Options Automated Market Maker Lyra Deploys to Arbitrum Network

Lyra, an automated market maker for crypto traders to buy and sell options, is now a multichain protocol after successfully launching its Newport upgrade earlier this week.

Initially only running on Ethereum layer-2 chain Optimism, Lyra has expanded to Arbitrum, another layer-2 platform, and integrated with decentralized exchange GMX perpetuals, a derivative trading product without an expiration date.

"Paul," a core contributor for Lyra, told CoinDesk, “One of our main drivers of launching on Arbitrum and GMX is that we noticed that there were distinct communities forming on each chain. There are users that only use Arbitrum and users that only use Optimism. We realized it doesn’t really make sense to just wall ourselves off to only one subset of users.”

Before the upgrade, Lyra’s market maker vaults (MMVs) paid swapping fees for every collateralization and hedging trade. For example, when a trader buys a call option contract on ether (ETH), Lyra’s MMVs would purchase ether from a spot exchange, incurring a fee; once the trader’s position has closed, Lyra’s MMVs would sell back the ETH used for collateral, incurring yet another fee.

As a result, the process was inefficient, and liquidity providers in Lyra’s MMVs had lowered yields from the swapping fees.

Now, Lyra’s MMVs don’t need to swap the base asset like ETH to collateralize or hedge every time a trader buys an option contract. Instead, options are now partially collateralized in cash, while Lyra hedges its exposures by using GMX perpetuals as a source of liquidity.

As a result of the Newport upgrade, the Lyra Twitter account indicated that swapping fees “should be reduced with cost savings passed onto [liquidity providers] in the form of higher yield from the same amount of trading volume.”

Total notional trading volume on Lyra passed $1 billion for the first time on Jan. 16, and in the past 30 days, Lyra’s trading volume increased 8.4%.