Lyra has been around for a while, as one of the primary teams working in the options space that arguably doesn’t get the traction it deserves among market participants. Lyra came to market late last cycle and has added quite a bit to its offerings during its lifespan. This includes Lyra V2, the addition of Lyra Chain, and now most notably, the migration from LYRA to LDX, a token rebrand that we’ve seen success with in DeFi time and time again. This recent development likely contributed to today’s LYRA price action, up ~12%. Stakers of the LYRA token can earn ‘holder points’, earning eligibility for the eventual LDX airdrop which will actually occur in early May, not too far away.
Lyra is a protocol that we’ve covered extensively; in fact, we recently released an entire Market Intel report outlining our thesis, available for our premium members. In today’s edition, we’ll go over the basics of what Lyra is and how it works, what its V2 brings to the table, the advantages of Lyra Chain, and more.
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Introduction
As DeFi’s TVL continues to bleed, more and more protocols are starting to work on infrastructure, as that’s where most VC investments are currently going.
While this might suggest that the rate of innovation in DeFi is starting to stagnate, this is not necessarily the case. Instead, this could be an indication that if protocols truly want to compete against their respective centralized incumbents, they might want to build their own appchain.
Ribbon already set the precedent with Aevo, a custom rollup that leverages the OP stack in an attempt to compete against centralized giants like Deribit.
Like Ribbon, Lyra also started out as an options protocol and has now transitioned to a custom OP stack rollup enabling trading for options and perpetuals with an orderbook exchange as well as spot trading with a CEX-like user experience.
Overview
With its v2 upgrade, Lyra introduces an advanced and decentralized spot, perpetual, and options trading platform. Lyra now consists of four fundamental components: Lyra Protocol v2, the Lyra Chain, Lyra Wallet, and the Lyra Exchange. Together, these offerings comprise the Lyra Derivatives Network, which the new LDX token will represent.
The Lyra Protocol serves as a decentralized settlement mechanism, facilitating spot, perpetuals, and options trading. Through this update, users gain access to various trading options and can utilize different collateral modes, including portfolio margin, cross-margin, and multi-asset collateral. Off-chain matchers will efficiently match traders and market makers. Subsequently, they will settle orders to the Lyra Chain, further streamlining the trading process while ensuring optimal execution.
The Lyra Chain is an OP Stack Rollup for low-cost transactions. This integration ensures a seamless trading experience without compromising on cost-effectiveness and still achieving high throughput.
Lyra Exchange is the frontend application enabling options trading for users. It serves as the primary interface for interacting with Lyra, though it is just one of many ways to do so, as Lyra provides core infrastructure in the options space.
Lyra Wallet will be a provided feature in the near future as part of the Lyra Derivatives Network initiative. This will help with ease of onboarding new users, and more details on this feature are yet to come.
Lyra has rolled out a series of incremental changes and an advanced feature set that will include:
Portfolio margin, which translates to:
Increased buying power and leverage – from the netting of positions and consideration of the state of your overall portfolio.
More dynamic and responsive risk management through strategic hedging – which reduces margin requirements.
Capital efficient spreads, which will unlock the following:
Convex payoff functions.
Passive income opportunities.
The ability to trade volatility.
Implicit leverage.
Multi–asset collateral to increase flexibility and reduce friction for traders. For example, you will be able to collateralize options and perpetual positions with a variety of base assets. This way, traders will be able to start opening positions without converting their holdings to a specific quote asset, such as $USDC. This unlocks use cases such as:
Long a $BTC perp with $ETH as collateral.
Short an $ETH call with $BTC as collateral.
Borrow against $stETH to sell $ETH covered calls.
Loss-minimizing partial liquidations, which offers advantages such as:
Reduced market impact from liquidations when closing over-extended positions – decreasing the likelihood of insolvency.
PnL preservation, since liquidating positions incrementally allows traders to maintain a portion of their exposure and redeploy released capital.
By staggering liquidations across price levels, the platform can reduce the risks of incurring costs as a result of low-liquidity conditions.
Seamless and frictionless user experience with features such as:
Gasless transactions.
Instant confirmations.
Seamless deposit/withdrawal flow from Ethereum.
Advanced order types: market orders, limits orders, good-till time orders, post-only, reduce-only, stop losses, take-profit.
Why V2?
The rise of Layer 2 solutions (L2s) and appchains is witnessing a remarkable proliferation, providing a robust infrastructure to support high-performance, cost-effective financial products. The distinguishing factor relative to Traditional Finance (TradFi) lies in their ability to maintain essential features of Decentralized Finance (DeFi), such as composability, self-custody, and decentralization.
This surge in L2s and appchains has led to a growing awareness of the flaws in the traditional monetary, political, and financial systems. One significant concern is the opacity and lack of transparency in these systems, which has serious implications for various stakeholders.
In the traditional banking sector, profits often stem from risky bets made with customers’ savings, putting their hard-earned money at stake without adequate disclosure. Similarly, governments generate revenues by taxing debt holders and salaried workers, often resorting to money printing and currency debasement, leading to economic instability.
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