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Lyra Finance Now Lets Liquid Restaking Token Holders Earn Extra Yields From Automated Trade Strategies

May 7, 2024
  • Lyra’s new offering allows liquid restaking token holders to automate and package any yield-bearing strategy into an ERC-20 token, which can be used elsewhere.
  • Initially, users will be allowed to tokenize basis trade, followed by a covered call strategy later.

As an experienced financial analyst, I see Lyra Finance’s new offering as a significant leap forward in decentralized finance (DeFi). The ability to tokenize and automate yield-bearing strategies like basis trade and covered calls using liquid restaking tokens is a game-changer. This innovative product, launched in partnership with Swell Network and Ether.Fi, provides stakers and restakers with an additional layer of derivatives yield, which is not available in traditional finance.

Holders of Lyra Finance’s decentralized options platform, Lyra Finance, can now gain extra returns on their liquid restaking tokens (LRT). Through the platform, they will have access to automated implementations of well-liked strategies such as basis trading and covered calls, enabling them to increase their income.

As an analyst, I would rephrase that sentence as follows: In collaboration with Swell Network and Ether.Fi, a new financial instrument called “tokenized derivatives yield product” has been introduced to the market.

Holders of rSWETH and eETH tokens stand to earn an annual return of 10-50%, as stated in a press release obtained by CoinDesk. This is notably more than the 4.47% yield over ten years on US Treasuries, often considered a benchmark for risk-free returns in conventional finance.
RswETH and eETH are the indigenous staking tokens of Swell Network and Ether.Fi respectively. The process of staking involves depositing cryptocurrencies into these networks to earn rewards.
As an analyst, I’d describe it this way: With platforms like Ether.Fi and Swell Network, I can deposit my Ethereum (ETH) or staked Ethereum tokens, such as stETH. Subsequently, these deposits are restaked in EigenLayer. The reward for this process is the issuance of Liquid Restaking Tokens (LRTs). I have the flexibility to swap these LRTs back for ETH whenever I desire.
Users simply need to transfer rSWETH and eETH into Lyra platform and generate a yield-earning derivative token. This token then carries out a predetermined yield-generating strategy automatically on the blockchain. Essentially, any yield-producing strategy can be automated and transformed into a tradable ERC-20 token for further usage.

“According to Forster, the yield from tokenized derivatives holds significant potential as a foundational element, fueling the development of new networks and fostering the growth of thriving cryptoeconomies.”

Forster added the total value locked in the restaking protocols could double to $30 billion in the next 12 months, and Lyra stands out as the only protocol providing a new layer of derivatives yield for stakers and restakers.

At first, individuals can break down the concept of “basis trade,” a common market-neutral approach aiming to capitalize on price differences between two markets. Later on, Lyra intends to offer tokenized covered calls as an additional feature.

“According to Nick Forster, co-founder of Lyra Finance, a delta-neutral strategy called ‘basis trade’ allows users to generate additional income from tokens that currently provide staking rewards and Ethereum yields.”

“According to Forster, the covered call strategy entails higher risks and employs Ethereum (ETH) tokens as collateral for selling ETH call options. Consequently, if the market price of ETH surpasses the agreed-upon strike price upon expiration, the holder stands to miss out on some potential gains but secures USDC returns.”

Selling call options with strikes set above the current market price of an asset, while keeping the asset itself, is called a covered call. The money gained from selling these options functions as additional income over and above the asset’s holding in the spot market. Lyra simplifies this strategy through its self-custodial vaults that automate the process.

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2024-05-08 11:06