The well-known automated market maker, Lyra, recently underwent and successfully launched its Newport upgrade for cryptocurrency traders to buy and sell options. With the aforementioned modification, the automated market maker is now considered a multichain protocol.
Due to the aforementioned change, Lyra, an Ethereum layer 2 chain that was previously running on Optimism, is now formally moving to the layer 2 platform known as Arbitrum. The decentralized exchange GMX perpetuals, a derivative trading product without an expiration date, will also now be connected with the new Lyra.
The Reason Behind The Expansion
A key contributor to Lyra who goes by the moniker “Paul” claimed to have noticed unique communities growing on each chain. They used GMX and Arbitrum to launch for this purpose. The aforementioned core contributor noted that they had seen that certain users preferred optimism over arbitrum and that others preferred optimism over arbitrum. He continued by saying that they were restricting themselves to only one group of users, so they decided to expand because it did not make sense.
Lyra’s market maker vaults were reportedly paid for by swapping fees for every collateralization and hedging trade prior to the recent upgrade. As an example, if a trader chose to purchase a call option contract on ether, the Lyra’s market maker vaults would be responsible for purchasing the ether from a spot exchange.
This action will then be charged. When the trader’s position is closed, Lyra’s MMVs will sell back the ETH used as collateral, resulting in yet another fee. This process was deemed inefficient, and the liquidity providers in Lyra’s MMVs had reduced swapping fee yields.
Lyra’s market maker vaults would no longer need to swap the base asset, such as ETH, to collateralize or hedge every time a trader bought an option contract under the newly launched upgrade. Lyra hedges its exposures by using GMX perpetuals as a source of liquidity in the new option, which is partially collateralized in cash.
Furthermore, the Lyra team announced on Twitter that the Newport upgrade ensures that swapping fees will be reduced, while also passing cost savings on to liquidity providers in the form of higher yield from the same amount of trading volume.