AD Derivatives Insights: Lyra V2 Protocol

We’re excited to launch our new video series AD Insights with an overview of the amazing DeFi options protocol Lyra V2!

Today we explore the recently launched LYRA V2 protocol.

We chat through all the details including the Lyra App Chain, Trading, Lending, the Margin System, and the Settlement Process.

Lyra Protocol V2 Overview

Lyra Protocol, a leading decentralized finance (DeFi) options trading platform, launched its highly anticipated Version 2 in Q4 of 2023. Unlike its predecessor, Lyra V2 distinguishes itself by transitioning from an automated market maker (AMM) based protocol to a gasless central limit order book system (CLOB) with on-chain settlement.

Key Advancements and Features

Lyra V2 brings forth substantial advancements to the DeFi options trading landscape, expanding its offerings beyond options trading to include a purpose market and a spot market. The platform enables efficient collateral management and Delta hedging, offering a comprehensive trading experience. All transactions occur directly on the Lyra app chain, an optimistic rollup Layer 2 solution, providing a dedicated environment for seamless trading.

App Chain Architecture

Lyra's app chain architecture offers a cost-effective solution for on-chain trades and settlements. By bridging funds such as USDC from mainnet Arbitrum or Optimism, users can access the Lyra app chain environment. This architecture ensures minimal transaction costs and eliminates external competition for blockchain throughput.

Flexible Funding Options

Lyra V2 allows traders to fund their accounts with various tokens, including native Ethereum. The platform uses external oracles to continuously value these tokens, applying a risk-based haircut on the collateral to compensate for potential risks. This flexibility enables traders to open positions using Ethereum instead of USDC.

Introduction of Spot Market

To facilitate easy collateral management, Lyra introduced a spot market. Traders can use this market to sell assets like Ethereum for USDC, enabling them to manage negative USDC balances and optimize their trading positions efficiently.

Innovative Margin Types

Lyra V2 stands out by introducing both standard margin and portfolio margin types. Standard margin employs a rule-based margin requirement system, allowing traders to execute complex strategies with capped margin requirements. Portfolio margin, on the other hand, adopts a scenario-based approach, providing a holistic view of the portfolio's margin requirements based on different market scenarios.

Risk Management and Liquidation Process

Lyra employs a robust risk engine and an intelligent liquidation process to ensure the stability of the ecosystem. The risk engine calculates fair theoretical values for each options instrument, enabling on-chain margin requirement checks. The liquidation process is auditable on-chain, ensuring transparency and accountability in case of maintenance margin violations.

Settlement Process

Lyra options follow a European cash-settle model, with settlements occurring at 8 a.m. UTC. The final intrinsic value of options is paid out in USDC, based on a 30-minute time-weighted average price (T-WAP) of the underlying spot price.

Conclusion

Lyra Protocol V2 introduces a paradigm shift in DeFi options trading, combining innovative features, flexible funding options, and advanced risk management mechanisms. The platform's commitment to transparency, efficiency, and user-friendly features positions it as a noteworthy player in the evolving landscape of decentralized finance.

Lyra App: https://lyra.finance/

Lyra Documentation: https://docs.lyra.finance/

Lyra Twitter: https://twitter.com/lyrafinance

Lyra Discord: https://discord.com/invite/Lyra

Lyra BlockExplorer: https://explorer.lyra.finance/

AMBERDATA DISCLAIMER: The information provided in this research is for educational purposes only and is not investment or financial advice. Please do your own research before making any investment decisions. None of the information in this report constitutes, or should be relied on as a suggestion, offer, or other solicitation to engage in, or refrain from engaging, in any purchase, sale, or any other investment-related activity. Cryptocurrency investments are volatile and high risk in nature. Don't invest more than what you can afford to lose.