Why onchain options failed
The combinatorial argument, and what follows from it.
Perpetual futures reached substantial volume on public ledgers. Options did not, despite repeated attempts by well funded teams. The usual explanations are capital inefficiency and adverse selection against passive liquidity providers. Both are real. Neither is the binding constraint.
Counting instruments
A perpetual venue listing n underlyings operates n markets. An option venue listing the same underlyings with m strikes and k expiries operates 2nmk, since calls and puts are distinct instruments.
The reference configuration lists twenty underlyings across eleven strikes. Equities carry five tenors and crypto carries six, since a market that never closes can support a one day expiry. That is 1320 equity contracts and 1056 crypto contracts, 2376 in total, against twenty markets for the perpetual equivalent. A ratio of 119.
Aggregate flow that produces a usable book on a perpetual venue produces, spread across an option surface, under one percent of that depth per contract.
Market makers respond to thin books by widening or withdrawing, which removes the remaining flow, which thins the book further. The failure is not that participants dislike options. It is that the instrument count divides liquidity past the point where any single contract is tradable.
What follows
Two design consequences organise the rest of the protocol.
Quoting must be parameterised. A maker should express a view once, as a surface, and have that view price every contract at once. This is why the volatility surface is a first class object rather than an afterthought.
Common exposures should be single instruments. The exposure traders most often want from options is volatility, and assembling it from several thin contracts is expensive. Hence the constant maturity index.