A short guide to using Lyra Finance

Lyra is an automated market maker for trading options,built on layer 2 Optimism,it inherently secure and offer cheap fees.

It’s AMM for trading options,they hope to basically provide the best prices on chain by being the first protocol to actively measure and then manage risk between traders and LPs

Lets explain options and AMM

Options are rights(not an obligation ) to buy(CALL) or sell(PUT) a stock representation.

AMMs hold the logic for determining the price and manner you exchange with the protocol.

2 core components of AMMs

Traders : the trader um obviously wants to buy or sell the product that’s being offered by the AMM

Liquidity Providers :They pool and lock their tokens together in an AMM so that traders may have a ready market to sell or buy from and in return get trading fees,liquidity pool tokens etc as reward.

Impermanent Losses

When LPs provide liquidity in spot markets AMMs,they take upon themselves the risk of impermanent loss

The thing about options is they’re much riskier products than swap markets or lending markets, the risks and options are very complex and very large.

The challenge

Because the risks are higher with LPs,many decentralized options AMMs tend to take the path of charging traders high fees inorder to properly incentivize LPs,while it’s good for LPs,it’s bad for traders.

Also,running such options computation on L1 is slow and expensive.

The solution

The core kind of driving idea behind lyra basically is trying to reduce this tension

Why build on Optimism

Because we need an extra order of magnitude or maybe even two in terms of scalability and compute to work these things out efficiently and to avoid passing on really really high gas fees to the trader or to the liquidity provider

How to trade on Lyra

Lyra is an options AMM built on Optimism,so to use it,you will need to create a custom Network on Metamask.

  1. Add Optimism RPC
for an automatic integration from Chainlink, just click Connect

2. The next step is to head over to Lyra app

Since,your metamask is on the default network(Ethereum),it will display this error

Click “Switch to Optimism”

Click Approve

Click Allow

Click on “Mint”

This will enable you to receive testnet tokens that you can practice options trading on with Lyra

Let explain some some terms

Call options : Gives option holder the right(but not the obligation) to BUY shares of stock at an agreed upon price, on or before a particular date

Put Options :Gives option holder the right(but not the obligation) to SELL shares of stock at an agreed upon price, on or before a particular date

Premium : Price pay share for the option contract you are buying

Break Even : The point at which the premium and profit are same,so there is neither loss or gain

Strike price : The price which an asset(e.g ETH) can be purchased upon expiration

Implied volatility : How volatility an asset can be during the time of an options contract

After this,I may buy or sell.

You may find details about your trade once you are done

One can follow a similar process for other option operations on the app.

3. One may also wish to swap tokens in the app

Thanks Happy Option trading

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