Onchain covered calls (also written on-chain covered calls) are covered calls where your asset is locked in a smart contract instead of an exchange account, and the trade settles on the blockchain. The premium is set by a vault, an automated market maker (AMM), an order book or a request for quote (RFQ). The payoff matches any covered call: you hold the asset, sell a call, collect a premium, and accept capped upside. See Crypto covered calls for the trade and Onchain options explained for platform types.
How it works, step by step
- Lock the asset. You place the asset (a tokenized stock, BTC, ETH, SOL, …) in escrow.
- Get a price. A vault auctions the call, an AMM quotes a price from its pool, an order book matches a bid, or an RFQ collects competing quotes from trading desks.
- The trade is made. The call now exists, backed by your locked asset.
- Until expiry. The price moves. On some platforms you can close early by buying the call back.
- Expiry. If the buyer uses the option, you deliver the asset or pay the difference in value, depending on the settlement method.
Four ways premium gets set
| Mechanism | How it works | Seller trade-off |
|---|---|---|
| Options vault | Deposits sell on a schedule into an auction | Simple to use; less control over strike and buyer |
| AMM / pool | A pool of funds prices by formula | A price is always available; you trade against a pool, not a named counterparty |
| Order book | Bids and asks matched offchain, settled onchain | Continuous prices on listed strikes; thin for unusual ones |
| RFQ | You state your terms; trading desks quote | Exact size/strike/expiry; no continuous public book |
Vaults dominated the 2021–22 wave and showed how fast deposits can arrive — and leave — when yields compress. Ribbon Finance, the largest vault protocol, held about $268 million in March 2022 and about $51 million a year later. Current examples by type: Thetanuts Finance (vaults), Panoptic (AMM-style), Derive and Aevo (order books), Rysk and Overcast (RFQ). RFQ is how professional trading desks already handle large trades: request quotes, compare, accept. See RFQ vs Order Book.
Settlement choices that matter
- Delivery — you hand over the asset if the buyer uses the option. A clean result if you were willing to sell at the strike.
- Cash-style — the buyer's profit is paid out of your collateral, and you keep the rest of the asset.
- Delivery with a price check — the buyer can only use the option when a price feed confirms it. This adds a reliance on that feed.
Decide on the method before you compare premiums. For tokenized assets, which price the method references is as important as the method — tokenized stock options.
Onchain vs a centralized exchange
| Centralized | Onchain | |
|---|---|---|
| Who holds your asset | The exchange | A smart contract (escrow) |
| Pricing | Order book or packaged products | Vault, AMM, order book or RFQ |
| Transparency | What the exchange reports | Visible onchain |
| What can go wrong | The exchange fails or freezes | A software fault or a bad price feed |
Centralized exchanges still handle most crypto options trading: Deribit alone reported about $60 billion of open interest in August 2025. Onchain, you keep control of your assets and accept the risk of software faults instead.
Worked example
You hold 30 tokenized TSLA shares at $360 and request quotes for a one-month call struck at $400, about 11% above the current price.
- Collateral: 30 tokens locked in escrow.
- Three desks respond with $8.70, $9.10 and $9.40 per share. You accept $9.40.
- Premium: $282 paid to you up front, about 2.6% of the $10,800 position.
- Below $400 at expiry: you keep the tokens and the premium.
- Above $400, if the option settles by delivery: you deliver the 30 tokens for $12,000 and keep the premium.
A listed market could not write this position at all, because one contract covers 100 shares. The same trade on a crypto asset is worked through with ETH in Crypto covered calls.
Risks specific to onchain
- Software faults, and the question of who can change or pause the protocol.
- A wrong or missing price, if settlement relies on a price feed.
- Few competing quotes for unusual strikes.
- Issuer and price-reference risk when the asset is a tokenized stock.
- Issuer risk when the bitcoin is a wrapped token that stands in for BTC.
Covered calls on Overcast
You request quotes for a covered call, trading desks compete, the premium is paid up front and the trade settles onchain. How to sell a covered call on Overcast · How Overcast works.
FAQ
What are the steps onchain?
You lock the asset in escrow, sell a call through a vault, an AMM, an order book or an RFQ, collect the premium, and at expiry either keep the asset or settle with the buyer.
What risks replace exchange custody?
They remove the risk of an exchange holding your assets, and add the risk of software faults and bad price feeds. Check for audits and read how settlement works in the Overcast docs.
Do BTC and SOL work the same way?
Yes where a platform lists them or a trading desk will quote them. Asset-specific notes: Solana covered calls, earn yield on bitcoin.
Sources
- Primer: Equity (stock and ETF) Options, The Options Clearing Corporation
- Deribit Joins Coinbase, Coinbase press release, 14 August 2025
- The Vaultification of DeFi, The Mothership, 31 March 2022
- Ribbon Finance deep dive, Blockchain at Georgia Tech, 9 March 2023
- Best DeFi Options Protocols in 2026, Derive
Next reading
Risk disclosure and disclaimer
The content on this blog is published by Overcast for general information and education only. It does not constitute financial, investment, legal, tax or accounting advice, and it is not an offer, solicitation or recommendation to buy, sell or hold any asset or to use any product or strategy. It does not take into account your objectives, financial situation or needs. Consult a qualified professional before making any investment decision.
Writing options involves substantial risk. A covered call limits your upside and leaves you fully exposed to declines in the underlying asset. A cash-secured put can oblige you to buy an asset at a price above its market value at expiry. Premiums, yields and APRs shown are illustrative or historical, are not guaranteed and do not predict future results. Crypto assets and tokenized securities are highly volatile and may lose some or all of their value. Smart contracts may contain vulnerabilities, and onchain transactions are irreversible.
Products, assets and features mentioned may not be available in your jurisdiction. You are responsible for complying with the laws that apply to you. Information may be incomplete, contain errors or become outdated; Overcast makes no warranty as to its accuracy or completeness.
Overcast is in early access. Features, supported assets and availability described here may change before or after launch.
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