Liquidity Provision Primer

Liquidity Provision Primer

Lyra is launching liquidity incentives for options AMM liquidity providers (LPs). When deciding to provide liquidity to the AMM, it’s important to know the facts and risks associated with doing so.

Things to know

Your funds will be locked for the duration of the round

If you are unfamiliar with the Lyra rounds structure, please read this. LP funds are locked for the duration of the longest listed options expiry. For the first round, this will be a period of two weeks. Please only deposit funds that you will not need to withdraw until then.

Delta hedging is not currently live

If you don’t know what ‘delta’ means, refer to our docs here (and we strongly recommend getting acquainted with the options explainer docs before providing liquidity to the AMM in this early phase). Currently the Lyra AMM is unable to delta hedge for LPs, due to a dependency on Synthetix L2 shorting coming live. More information about this in the ‘options risks’ section.

Parameter Setting

The initial parameters for the system (as described in the whitepaper, more context in this blog) will be set by the core team in consultation with the community in the #liquidity-providers Discord channel. Market driven parameters such as Implied Volatility and Skew ratios will be derived from the Deribit market surface at time of initialization.

Options Risks

You will lose money if the options AMM loses money

The function of the AMM is to buy and sell options profitably, by charging a spread and updating the price of options based on supply and demand. Even the best options market makers have down swings, and since the Lyra AMM is so new it will be difficult to determine whether it is profitable for some time. The AMM is an experimental mechanism, and whilst very early results have been promising, there is a risk that either a design flaw or poor trading can lead to substantial losses for LPs.

The AMM will likely have a large delta position

Because the AMM is fully collateralized, when it sells a call it must purchase 1 ETH as collateral. In general, buying calls seems to be a favourite amongst crypto traders. Therefore it is likely that the AMM will accrue a sizeable long exposure to ETH for the duration of the round. You can track the current delta of the AMM here, and the Lyra core team will be pushing out updates on Discord so that LPs can undertake hedging actions individually should they choose.

System Risks


Optimistic Ethereum is a complex layer two scaling solution and is under constant development and iteration. Downtime is to be expected as the Optimism team continues to upgrade the network over the coming weeks and months.

Smart Contract Risk

Whilst the Lyra smart contracts have completed multiple audits, the system is complex, and like any new software carries added risk of a smart contract vulnerability.

Support For Early LPs

Liquidity Rewards

LPs will be entitled to a share of 375,000 LYRA tokens, proportionate to their share in the liquidity pool.

Dedicated Discord Channel

The ‘#liquidity-providers’ discord channel will be used to push relevant updates to LPs about trading activity, the AMMs net delta position, and to generally answer questions about being an LP. The team will be monitoring this and pushing relevant updates through this channel.

Join the Community

Stay tuned for more important updates, key date announcements, and exciting opportunities by following us on Twitter.

Join the Lyra community on Discord to get involved; provide early feedback, be the first to learn about new opportunities with Lyra, and be a part of building the future of DeFi.