Liquidity Provider Risks
Acting as a LP in an experimental system is an inherently risky undertaking, please do not risk more funds than you can afford to lose.
Initially, the AMM has been deployed without the ability to delta hedge, since delta hedging requires Synthetix short selling to be live on Optimism. We expect that this will be available shortly, but in the meantime it's important to be aware of the risks of the liquidity pool.
  1. 1.
    The AMM will likely hold a very long delta position, due to its current inability to delta hedge: Lyra requires full collateralization, which means that for each long call that a trader purchases, the AMM will purchase one unit of the underlying asset (e.g. if a trader buys a 50 delta ETH call, the AMM will purchase one ETH to collateralize, leaving the AMM net long 0.5 ETH). Long call is the most common trade that has been observed on the platform so far, and we expect this trend to continue. Holding large delta positions is risky, particularly if this is repeated over a long time horizon. The Lyra core team will be publishing updates on the AMM's net delta so that LPs can take hedging actions individually if they so choose.
  2. 2.
    The AMM is unproven: Whilst the core team has worked hard to design and test a mechanism that is robust, there is always a risk with experimental software the AMM will not perform as expected or result in significant losses through normal trading activity.
  3. 3.
    Smart contract risk: Whilst the Lyra smart contracts have completed multiple audits, the system is complex, and like any new software carries added risk of a smart contract vulnerability.
Last modified 1mo ago
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