We have partnered with Lyra Finance to integrate options directly into our exchange. The fruits of this collaboration have culminated in the creation of the Kwenta Options Interface, an innovative platform that enables traders to effortlessly buy and sell the most lucrative options and perpetual futures available on the market.
This integration is a significant milestone in Kwenta's mission to disrupt the finance industry by providing open financial tools to anyone with an internet connection. Empowers traders to access a wider array of financial instruments, enhancing their trading capabilities.
The decentralized Kwenta Options Interface powered by Lyra is now LIVE.
This is the first step in integrating Lyra options directly into Kwenta. In the future, we plan for a deeper integration, enabling traders to share balances across both products, engage in one-click multi-leg trade strategies, and access to hedging mechanisms.
The current Kwenta Options Interface is a rethemed version of Lyra's frontend, and the integration with Lyra will continue to evolve to offer even more functionality and features.
Kwenta users will have access to the full range of features Lyra supports, including trading, vaults, and rewards. These features are available on Optimism and Arbitrum, with slight differences between the two networks. Let’s review each of the supported features.
Kwenta traders can go long or short on both puts and calls. Long positions may simply be purchased with the supported stablecoin of each network. On Optimism, sUSD is used to buy options. On Arbitrum, users buy options with USDC.
Short options positions must be collateralized. Calls may be fully collateralized using the underlying -- sETH and sBTC on Optimism, or WETH and WBTC on Arbitrum -- or partially collateralized using the underlying or each network’s supported stablecoin. Please note that partially collateralized options may be subject to liquidation.
Options positions may be opened if available strikes and expiry dates fall within the delta cutoff. An option position may be closed at any time but may incur an extra fee for positions that are forced to close. Positions are automatically cash settled at expiration and not subject to additional fees.
Liquidity for options is supplied by stablecoin vaults, which exist for each available asset, and each chain. On Optimism, vaults accept sUSD deposits. On Arbitrum, vaults accept USDC deposits. Vaults allow users to act as options market makers, taking the opposite side of each trade on the Lyra protocol, and earning from the bid/ask spread. Vaults utilize automated delta hedging, ensuring that depositor returns come from implied volatility market making, and not from exposure to the underlying asset.
Although depositors may enter or exit a vault at any time without waiting for the start or end of an epoch, there is a 3 day cooldown period. Users must first signal their intention to deposit or withdraw, then wait for this short delay period before their withdrawal or deposit is processed. Users withdrawing from the pool must also pay a 0.3% withdrawal fee on their collateral. These measures ensure sufficient options liquidity without a system of epochs, and protect the vaults from attacks.
To learn more about providing liquidity, see Lyra’s vault documentation.
Users can earn rewards for trading, depositing to vaults, providing liquidity to a Uniswap v3 pool, and staking Lyra. Staking Lyra also allows users to receive boosts on vault and trading rewards. Rewards can be earned in $LYRA tokens, or as a combination of $LYRA and $OP tokens.
To see rewards details for each action including eligibility for boosts, see the Kwenta Options Rewards page. Here you can track and claim rewards across different actions, markets, and networks.
To receive rewards or boosts for staking $LYRA tokens, you must stake your $LYRA on L1. Once staked, $LYRA incurs a 14 day cooldown period before it can be unstaked. For full details on how rewards and boosts are calculated, see Lyra’s incentives documentation.
Although options are popular instruments in traditional finance, options in Web3 are new and experimental products. While perpetual futures positions give users pure exposure to movement in the underlying asset, options are priced based on the probability that an asset will move past a particular price (called the strike price) at a particular date (called the expiration or expiry date).
This aspect of options pricing is called “implied volatility” or IV, and means that options will be more expensive if market participants expect larger movements in price within a shorter timeframe.
An option gives the holder the right to buy or sell a particular asset at a specified price (the strike price) for a certain period. There are two kinds of options, calls, and puts.
Calls give the holder the right to purchase the underlying at a specified price (the strike) price on a specified date (the expiration). Long calls are a bullish play, and make money as the price of the underlying goes up, or as IV (the market’s expectation of a large move) increases.
For example. An ETH call option expiring March 10th, 2023 with a strike of $1500 is worth $200 at expiration if the price is $1700, the difference between the strike and the actual price. If the actual price is $1500 or below, the option will be worth $0.
Puts give the holder the right to sell the underlying at a specified price. Think of a put as the inverse of a call. Long puts are a bearish play, and make money as the price of the underlying goes down, or as IV goes up.
For example. An ETH put option expiring March 10th, 2023 with a strike of $1500 is worth $200 at expiration if the price is $1300, the difference between the strike and the actual price. If the actual price is $1500 or above, the option will be worth $0.
Traders can also go short puts or calls, and must post collateral to ensure they can pay out for the value of an option. You can use a short call as a bearish play, or a short put as a bullish play. Short options are typically used when a trader believes the price of IV is too high.
Advanced traders may combine options types to create unique payoffs, known as spreads, straddles, strangles, and other more complex formations.
Kwenta is dedicated to delivering the best trading experience in DeFi, including flexible and efficient exposure. Options allow traders to add hedges and create unique payoffs, which are impossible using spot and perpetual futures alone. For example, traders can use options positions to benefit from flat price action, build directionally agnostic positions (gain whether the position moves up or down), or generate income with short options strategies.
In addition to being on Optimism and using sUSD and synth collateral, which creates a seamless trading experience for users wishing to trade options and futures, Lyra’s unique options AMM allows users to go both long and short on a variety of assets, strikes, and expirys. Lyra features universal closing, allowing for hassle-free closing of positions directly with the AMM at any time. With these trader-friendly features, focus on composability, and the ability to use Kwenta’s existing synth offerings as collateral, offering Lyra options was a natural step forward on Kwenta’s path to challenge centralized exchanges.
Although the initial launch of Kwenta Options only allows basic interaction with the underlying Lyra contracts, the Kwenta team is focused on building advanced functionality and tooling for derivatives traders, and options are a natural fit for a project like Kwenta.
As time goes on, we hope to improve the trading experience and allow users to interact with Lyra’s options liquidity in a manner more similar to what users can find on TradFi exchanges.
In summary, the collaboration between Kwenta and Lyra Finance has led to the development of the Kwenta Options Interface, which enables traders to trade a broader range of financial tools seamlessly. This partnership is an essential milestone in Kwenta's mission to democratize access to financial tools, and users can expect further integration between the two products in the future.
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