What is Lyra?

What is Lyra?

What is Lyra?

…and how do you make money on it?

Dapps & Protocols

·

11 min

What is Lyra?

…and how do you make money on it?

Dapps & Protocols

·

11 min

What is Lyra?

…and how do you make money on it?

Dapps & Protocols

·

11 min

What is Lyra?

…and how do you make money on it?

Dapps & Protocols

·

11 min

What is Lyra?

Lyra protocol is the closest you can get to stock options in the DeFi market. If you're familiar to options trading, using Lyra will feel like a breeze. Lyra protocol offers the same trading experience on TradiFi apps like Robinhood, only you get full exposure to every ERC20 token. Not only that, but you can also create your own AMM and conquer DeFi to your own tune.

Imagine being able to customize your trading strategy, take advantage of market inefficiencies, and make a killing in returns. That's exactly what Lyra's AMM customization capability offers. It's like being a stock market wizard, only with way more...options.


If you ever felt discouraged by the Ethereum fees, you are not the only one. For too long Ethereum has priced users out with its outrageous fees, although DeFi was supposed to be open to anyone. This is where Lyra has won its users from day 1 – the protocol runs on the layer-2 scaling solution Optimism. That's right, say goodbye to ETH fees and embrace the $0.20 fees.

Lyra derives its value from its customization capabilities. Whether it's lending, borrowing, yield farming, or token issuance, Lyra can help you spin out vaults, hedging tools, arbitrage bots, algorithmic trading strategies and whatever your degen mind cooks. The protocol serves DeFi wizards and newbies equally – no KYC or questions asked. Due to the open nature of Lyra, anyone can review the code and see exactly how the smart contracts work.

Whilst the core team has worked hard to design and test a robust mechanism thoroughly, there is always a risk that the smart contracts may not perform as expected. Lyra has never been hacked, but that doesn't mean the protocol is shielded from settlement risks.

When you trade an options contract, you have the option but not the obligation to buy the underlying crypto asset at a predetermined price before it expires. In traditional finance, settlement happens without problems because of the centralized nature of the ecosystem. In other words, if something bad happens, a centralized authority can pause trading and even revert the trade.


In DeFi things work differently. Lyra uses a permissionless bot keeper to fetch the latest prices provided by Chainlink. If the keeper bot fails to promptly call the Chainlink price after expiry, it is possible that options are settled to a delayed price. 

Another risk pertains to the liquidation mechanisms. If the liquidations fail to happen in time, there is a risk for liquidity providers to receive less money than they are owed. Since LPs take fees, there is always a dose of calculated risk they are willing to take.

Luckily, the Lyra team has taken all these risks into account and implemented a security model called LEAP. The idea is for the protocol to always have some liquidity at hand to repay bad debt in case of a black swan event. The go to assets are USDC and Lyra's native token, LYRA. Months after Lyra rolled out, the community and the core team agreed to dedicate a portion of the LYRA supply towards the security module. 

LYRA has utility as a governance token in the Lyra ecosystem. It is centered around a representative council – the "Lyra Council" – which enables the community to iterate quickly whilst ensuring that token holders have ultimate control. With token holders and the core team aligned towards the same goal, Lyra has yet another security layer. We will explain how to make money with LYRA later on.

How does Lyra work?

Lyra is the first option AMM on Optimism. The protocol allows traders to buy and sell options on cryptos against a pool of liquidity. The core mechanism underpinning the Lyra AMM is to increase implied volatility when demand for options is high and decrease implied volatility when supply is high.

The term "implied volatility" refers to a prediction of future volatility of an asset based on the price of its options. When demand for options is high, it means that more people are interested in buying options and betting on the future price movement of an asset. When demand is high, the cost of options increases because people are willing to pay more for them.


The core mechanism of the Lyra AMM is to increase the implied volatility when demand for options is high. This means that the AMM will raise the price of options, making them more expensive, in response to increased demand. The purpose of this is to ensure that there is enough supply to meet the demand for options.

On the other hand, when supply of options is high, meaning there are more options available for purchase than people are interested in buying, the Lyra AMM will decrease implied volatility. This means that the cost of options will go down, making them more affordable, to encourage more demand and reduce the surplus supply.

Lyra Market Maker Vaults

Lyra's vaults are liquidity pools where providers can deposit USDC or sUSD  in order to collect trading fees from users of the protocol. These vaults play a crucial role in providing liquidity to the Lyra platform and maintaining stability in the market.

A market maker vault is essentially a collection of funds managed by a smart contract that provides liquidity to the platform by automatically executing trades. The vaults use a mathematical formula to determine the prices of the assets they trade, ensuring that there is always a buyer and seller for each trade.

Providers have to take on a couple risks when depositing into the Market Maker Vaults (MMVs). One of them is the smart contract risk (hacks, bugs). The other one is that the LP capital will appreciate or depreciate depending on the performance of the MMV's options position, which is inverse to that of the traders.


The performance of the MMV's options position is inverse to that of the traders because the MMV and the traders are effectively on opposite sides of the same trade. When a trader buys an option, the MMV is selling that option, and vice versa.

If the price of the underlying asset moves in a way that is favorable to the traders, their options will increase in value, and the value of the market maker vault's options position will decrease. Conversely, if the price of the underlying asset moves in a way that is unfavorable to the traders, the value of their options will decrease, and the value of the market maker vault's options position will increase.

To the benefit of the providers, they can withdraw their funds into the AMM at any point in time, subject to a short delay and withdrawal fee. A cooldown of 3 days is set in place to ensure the MMV always has enough liquidity to serve the users. 

Lyra Trading

With the release of Lyra V2, the protocol has enabled partial collateralization for short calls, resulting in improved capital efficiency. This would mean, selling 1 ETH call would require, say, 0.4 ETH. Further, short calls will now be able to be collateralized in either the base (ETH, BTC, etc) or quote asset (USDC or sUSD). 

Users must maintain at least the minimum amount of collateral or they will be liquidated by a liquidator. This occurs via keepers, users who call the liquidation function on an underwater position.


When a user is liquidated, the user is forced to buy back their option in such a way that will (in expectancy) favor the AMM/LPs. The reason for this is that when a trader's position is liquidated, the MMV will typically sell the trader's option back to the market at a price that is higher than the price at which it was bought, thereby recouping some of its losses. In turn, this higher price will be passed on to the LPs, who will earn a higher yield as a result.

How to make money on Lyra?

The main methods of making money on Lyra is to trade options or provide liquidity. The latter option ois the simplest way to make money on Lyra, as it requires little trading knowledge.

Lyra Market Maker Vaults

Let's start with the easiest method to make money on Lyra. In order to get started, all you need is an Ethereum wallet and have your funds bridged to Optimism or Arbitrum. 

The idea is to provide liquidity into Lyra's vaults and earn a share of the transaction fees from the respective pool.


Here's how you add liquidity to Lyra:

  1. Open app.lyra.finance

  2. Click on the "Vaults" tab

  3. Select the vault of your choice and click "Deposit"

  4. Input the amount of tokens you would like to deposit

  5. Approve the transaction

  6. Profit

Lyra Trading

Lyra made a name for itself in the DeFi industry because it enables decentralized options trading. Before we get into options trading on Lyra, let's recap how they work.

Options trading give the holder the right, but not the obligation, to buy or sell an underlying asset at a specific price, known as the strike price, within a specified time frame.

There are two types of options: call options and put options. A call option gives the holder the right to buy the underlying asset at the strike price, while a put option gives the holder the right to sell the underlying asset at the strike price.


Here's how you trade options on Lyra:

  1. Open app.lyra.finance

  2. Click on the "Trade" tab

  3. Toggle between "call" and "put" options

  4. Select the type of options you want to buy

  5. Input the number of contracts you want to buy

  6. Approve the transaction

  7. Done

Lyra's interface currently supports ETH and BTC options trading.

Price Prediction for Lyra — Can it hit $1000?

Buying and hodling LYRA — the native token of Lyra — is one way of potentially making money on Lyra.

By looking at its current price, it’s natural to think about the chance of LYRA hitting $1000 per token. This can happen sooner, or way in the future, and is determined by a couple of ever changing factors.

Let’s examine the potential growth of the LYRA token by analyzing its tokenomics. LYRA’s current market cap sits comfortably at ${MARKET_CAP}. With {CIRCULATING_SUPPLY} LYRA tokens being in circulation today, that means a price of {PRICE} per LYRA.

How did we come to that calculation? It’s quite easy, the price of a LYRA token is equal to its current market cap divided by the number of tokens in circulation. Dividing ${MARKET_CAP} by {CIRCULATING_SUPPLY} gives us a result of {PRICE} for each LYRA coin. 

By changing the order in the simple formula above we can use it to calculate other things as well. This helps us a lot because we can deduce the market cap of LYRA at different token prices. Then, we can use the result to compare it to the current state of the network and see what would be required for LYRA to hit that price.

At a price of $1000 per token, that means the current market cap of LYRA would equal ${{CIRCULATING_SUPPLY} * 1000}. Remember that we arrived at this number by multiplying the amount of circulating tokens by $1000.

Now let’s shift our attention to the fully diluted market cap.

Some blockchains may have their tokenomics built in a way that only a small percentage of tokens are circulating at the beginning. This can be misleading because we don’t have the full picture and only take into account the current number of coins released in the market.

The fully diluted market cap represents the total value of a coin if all tokens were in circulation. LYRA’s whole supply of tokens is {MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY} LYRA which means that no more coins above that number will ever be created.

These tokens are not created at the discretion of a specific entity. They are created automatically by the network to reward different actors that keep it secure.

How does this impact the price of LYRA? Taking into account the current price of a LYRA token, that would result in a fully diluted market cap of ${MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY * PRICE}. LYRA coins that have been burned are not taken into consideration because they have been permanently removed from circulation.

Whether it seems gigantic or not, the number we came to above only takes into account the current price of a LYRA token. Doing the same calculation but with a price of $1000 gives us a result of ${{MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY} * 1000} for the LYRA protocol fully diluted market cap.

These are all crucial details to know when calculating if LYRA can reach the price of $1000 per token. If the diluted market capitalization is way too high, the token has little room left to grow. Blockchains in general have no cap on the value they can reach, whether that number seems possible it’s totally up to you.

The future of LYRA depends solely on its growth as a network used by tens and hundreds of millions of users.

If you’re looking to add some LYRA to your portfolio, the most trusted places to get some are Binance and Coinbase.


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