ETH Strategy today announced a strategic partnership with Derive to launch its Perpetual Note Vault. This new product provides USD-denominated yield using STRAT convertible notes on Ethereum as the base and options on Derive Chain for execution.

At ETH Strategy, we are unabashed options nerds, which makes our strategic partnership with Derive a natural fit.

Derive is a decentralized derivatives venue purpose-built for programmable onchain options, perpetuals, and structured products, precisely the tooling needed to monetize volatility in a transparent, self-custodial way.

The partnership works because each side provides what the other needs at scale. ETH Strategy generates a steady stream of option flow from its treasury operations. Derive supplies the execution venue and settlement needed to price and clear that flow reliably onchain. Our quants design covered call and gamma scalping strategies; Derive makes them composable, liquid, and fully auditable from order to settlement.

ETH Strategy as a natural volatility supplier uses Derive’s market quality to drive measurable outcomes for holders. Option premiums captured on Derive feed ETH-per-STRAT (EPS) growth for tokenholders and USD yield for the vault, while Derive benefits from consistent, informed flow that deepens liquidity and tightens markets. Shared culture matters too. Both teams are quant-led, crypto-native, and focused on designing from first principles, which keeps the feedback loop fast and the roadmap aligned.

The ETH Strategy Perpetual Note Vault is designed for users who want USD-denominated yield derived from ETH's inherent volatility.

How it works at a high level:

1. Users deposit stablecoins (ex: USDS) to the vault and receives Vault tokens.

2. Vault bonds those stablecoins to ETH Strategy, receiving a convertible note.

3. Funds are used to buy ETH which is held in ETH Strategy's vault contract on Ethereum.

4. Vault bridges ETH to Derive Chain and sells OTM weekly (or monthly) covered calls on ETH, capturing option premiums.

5. a. If calls expire in the money (ITM), the vault exercises the STRAT convertible to settle, then re-bonds for the next cycle.
   b. If calls expire out of the money (OTM), the vault keeps the premium and repeats.

6. ETH Strategy’s “bond-and-buy-ETH” flow continues underneath, supporting EPS growth for STRAT holders.

7. Vault value increases over time as assets grow, fueled by option premiums and STRAT converts.

Backtesting based on Derive market data:

Daily data from Jul 1, 2022 → Jun 1, 2025 using deltas 10–25 and expiries 30–90 days:

• Gross returns of 8.5 to 24.3% (ex-fees)

• Net USD-denominated yields of 6 to 22% (after fees)

Results are model-based and not guaranteed. Live performance will vary with volatility, spreads, and transaction costs.

By underwriting the covered call strategy, ETH Strategy increases EPS as the calls settle in the money and the vault converts. This provides leverage for STRAT holders based on the difference between option and convertible spreads.

The Perpetual Note Vault receives a steady stream of USD-denominated yield from continually selling call options on Derive. The vault's asset base expands from this yield, leading to compounding returns over time. As long as ETH remains volatile, the Vault can harvest outsized returns by executing this strategy underpinned by STRAT converts.

Crypto options markets currently lack natural option sellers at scale. As a volatility supplier, ETH Strategy can sell options at institutional cadence while still returning attractive yields to users. This adds depth to DeFi’s derivatives stack and creates new building blocks atop STRAT convertible notes.

Unlike many yield strategies that rely on shorting ETH in size, ETH Strategy’s approach preserves ETH on balance sheets. This removes constant sell pressure on the market, ensuring healthier liquidity dynamics while still generating real yield. Our treasury model strengthens ETH’s role as collateral, while harvesting its volatility.

This Perpetual Note Vault is a whole new product atop ETH Strategy and Derive, so we will publish additional educational content for the community. We will release: 

• Technical documentation on how the Vault works

• Community documentation with FAQs

• Risk assessments for the Vault and options strategy

• Timeline for Vault release and trade execution

• dApp UI with dedicated Vault page

• Announcements for Vault launch sequence

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