it kind of team.
There really isn't a more attractive venue that I can see right now than the O1.
If I was going to make a bet, I'd say it sounds like you're going to end up back on Ethereum.
So I'll leave that there.
And I'm looking forward to more news on that, Nick.
I do want to unpack something you just said, which you said our number one product is liquidity.
And that's best when it's aggregated, not fragmented.
And I'm curious your thoughts about what is the biggest driver for mass adoption of something like on-chain options trading?
Is it the user experience?
Is it the security of something like an Ethereum?
Is it just the liquidity itself?
How do you think about that in terms of prioritizing what to focus on?
Yeah, it really is kind of a thousand small things.
Like we view ourselves as the best options exchange in the world.
And like, that's what we're striving towards.
Like we're not there today, right?
Like obviously we're not.
uh doing the trillions in volume that the best office in the same would but that's what we're shooting for it's not like okay we're just going to be the best on chain and like only try and shoot for the on-chain market um i think We are listing markets faster than kind of like anybody on or off chain.
We are soon going to have these novel use cases built on top of us.
So again, the vaults, like the generalizable programmable vaults with strict controls over what strategies, you know, what like a specific vault can do.
So you can actually kind of have this trustless vault layer that you know isn't going to pick you off or have a nefarious vault operator take your money or whatever.
It's all transparent.
and enforced with smart contracts.
Like these are kind of extremely cool new use cases that just bring in new people into options generally and allow them to access the liquidity and the benefits of trading options that you kind of really can't unless you take the time to really understand it, which for a lot of people is just too much time.
They are complicated instruments if you want to price them from the ground up.
That's one way to read it.
The other way to sort of, I think with us over time, as I said, we're trying to build just a straight up better experience.
And the thing that we do have by being on chain, as well as programmability is like this verifiability of the state of the system and the collateral of the system, the margin.
You know, you're getting treated the exact same as everybody else on drive because the margin rules are, you know, transparent and written on chain.
They're enforced.
on chain.
And the collateral is there too.
So you can verify if there's no possible way to have a bunch of collateral exit the risk engine.
It is enforced with smart contracts.
And if there was some way of doing that, it would be instantly verifiable by the world.
And that is an underrated property.
I do think even with FTX in the memory of most crypto participants, people don't realize that even in the traditional system, this is still a problem.
It's no guarantee that just because you're like regulated in a big jurisdiction, even the US, like that you're not going to blow up.
There were a ton of blow ups as recently as 2012, 2011, like as MF Global, like and the ton around the financial crisis.
And we just haven't seen it in the last 10 years because financial markets have been up only.
So these things become really important again, like a big scale, particularly when things get a little hairier.
Sorry, that was a bit of a tangent, but I think that is like an underrated thing about some of these on-chain systems that everybody's building.
No, yeah, it's...
I think it's really helpful commentary and it's nice to hear your thoughts on all of these things.
I want to spend, you know, I have a lot more questions I can get to, but I do want to spend some time specifically talking about the token at Derive.
And I wonder if you could just talk me through how all of this, all the things that you're building, the things you're launching, the trading activity, all this stuff, how does this involve the token directly?
How does this drive value there?
And just tell me a little bit about the role that plays in the ecosystem.
Yeah, so the derived token, it's actually been live.
We used to be Lyra.
It used to be the Lyra token kind of like on and off since December 2021.
So it's very much like an established part of the ecosystem.
It has been for some time.
The token, like the kind of like protocol, the economics are controlled by token holder votes.
So currently 35% of the...
fees generated net fees generated by the protocol go to like buybacks 65 the other 65 go to the on-chain insurance fund which backstops like the protocol itself in the event of like any shortfalls which is again verifiable and monitorable on chain we've never raised as like a core contributor group money into an equity entity It's always been like one instrument within the drive ecosystem.
I've written a couple of blogs about it.
We've had like a block works token transparency framework published with derive as well.
It's something I felt very strongly about really since day one and somewhat, you know, really been vocal and about getting behind over time.
I do think like anyone who's trying to have it both ways with token and equity, it just inevitably, even with the best of intentions.
which sometimes there are, sometimes there's not.
It gets you into sticky situations.
Nick, I've always appreciated how token and crypto aligned you are.
And so I appreciate that.
I want to drill down a little bit more on that answer.
You said you're doing buybacks of the token and then you have an insurance fund.
Talk to me a little bit about what happens to that capital in both of those buckets.
Like what triggers an unlock of the insurance fund?
And when you're doing the buybacks, are you just burning those tokens or what happens there?
Those tokens, the buyback, they're just sitting there.
We haven't determined.
And like it will be up to governance to determine whether that changes or whether those tokens move.
The insurance fund is kind of the same.
It's being used for, as I said, like buffering the potential drawdowns or worst case scenarios.
And it kind of promotes confidence and health and confidence in the derived exchange itself.
We don't have the ability to get a government bailout in extreme market moves.
It's the kind of thing that's the last sort of buffer against ADL and those sorts of mechanisms.
So it's important to have that as a base for growth.
Yeah, that's kind of it for now for the token.
It's been the MO for a little while.
It may change, but again, that would be up to governance.
And we do have real governance.
I know people often think it's a bit of a meme and it can be in crypto, but we've had some...
major proposals go different ways based on the reaction of community and the governance in our history.
And I imagine that would still be true today.
Is there anything in the coming V3 upgrade that relates at all to what might be done with that buyback treasury that's being built?
Or is that still, like you said, up to governance and TBD still?
Yeah, it's still TBD up to governance.
I think people can think a lot about this stuff, if I'm being completely candid.
I think people can over-engineer this stuff a lot.
Really, with the token stuff, I get it's important because of how many people in crypto have taken advantage of having a token.
To me, my approach, my philosophy, and what I try and take to governance is just ensuring at the highest level.
that we are all aligned.
Anyone who's involved in derived is aligned.
There's no like malincentives.
And that sometimes causes bad things, right?
Like there's a whole saga, which we don't have to get into here from like last year where we were really on the brink in terms of like for a variety of reasons.
And we've architected this comeback over the last year where we've grown 10X and things like that.
But the seeds of that were diluting the token 33% actually, because we'd been around for four years.
The market cap is like 15 million.
We just didn't have the resources to one, retain a team.
or two, attract any meaningful liquidity to the protocol.
And sometimes you have to kind of cut off an arm to save a leg.
And we did that.
We minted 30% of the tokens.
There were a lot of restrictions on how those tokens could be used.
It was done with governance.
The community was kind of right behind that.
And that's the trade-off.
Those are the decisions you have to make when you don't have an equity entity that you can just raise more money into and dilute cap tables and shareholders.
It's a very common thing to do.
If you did have an equity entity, it's not so common in a token holder, but we have like a group of token holders who understand the realities of it and understand sometimes for growth, you need to make those decisions and that is the cost of alignment.
So anyway, that's a big tangent again, but my view on this stuff is broadly.
I care a lot about keeping incentives aligned and trying to make derive the premier venue for on-chain options liquidity globally.
And I think eventually you can drop that on-chain component because as I said, I think the architecture is superior to how the traditional system works and it will eventually port over to kind of like this on-chain off-chain hybrid architecture.
I think this sort of minutiae of like exactly how many dollars go into you know x or y or burning or whatever like i think at the moment um that alignment is there it works uh that can change but it's not something i think about sort of like month in month out it's more of like a broader view multi-year kind of thing i i sort of really think about review that nick i really think that what stands out to me from this is you know you said dogged persistence but also commitment to ideals and values about how to to operate and build the protocol.
And all that I think is really admirable.
And then, you know, it shows the ability and willingness to adapt and do what's necessary to survive and stay focused on the target.
So there's a lot of things to admire about that.
So good for you guys for making it through all this.
That would be a great place to end the conversation.
But there's one question that I really wanted to ask that I can't skip, which is what is your strategy for the rise of agentic finance and AI and the intersection of crypto and artificial intelligence?
This is getting a lot of attention.
How are you thinking about this in terms of derived strategy there?
Yeah, great question.
I'll try and answer it briefly.
And thank you for the kind words from before.
V3 is that answer, the new version.
It is tailor-made for integrations and agentic integrations.
I think options are best positioned as a category to benefit from the adoption of agentic finance.
Why?
Two reasons.
One, they actually, LLMs can just translate people's trading opinions into payoffs and options trades and make that UX.
so much simpler than it ever has been.
And they've actually gotten good at that in the last few months for the first time ever.
So that barrier to entry to options around complexity for someone who's click trading has gone way down.
And there's going to be ways of working that into different UXs to make that accessible from the agentic perspective, like directly, not just like AI generally.
My, you know, I don't claim to be an expert on this.
I don't know exactly what the world's going to look like in five years.
But my hunch is that if agents really truly are running finance, which I believe that they will, they are going to prefer precise, defined, bespoke, tailorable instruments to broad-based, blunt instruments like perps.
I think expressing payoffs, generating yield, having that full suite of tools, that whole thesis of programmable finance and the infinite payoff factory.
relates so well to agents, right?
Like that's what they're going to prefer.
That's my wager.
I'm biased, but like, it makes so much sense to me that, um, you know, kind of these, these agents that are born out of software are going to prefer, um, you know, the most precise way to express a specific opinion.
Um, and complexity, I can tell you is not going to be a barrier for them in making decisions that I do know.
That's about it.
That's all I know about, you know, AI.
Well, we'll see where the market goes.
It's going to be interesting to see how all of this plays out.
Nick Forster, CEO at Derive, the infinite payoff factory, which is still, I think, one of the most bullish titles I think I've ever heard somebody apply to their product.
Thank you so much for being on the Milk Road Show.
Where can we send people to find more of you and your work online?
Yeah, my Twitter's on screen, but Derive is at DeriveXYZ or Derive.xyz.
And yeah, we'll have a lot coming out.
It's going to be a pretty fun end of the year.
So stay tuned.
We will definitely stay tuned.
Nick, thanks so much for being here.
I hope we catch up again soon.
Thanks for having me on, John.
Thank you all for joining us.
I hope you all learned something today.
So until next time, stay safe, stay educated, stay bullish, and we will see you all on the next episode of The Milk Road Show.
Thanks for being here, everyone.
Bye.
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