This blog post is about three months overdue, but sometimes life comes at you fast, and you have to reprioritize. That said, past roadmap attempts were somewhat futile, consigned to irrelevance by the fuzziness of prolonged six-plus month build times. The technical debt that comes with an immutable AMM was the catalyst for the re-design of the protocol: from one where pricing, margin, settlement, and clearing were all bundled in one set of smart contracts, to v2, which rips apart the stack, allowing for rapid and seamless iteration.

In this blog, I will cover how - after 18 months of sowing - the Lyra community is now poised to reap. My hope is that this post will catalyse the community to rally and chart a course for the DAO this year, a year where we have the opportunity to cement Lyra’s place as a cornerstone of DeFi.

Lyra’s Mission

Options are the Swiss-Army knives of the financial world. Powerful and flexible, there is almost no case (hedging or speculative) for which a basket of options cannot be tailored to achieve the desired payoff structure. They are payoff complete in the same way that a programming language is Turing complete. It’s the dizzying variety of use-cases that make options a foundational instrument in a financial system that is programmable, interoperable, and open source.

It was this insight that formed the genesis of Lyra. The aim? To build the largest generator of options in this new paradigm for finance: a volatility engine with which entrepreneurs across the world can tap into to build powerful, automated, and customized financial products.

Sowing and Reaping

The first version of the protocol was launched in August 2021 and, we have iterated on the AMM model throughout 2022. The idea of unbundling the protocol (and focusing on on-chain margin/clearing) first surfaced in July 2022. If we weren’t sure before, the value proposition of enshrined, on-chain custody, margin and risk models was made clear four months later, when FTX's off-chain margin models imploded after secretly extending infinite margin to insiders. Fun fact: Lyra was the only place to trade SOL options in the world throughout the FTX collapse (turns out AMMs do have some advantages).

After 18 months of design, engineering, and navigating a bear market, Lyra is now in a position to reap. We have:

• A world-class tech stack where a new, groundbreaking product can be launched every fortnight

• A clear lane to become the definitive category leader in options

• A path to a competitive moat: it is probably 10-20x more difficult to launch an options DEX than a perps one, by my estimation.

This fucking guy - I can hear you thinking - defi options are the canonical midwit trap. Why would you choose to put in 10x more effort on a product 10x more complicated than perps with 60x less volume? There are more dead DeFi options protocols than users.

If you persisted in DeFi from 2019-2023, you would have heard this criticism repeatedly. But I am willing to bet that this time actually is different. I like to swing big, and that almost always involves doing something non-consensus. I’m betting that 2024 will be the year that people realize that:

• The puck is going squarely to the realm of options.

• The time to grab land is now.

• Options protocols and products that build their position as category leaders will have moats that are far more defensible than perps.

Let’s get into it

All pucks point to options

Three major tectonic shifts in the market landscape herald the coming of options (and the shift is already underway):

1. The BTC ETF approval (and likely ETH ETF upcoming approval)

2. Major leaps forward in crypto options UX

3. Event driven narratives peppered throughout 2024

First - the ETF approval. Love it or hate it, the reality is that the ETF has opened the gates for institutions to participate in crypto with enormous size. I can tell you one thing, they will not be using perps to hedge their exposure. In the lead up to the ETF decision, the CME crypto options volumes saw a marked increase in trading and OI (and the CBOE will be getting in on the action shortly) This momentum will undoubtedly continue throughout the remainder of 2024, as hedge funds, trading firms, and individuals accumulate spot exposure, hedge their risk, and seek yield.

All of this new trading activity will ripple throughout the space, both in CEX-land and in DeFi. Given how nascent the crypto options market is today, it really wouldn’t take much in the way of new adoption in order to cause a 5, 10, or 15x in the total market size. We’re beginning to see this trend manifest in the increasing options/perps volume ratio already, and I expect this to continue as more institutions onboard this year.

The above chart clearly shows the accelerating trend, but if you cast your eye to the y-axis, you can see how small the actual numbers are. We have:

1. On-chain options are 100x smaller than centralized exchanges (but this is trending higher)

2. Crypto options are *60x smaller* than the perps/futures markets (but this is trending higher)

3. Crypto as an industry has major tailwinds ahead in 2024 and 2025, which acts as a multiplier on 1) and 2).

The kicker? On-chain options have been growing 38% MoM since September:

Putting the pieces together, I believe that on-chain options have a 100-500x ahead of them in the next two years, and am placing my chips accordingly.

2024 is shaping up to have a slew of major trading events that can be used to showcase the power of options. Lyra already did this once - with great success - for the Bitcoin ETF decision. It’s only February, and we already know that this year will have:

• The Bitcoin halvening

• A possible ETH ETF

• EIP-4844

• The US election

We will run it back for each event, continuously refining and perfecting the event-driven trading experience each time.

Land Grab Szn

Ok cool - ‘institutions are coming’ - we’ve all heard that a million times. What if they don’t come? Well, that brings me to my next point: the wider crypto market hasn’t seen an options product that is remotely good enough for retail participation. The largest players in the space have been geared towards highly sophisticated institutions and whales, with a market that has traditionally run as much on Telegram as it has on screens. There is an enormous opportunity in the market right now, a market which Lyra is best positioned to run headfirst into.

The UX for options traders over the last 3-4 years has been nothing short of horrific. New users are almost always engulfed with a smorgasbord of confusing strikes and expiries, with options priced and collateralized with the underlying asset (e.g. I pay 0.02 ETH for my ETH call, or sell an ETH put with 0.5 ETH as collateral - confusing!). These users have had limited access to novel or interesting products, and educational content continues to be tailored to people who are more interested in reading a textbook rather than those in the arena who just want to trade the ETF approval event.

With v2, we’ve made a number of strides in UX; USDC margin, gasless transactions, embedded wallets, and intuitive UI - but we can do more. For one, options education needs to be tightly integrated into the product. The math is implicit - show, don’t tell.

Beyond upgrades to the existing options products, there is an enormous opportunity in the uncharted territory of options products built atop new tokens. The amount of wealth trapped in assets or coins that don’t (yet) do anything is staggering. This is true of older tokens like OP and ARB, and will be invariably true for the litany of new tokens hitting the market this year (cough liquid restaking tokens cough).

Holders can make their tokens work for them in a seamless and trustless way on V2. Lyra will be able to support hedging and yield products on top of tokens which previously have been unable to unlock their value, and we will be able to do it with speed.

Speaking of speed, here’s a quick rundown of what’s happened in just the last two months post-launch:

1. Dec 11 - Launched Lyra Chain - L2 Rollup built with the OP Stack

2. Dec 15 - BTCETFPVP - $50m traded on 1 expiry

3. Dec 20 - Coindesk covers launch of Lyra V2

4. Jan 5 - Partnered with Celestia

5. Jan 10 - Full V2 release

6. Jan 11 - Cross chain bridging

7. Jan 22 - Theia Research announces a strategic investment

8. Jan 24 - Lyra Chain goes modular

9. Feb 2 - Cross-Asset Collateral + Portfolio Margin

10. Feb 6 - 2-year 150m LYRA incentive campaign begins

11. Feb 14 - Buyback and Earn proposal for LYRA token

12. Feb 15 - Coindesk covers Lyra trading activity

13. Feb 16 - Lyra Wallet - WaaS powered by Coinbase

14. Feb 19 - 0DTE (daily expiry) options

And we’re starting to see early signs of progress:

• V2 is on track for $5b volume annualised

• It took Lyra V2 just 1 expiry to surpass the ATH of Lyra V1

• Weekly options volumes have increased 500%

• Lyra had its first 100m volume week in February.

• 7-day moving averages for volume and fees have $15m and $10k, respectively.

• $150,000 has been added to the Security Module coffers in the last month alone

Clockwise from top left: Lyra v2’s volumes vs v1, notional trading volume week on week since soft launch on December 16, 7 day moving average of protocol fees, 7 day moving average of Lyra volumes.

It’s land grab season, and Lyra is the first mover in a growing market. There is much to be done, but the early signs are highly encouraging.

Moats n Hoes

With all of these major tailwinds, a waxing bull market, and a blue ocean of new products to experiment, you might be asking: where is the competition? Why is Lyra one of very few options-focused DEX operating at scale? Well, after working on a team that has designed, engineered, built, re-built, and coordinated liquidity (both maker and taker) for 200+ tradable instruments with 5+ dimensions of risk, the reason is pretty clear:

• Options are hard

  • Building an on-chain, trustless, and self-custodial risk engine for options is harder

  • Coordinating liquidity for makers and takers on an options book is (arguably) hardest

• The size of the crypto options market has historically been 50-60x smaller than perps

  • Perps are an order of magnitude simpler than options

  • They have one dimension of risk, one product per asset, and a ton of demand

The flipside to this, of course, is that perps are a much easier arena to compete in. That’s why every two days there’s a new perps DEX with a points farming initiative, supporting $500m in trading volume with $10m in open interest.

I believe that Lyra has a lane to win the options category, and that the community should focus all of its resources on:

1. Ensuring that Lyra dominates DeFi options over the next 6 months

2. Pushing the options narrative throughout the DeFi community

Only by going all-in on options early and building a moat, can we surf the wave of 30x category growth.

If I’m wrong, and the crypto market doesn’t have room for any products other than perps (doubt), then we will have some tough decisions to make.

But if I'm right, and options - the Turing complete financial primitive - find product-market fit in 2024 and 2025, then this bet - much like a weekly out-of-the-money call - has explosive upside. Even better, the moat we establish will be near unassailable. How else has Deribit consistently maintained 80%+ market share for the last 5 years?

We Must Now Reap

It’s been a tough bear market for the Lyra community, but one which has galvanized us and created strength of resolve that cannot be replicated by new entrants in the space.

We’ve spent the last 18 months sowing, so you best believe we are going to reap. The crypto options flag is there for the taking. It’s time to execute quickly. It’s time to get vocal on all social channels. It’s time to get involved in governance and have your say in the future of Lyra.

Hoist the colours.

What should I do next?

• Go trade and earn with the biggest $LYRA rewards program ever

• Join our first community call of 2024 in the Lyra Discord on Wednesday 6th March, 00:00 UTC