It’s been an incredible year for Lyra. In just a few months the protocol has supported over $110m in notional trading volume and over $120m TVL thanks to market-leading spreads, industry-leading UX, and unified options liquidity provision. We’ve assembled a strong and engaged community backed by a world-class team of core contributors to realize the vision of bringing composable, permissionless options to web3 in 2022. To that end, we are proud to introduce Avalon, a release that represents a giant LEAP forward for Lyra:
- The Avalon release (formerly v1.2) will arrive in Q1 2022, accommodating up to 12-week rolling expiries, partial collateralization for short positions, and the ability for LPs to freely enter/exit the liquidity pool, subject to a short delay.
- A comprehensive tokenomics proposal for LYRA to be introduced to allow LYRA to be staked for xLYRA to access boosted rewards for trading and providing liquidity.
- Lyra Vaults structured products with on-chain, algorithmic strike selection/execution, is in the final stages of development and will be launched following the Avalon release.
Avalon - Q1
The Avalon release will transform Lyra into a primitive for leverage and hedging in DeFi, providing a strong foundation for integrations and composability. Avalon will greatly improve the UX for both LPs and traders, facilitating the rapid growth of Lyra to become the premier location for options in DeFi.
This version of Lyra will accommodate:
- Regular 1, 2, 3, 4, 6, 8, and 12 week expiries with up to 15 strikes per expiry, renewing every two weeks
- Partially collateralized options selling
- Any time entry and exit to the liquidity pools, subject to a short delay
- All of the existing features of Lyra (buy/sell options to pool, on-chain price discovery, delta hedging)
The current rounds system, which limits the longevity of our expiries, will be replaced by constantly rolling expiries from 1-8 weeks and increasing to 12 weeks. LPs will be able to freely enter and exit the liquidity pool after a short delay, which will allow for higher TVL, substantially improved capital utilization and a wider variety of options to trade. Finally, traders will be able to sell partially collateralized options, allowing for enormous gains in capital efficiency and yield generated from options selling.
Predictable, deep liquidity across strikes and expiries will make Lyra the standout venue to integrate with structured products, driving volume to the platform and fees to LPs. This, combined with a market-leading trader experience, will transform Lyra into the focal point for on-chain volatility trading. In sum:
- Higher TVL and deeper liquidity due to flexible liquidity provision and an improved LP UX
- Higher volumes from traders due to more strikes/expiries
- Improved yields for option sellers through partial collateralization
- Influx in structure product flows due to the predictability of liquidity and expiries
- Increased fees for LPs
- On-chain IV discovery allowing for index products to be built on top of Lyra
Stay tuned for a formal specification and litepaper dropping in early 2022.
Introducing xLYRA and Token Reward Boosting (Q1-Q2)
The LYRA token will play an integral role in the protocol’s functionality in the short, medium, and long term.
In the short term (from January 7th) LYRA:
- Can be staked in the Security Module (SM) from January 7th, 2022
- Can be used to vote on Council elections
- Can be staked in the LYRA-ETH Uniswap pool to earn LYRA rewards
Beyond these functions, the most powerful path for the LYRA token is to build an emissions and staking system that deeply integrates token functionality with trading volumes and market liquidity. This path will drive tokens into the hands of community members, traders, and LPs who are long-term aligned with the protocol.
The core contributors will be publishing a proposal in the next few weeks which details a mechanism where users can stake their LYRA in return for xLYRA which acts as a rewards booster for trading and liquidity providing. The idea for this implementation is heavily inspired by Curve’s CRV token. Community engagement is a key pillar in Lyra’s mission - our boost mechanic will heavily reward users who participate in liquidity provision/trading and signal long-term engagement with the protocol by staking LYRA.
LPs/traders will continue to receive rewards in the style of the Lyra Ignition, but stakers of the LYRA token will receive a boost to these rewards. Committed users who stake their LYRA for longer periods of time will receive larger boosts. This system will also be fair: smaller users will only need a small amount of LYRA to obtain the maximum boost while whales will need large amounts of LYRA to get the same effect.
A full tokenomics spec will also be dropping early 2022 for debate by the council and the community, with a target launch date shortly after Avalon.
With the upgrades introduced from the Avalon release, Lyra will be in a perfect position to launch fully autonomous option vaults that run yield strategies on behalf of users. At launch, Lyra will offer two vaults, with other assets to be rolled out progressively:
- ETH covered call
- ETH secured put
The on-chain structured product market has exploded recently, but most projects rely on centralized market makers to broker OTC transactions in the absence of a liquid automated market maker.
Avalon will provide deep liquidity with a predictable cadence of listings, allowing Lyra's vault strategies to be codified and executed on-chain. Users will know ahead of time exactly what the risk profile of the vault is, including delta thresholds, IV ranges, and maximum slippage tolerance. Vaults will introduce an entirely new class of user into the Lyra ecosystem, providing them with sustainable yield opportunities whilst driving consistent trading volume through the protocol.
Vaults will be the first product to demonstrate the power of a composable options venue but we expect many new projects to begin integrating Lyra’s options. Options are the most composable financial primitive, allowing builders to create any payoff structure for their users. Imagine hedging risk for LPs across DeFi’s biggest AMMs, lending markets, and yield protocols. No matter what you’re building, Lyra’s infrastructure will enable efficient transfers of risk that let you focus on scaling your product. If you’re a builder looking to start working with Lyra - reach out to the team and we’ll work with you to get your idea off the ground.
V2 development - which will usher in a redesign of the backend of the AMM to incorporate industry-leading margin techniques, native options structures (spreads, straddles, strangles), and yet more capital efficiency gains for traders - is already well underway, but will be engineered following the releases described in this blog. More details to come on the full plans for v2 soon.
It’s a cliche, but Lyra really is just getting started with on-chain options. L2 2022 will usher in an explosion in DeFi usage and experimentation, and the Lyra volatility engine will be at the center of it all. To get involved, join our Discord and check out current job openings here.