Upgrading Lyra on Optimism

Upgrading Lyra on Optimism

Lyra is launching an improved version of the protocol on Optimism. After a successful first 3 months on Arbitrum, Lyra Newport has been adapted to integrate with Synthetix Perps V2 allowing the deployment of a cash-collateralized version of the contracts on Optimism. The core objective behind integrating with multiple perpetual futures platforms is to increase the protocol's resilience to individual shocks. Optimism has an active DeFi community, and by deploying a highly capital-efficient version of our protocol, we aim to provide the most competitive and liquid option markets in the ecosystem.

What's New?

Our new version of the protocol harnesses SNX V2 perpetual futures as a liquidity source to delta hedge the option Market Maker Vaults (MMVs). This is a large upgrade that greatly improves the capital efficiency of the protocol, increasing the percentage of fees returned back to LPs and allowing for significantly more assets to be supported for traders. We're also launching support for USDC as a quoteAsset, allowing users to trader and earn using USDC without the previous requirement of holding sUSD like in previous versions.

So how does it work under the hood? We're replacing the SynthetixAdapter with a SynthetixPerpAdapter contract. This change handles swapping covered call collateral (baseAsset) into quoteAsset on Uniswap, collected during liquidations and settlements. We've also refined the strategy to maximize capital efficiency by substituting the ShortPoolHedger with an SNXFuturesPoolHedger contract. This contract manages perpetual future positions against the SNX pool, delta-hedging the liquidity pool requiring significantly less capital to gain the directional exposure needed to delta hedge the MMV. A comparison of the performance between utilizing a spot market and perpetuals for hedging, read the Newport Upgrade Primer here.

Another exciting upgrade is that the new hedger is tasked with converting USDC into sUSD before hedging the MMV with SNX Perps and trading sUSD that isn't used to hedge back into USDC. The hedger will scrutinize the premium/discount function on SNX Perps before allowing trades, hedging, or liquidating post-settlement. This facilitates a significant improvement to trading and earning UX, allowing users to transact directly from their wallets using USDC.

Additionally, to enhance trader experience and minimize the risk of frontrunning attacks, new off-chain oracles provided by Pyth Network will be employed via Synthetix. These oracles save prices off-chain, which keepers provide to traders initiating a trade with an 8-second delay due to block times. They include staleness checks, key-threshold confirmation, and a final check against on-chain oracles, significantly reducing trading fees.

Why deploy Newport multichain?

There are three key reasons why this expansion makes sense:

Increased percentage of fees for LPs

Synthetix Perps V2 significantly curtails perps trading fees to only 5-10 basis points while maintaining optimal performance and execution efficiency. This is due to a reduction in the swap fee portion of the MMVs to collateralize and hedge in previous versions. Reduced fees improves the bid/ask spread for traders and enables countless opportunities and growth within the Lyra ecosystem.

Access to new assets for traders

Synthetix has launched 40 perpetual futures markets at the time of writing this blog. The markets include but are not limited to ETH, BTC, OP, DOGE, Gold, stkETH and more. This expansion will allow greater flexibility for Lyra to list additional markets if a vote is passed by the DAO.

Ability to trade and LP using USDC

The use of USDC as quote collateral, along with wrapped ETH/BTC and native collateral for DeFi tokens, will boost the pool liquidity available to Lyra for use within the protocol. Also, using a Curve integration to swap to sUSD to hedge will decrease our reliance on spot synthetic assets and address potential sUSD supply scaling issues.

Incentives and Rewards

A total of 90,000 OP, which was originally allocated to Lyra's Avalon Vaults for rewards epochs 3-6, will now be redistributed every two weeks to the newly launched Newport Market Maker Vaults as follows:

ETH: 13000 OP

WBTC: 2000 OP

OP: 2000 OP

ARB: 2000 OP

Trading rewards:

15,000 OP per epoch

We're excited about this upgrade, it increases our protocol's resilience and offers the most competitive and liquid markets for option traders within the Optimism ecosystem. As the version proves it’s we anticipate greater flexibility for Lyra to include additional markets in the future, to join the conversation and stay up to date, follow us on Twitter and join the conversation in our community Discord.