Trade everything, never close: RWA Perpetual Contracts — The final piece of the puzzle in DeFi swallowing Wall Street (Part 1)

Introduction:

Currently, the exploration of RWA in the crypto market mainly focuses on asset tokenization—mapping ownership of real-world assets like government bonds, stocks, or real estate onto the blockchain to achieve more efficient settlement and custody. However, these solutions centered on high-efficiency holding and settlement cannot fully meet the needs of the more active and larger trading volume in financial markets: leveraged trading and risk management related to asset price volatility.

In fact, the true engine of liquidity in global financial markets is not static asset holders but traders seeking leveraged directional exposure. From the U.S. monthly-end nominal value options market of about $50 trillion to the non-U.S. CFD (Contract for Difference) markets with approximately $30 trillion in monthly trading volume, retail investors’ demand for high leverage and short-term risk exposure has never waned. Despite the enormous trading scale, traditional financial tools still struggle to support this demand: 0DTE options (zero days to expiration) force traders to bear nonlinear risks from Theta (time decay) and Vega (volatility) in simple directional bets. Meanwhile, the CFD market is often criticized for its opaque black-box mechanisms and centralized counterparty risks.

From the perspective of traders purely seeking directional exposure, many actually desire not “options” or “tokenized stocks,” but a pure Delta One (linear/symmetric returns) exposure—where asset price movements directly and proportionally translate into profits or losses, without any loss or deviation in between (Arthur Hayes wrote a retrospective “Adapt or Die” late last year on their development of perpetual contracts, which may be of interest).

It is within this structural mismatch that DeFi protocols have keenly identified a market opportunity. Some DeFi entrepreneurs are attempting to introduce perpetual contracts—products that have been validated and matured in the crypto space for nearly a decade—into traditional assets. These synthetic derivatives use oracle-fed prices and funding rate mechanisms to anchor the underlying asset prices, providing around-the-clock leveraged trading for stocks, commodities, and forex without actual custody or delivery of the assets.

Figure: Main asset types traded on RWA Perps Dex

1. Market Background (Opportunities for Entry into RWA Perps Market)

1.1 Entry Point 1: U.S. 0DTE Options Market

Over the past decade, the U.S. options market has undergone profound structural changes. According to data from Cboe Global Markets, the proportion of at-the-money options with zero days to expiration in the S&P 500 index has surged from less than 5% in 2016 to over 60% today, with monthly nominal trading volume reaching $48 trillion (about 40 times the monthly trading volume of perpetual contracts on centralized exchanges). This data reflects not only increased trading frequency but also reveals a large capital force seeking intraday high-leverage exposure.

Note: 0DTE stands for “Zero Days to Expiration,” referring to options that expire on the same day. These options expire at the end of the trading day. Traders use them for ultra-short-term bets to achieve quick returns and avoid overnight risk.

Figure: The above two charts show the proportion of S&P 500 index options with different expiration times from 2016 to 2025. It’s clear that 0DTE options accounted for less than 5% in 2016, but by 2025, their market share has soared to 61%. Nearly half of all S&P 500 options trading is now based on betting the same day for ultra-short-term gains.

Figure: The top chart shows retail traders are the dominant force in the 0DTE market.

From the first principles of financial instruments, derivatives can be divided into Delta One products and nonlinear products. Traditional Delta One tools like stocks and futures have symmetric risk exposure: gains from rising prices and losses from falling prices are proportional in scale. However, options are designed to manage asymmetric risks.

For example, a fund manager holding a large position in Apple stock, optimistic about the company’s long-term fundamentals but worried about short-term earnings volatility causing a sharp decline, can buy put options as insurance. Under this structure, his upside potential remains as the stock rises (symmetric upside), but his downside is strictly limited to the premium paid (asymmetric downside risk).

This “separation of rights and obligations” in options’ cost structure reflects not only intrinsic value (Delta) but also the potential for volatility (Gamma) and time decay (Theta).

The significant growth of the 0DTE market in recent years reveals a paradox: many traders are not managing asymmetric risks or engaging in complex volatility trades but are using these as the sole means to obtain intraday leveraged directional exposure. In this scenario, traders are forced to pay high time value costs (Theta decay) for “insurance” they do not need. As long as the underlying asset’s upward speed does not outpace the decay of time value, even correct directional bets can result in losses.

Figure: Time value is the main component of options’ value that shrinks over time and is central to the game for 0DTE traders.

Therefore, perpetual contracts, as Delta One products, strip away unnecessary time and volatility costs, providing a purely linear leveraged exposure. Mathematically, they can more precisely match the speculative needs of this capital segment than 0DTE options.

1.2 Entry Point 2: Non-U.S. CFD Markets

Outside the U.S., retail leverage demand is mainly met by CFDs, with a projected monthly trading volume of $30 trillion in 2025.

While CFDs offer a linear Delta One payoff structure, their operation relies on broker models, which have significant transparency issues. Most CFD brokers operate on a B-Book (internal market-making) basis, meaning the broker directly acts as the counterparty to clients’ trades (some reputable brokers hedge their profitable clients to avoid risk, but the top two firms hold only about 20% of the market share, with the remaining 80% filled with small to medium brokers that often rely on opaque practices to profit from client losses). In this zero-sum, opaque environment, brokers have the technical and economic ability to modify quotes, slippage, and execution speed.

Compared to traditional CFD products, RWA Perps can be understood as a “transparent CFD based on smart contracts.” By bringing on-chain liquidation logic, funding rate calculations, and oracle prices, DeFi protocols eliminate the possibility of centralized broker intervention. Additionally, using stablecoins for atomic settlement improves capital flow efficiency to seconds, enabling true self-custody and real-time clearing.

2. Challenges in Building RWA Perps Products

RWA Perps are not just simple replicas of crypto-native perpetuals. While crypto assets trade 24/7 with real-time pricing and T+0 on-chain settlement, traditional assets are constrained by physical world legal frameworks, holidays, and outdated banking clearing protocols.

This underlying asynchronous nature creates an “impossible triangle” in product design:

High Leverage: meeting retail traders’ demand for high-multiplier speculation.

24/7 Availability: maintaining the core value of DeFi’s around-the-clock trading.

Externalized Risk: ensuring the protocol and market makers do not bear directional bets, enabling systemic longevity.

2.1 How does the on-chain price anchor work when U.S. stock markets are closed?

Perps are essentially “price discovery mirrors,” requiring continuous external spot price feeds. When Nasdaq or CME are closed on weekends or at night, oracle data sources break.

This creates two core risks during U.S. market closures:

Risk 1: Market makers lack sufficient hedging channels during weekends

Professional market makers provide tight spreads and deep liquidity because they do not bet on direction but pursue neutral positions earning only the spread. This means that when they sell $1 million worth of Tesla contracts on-chain, they must immediately hedge the risk by buying an equivalent amount in traditional spot or futures markets.

When traditional markets are closed, hedging channels are unavailable. To avoid this risk, market makers can only cancel orders or add large risk premiums during closures. This explains why bid-ask spreads can expand nonlinearly to dozens of times normal levels over weekends, risking liquidity drying up.

Risk 2: Gapping risk at Monday open with large jumps

Crypto-native assets, traded 24/7, usually have continuous price curves, and liquidation engines have enough time to close positions during price drops. In RWA Perps, however, the accumulated pressure during market closures is released instantly at Monday open. If a large gap occurs, the liquidation engine faces a “price gap” vacuum, unable to find counterparties before liquidation.

To address these issues, two main solutions are currently considered:

Internal simulated pricing (e.g., TradeXYZ / Hyperliquid): Using EMA algorithms, prices are slowly “drifted” during oracle disconnection, maintaining 24/7 coverage but still potentially manipulable as a “shadow market.”

Mandatory risk reduction (e.g., Ostium): A more pragmatic risk control. Ostium introduces 0DTE-like features: all high-leverage positions are automatically closed or significantly reduced before market close. Only low-leverage positions (with sufficient margin buffers to cover 5-10% gaps) are allowed overnight. This sacrifices some “perpetuality” to ensure safety during Monday gaps, preventing systemic bad debt.

2.2 How to provide TradFi-level trading depth on-chain at low cost?

Liquidity provision and order execution mechanisms are key to capital efficiency, risk distribution, and user experience. The two main approaches are: CLOB (central limit order book) and oracle-based pools.

Hyperliquid has demonstrated success with the order book model for crypto-native assets, thanks to frictionless hedging: market makers can transfer risk across platforms within milliseconds using stablecoins. They can hedge on centralized exchanges operating 24/7, keeping spreads tight and attracting volume.

In RWA, market makers face significant cross-border hedging friction: on-chain USDC (T+0) and traditional fiat settlement are mismatched in timing, forcing market makers to hold large amounts of USD in traditional accounts for hedging. Additionally, bank holidays and weekends prevent timely hedging during sudden market moves.

This is why founders like Kaledora of Ostium insist on a pool-based model rather than an order book, believing that crypto-native zero-friction hedging is hard to realize in RWA Perps. When market makers receive an NVDA order on RWA Perps, they cannot hedge instantly via stablecoins on Nasdaq due to traditional banking barriers.

2.3 How does the system prevent bankruptcy when traders profit continuously from one-sided trends?

The third challenge involves how protocols hedge externally to ensure long-term solvency. GMX’s pool model has persisted because it acts as a “passive market maker,” leveraging statistical advantages over large samples to absorb position wear and liquidation profits from high-leverage positions amid frequent volatility. In volatile crypto markets, this model’s mathematical expectation favors the pool LPs.

However, RWA assets have very different risk distributions. Major indices like S&P 500 often experience multi-year sustained bullish trends. Without risk externalization (hedging), continuous trader profits would directly cause net losses for LP pools, leading to systemic insolvency. The system would not only fail to capture volatility premiums but could be drained by one-sided positions, ultimately risking insolvency.

3. Project and Architecture Dilemmas: Oracle Pricing + Pool vs. Order Book

Figure: Daily trading volume of RWA Perps Dex shows weekend volumes sharply decline

The core contradiction of RWA Perps revolves around “discontinuity in physical time”: despite platforms generating over $20 billion in trading volume within 30 days, weekend volumes plummet by 70-90%. This reveals the current state: although DeFi aims to escape traditional finance gravity, liquidity still heavily depends on TradFi opening hours.

Two contrasting architectural paradigms have emerged: the active hedge pool model (e.g., Ostium) and the internal pricing order book model (e.g., Trade.xyz in Hyperliquid).

3.1 Early RWA Perps Projects: Synthetix, Gains Network

Before Ostium and Hyperliquid attempted complex hedging or order book reconstruction, DeFi had already experimented with “synthetic assets.” Early protocols like Synthetix and Gains Network validated the concept of RWA Perps, demonstrating strong on-chain demand for traditional asset exposure but also exposing the capital efficiency and risk control limitations of first-generation mechanisms.

Synthetix: Global debt pool model

Synthetix was among the first to try bringing real-world asset prices on-chain. Between 2020 and 2021, it aggressively launched synthetic stocks like sAAPL, sTSLA, attempting to mirror U.S. equities on-chain.

As a “pool counterparty” model (counterparty is all SNX stakers), Synthetix aimed to create a no-order-book, infinitely liquid exchange: all synthetic assets are freely exchanged at oracle prices, eliminating the need for matching counterparties. This greatly addressed early liquidity cold-start issues, especially when liquidity mining was used as an incentive.

By 2021, Synthetix had delisted most RWA assets, mainly because the protocol lacked active hedging mechanisms. When US stocks like sTSLA are closed for trading, prices cannot be updated, making the system vulnerable to attacks.

Overall, Synthetix pioneered the model of providing on-chain RWA exposure via derivative collateral pools, with a design of no order book + oracle prices that remains influential. However, by around 2022, the product largely exited the RWA Perps market.

Gains Network (gTrade): Oracle-driven market-making pool

Gains is another early project exploring on-chain synthetic leverage trading for crypto, forex, and U.S. stocks. Its design uses independent asset pools as counterparties: users collateralize USDC, DAI, ETH to open synthetic leveraged positions, with profits and losses managed by the gToken Vault.

Liquidity and market-making mechanics:

Unilateral vault: Gains’ liquidity pools mainly consist of stablecoins like USDC/DAI.

GNS token as risk buffer and incentive: To prevent extreme losses, the protocol introduces GNS tokens as a last line of defense. When pools are profitable, the system buys back and burns GNS tokens to reduce inflation. When pools suffer losses, GNS is minted and sold off-chain to replenish liquidity.

Pricing is based on Chainlink real-time prices with a fixed spread, with spread income distributed to LPs and GNS stakers. Risk controls include price impact fees (extra fees on large orders to simulate slippage), and limit protections (setting profit/loss caps to force profit-taking or liquidation).

Overall, Gains offers high leverage and multi-market coverage, serving as a decentralized alternative to centralized exchanges. It demonstrates that “oracle + liquidity pool” models can support large-scale trading under proper risk controls but also reveals challenges like concentrated profit risk and lack of hedging, providing lessons for future innovations.

3.2 Ostium: Breaking the Pool Model, Building On-Chain CFD Brokerage

Ostium is a recent RWA Perp DEX that launched on Arbitrum in August 2025. While it still adopts a pool-based liquidity and order execution core, it reflects on early models like GMX and Gains Network, recognizing that the “trader profit = LP loss” zero-sum game is detrimental to LPs and limits market size. To address this, Ostium integrates traditional broker-like A-Book (hedging) and B-Book (internal risk absorption) mechanisms on-chain to mitigate the zero-sum conflict.

Liquidity Model and Market-Making Mechanism

Basic two-layer pool architecture:

First layer: Liquidity Buffer — the protocol’s “moat,” accumulated from protocol revenues. Trader profits are paid from here, and losses also enter here. Similar to Gains Network’s market maker cushion.

Second layer: Market Maker Vault (OLP Vault) — funded by LPs. Only when the Liquidity Buffer is exhausted does the OLP intervene as counterparty.

The key evolution beyond traditional pool models is the complete separation of “settlement” and “market making”: Ostium recognizes that the simple two-layer buffer cannot handle long-term directional imbalance (as data shows, the liquidity buffer is easily depleted, and LPs face long-term unidirectional risk). Therefore, Ostium introduces a design that separates these functions.

Currently, the OMM market-making hedge vault is not yet live, but when handling high trading volumes, it will require professional market-making teams with strong execution capabilities: integrating with traditional financial compliance, achieving millisecond cross-market hedging to avoid oracle and spot market basis risks, and managing capital flows to address timing mismatches, with real-time monitoring of net Delta positions and dynamic risk controls.

Market Closure Risk Management

Ostium aligns closely with U.S. stock trading hours, using oracle timestamps to ensure market orders only execute during open hours, effectively avoiding price vacuum risks during closures. To mitigate gap risks, the platform enforces strict “liquidation checkpoints”: 15 minutes before market close, positions with leverage over a threshold (e.g., 10x) are forcibly liquidated, reducing intra-day leverage to safe levels.

Why didn’t GMX implement similar designs?

GMX has maintained a pool model without separating directional risk, mainly due to the trade-offs and different market assumptions: their internal mechanisms (adaptive funding fees, price impact, long/short pool separation) balance the system, and introducing external hedge vaults would sacrifice yield, increase complexity, and centralization risk. Moreover, GMX’s pools bear the aggregate exposure of all traders, and in highly volatile crypto markets, the law of large numbers makes individual bets statistically negative expected value, so the pool acts as a positive expected value counterparty. Ostium, focusing on stocks and RWA markets with lower volatility, aims to serve traditional CFD broker markets.

Why choose a pool model over an order book?

Kaledora, founder of Ostium, has a clear rationale for sticking with the pool-based approach and not opening weekend trading. She has publicly criticized projects like Trade.xyz for experiencing absurdly high funding rates during weekends.

Figure: Ostium founder points out that Trade.xyz’s weekend funding rates have exploded.

Her reasoning is that the limitations of traditional pool models—LPs bearing unidirectional risk and capital constraints limiting volume—have been addressed by her new design. By introducing a hybrid A-Book and B-Book risk management, she can transfer unilateral risks instantly to a global, infinitely liquid market. Once unilateral risk is technically mitigated, the open interest (OI) limit is no longer constrained by pool size, and the trading volume cap depends solely on distribution capacity (similar to top CFD brokers).

In contrast, she believes the core function of order books—price discovery—is highly valuable in crypto-native assets but wasteful in RWA. Since stock and forex prices are already efficiently discovered on top-tier exchanges like Nasdaq and CME, recreating an on-chain order book means competing in a “poverty environment” against these giants. This “dimensionality reduction” from traditional exchanges makes large traders prefer brokers quoting global prices over order books with high slippage.