Market Maker Vaults

This page explains how Lyra's liquidity pools, which are referred to as market maker vaults or MMVs, operate.
Liquidity providers can deposit USDC or sUSD to a Lyra market maker vault (MMV) in order to collect trading fees from users of the protocol. In doing so, they take on a few risks:
  1. 1.
    Options market-making risk: LP capital will appreciate or depreciate depending on the performance of the MMV's options position (which is inverse to that of the traders).
  2. 2.
    Smart contract risk: As with any new system in DeFi, there is an element of smart contract risk that exists. Lyra has attained 3 independent audits for the Newport contracts, read them here.

Anytime Entry/Exit


Users can deposit or withdraw their funds into the AMM at any point in time, subject to a short delay and withdrawal fee. The steps by which this occurs are:
  1. 1.
    The user signals their intention to deposit/withdraw funds. A user cannot rescind their decision to deposit after signaling.
  2. 2.
    A cooldown timer of 3 days begins.
  3. 3.
    A withdrawal fee, currently 0.3% is charged which is re-distributed to the remaining LPs.
  4. 4.
    After the cooldown timer elapses and pending the circuit breakers (see below), the net asset value (NAV) of the pool (the sum of free liquidity, the delta hedging position, and the pool's option exposure) is calculated using a geometric time-weighted average value (GWAV). The value of each LP token is calculated by dividing the NAV by the number of LP tokens in circulation. The user then has LP tokens minted/burned, the number of which is given by the value of deposited/withdrawn capital divided by the value of a single LP token.

Circuit Breakers

To further protect existing LPs from potential attacks, several deposit/withdrawal circuit breakers have been implemented. These are:
  1. 1.
    The liquidity circuit breaker: this ensures that a minimum percent of the pool's NAV (currently 5%) is available as liquid (USD denominated stablecoin) to trade options.
  2. 2.
    The volatility circuit breaker: this ensures that the GWAVs of baseline/skew/trading volatilities are reasonably close to their market values.
  3. 3.
    The contract adjustment circuit breaker: this ensures all LPs receive a fair payout during a contract adjustment period in the event of insolvency.
When either 1) the pool runs too low on liquidity, 2) has diverging spot and GWAV volatilities, or c) is performing a contract adjustment, the appropriate circuit breaker fires, and all deposits (and withdrawals) will be blocked. The circuit breaker(s) continue to fire until these conditions are rectified. A cooldown timer then begins, during which deposits (and withdrawals) are still blocked.
  • For the liquidity circuit breaker, the cooldown timer is 3 days
  • For the volatility circuit breaker, the cooldown timer is 1.5 days.
  • For the contract adjustment circuit breaker, persists until scaledNetValue of the pool is > netOptionDebt.
After this cooldown timer has elapsed, deposits/withdrawals can recommence. Any deposits/withdrawals meant to occur during the firing/cooldown time can be immediately processed.


To ensure that prolonged firing of the circuit breaker doesn't prohibit funds from entering the pool, Guardians (a multisig of two core contributors and the five members of the council) can manually approve deposits that have been signaled for a sufficient period of time. For more detail, see the section on Guardians.
On August 1, 2022, Alice signals to deposit $100,000 USDC. After 3 days, on August 4, the net asset value of the pool is computed to be $30,000,000 and 29,000,000 LP tokens are in circulation. The value of 1 LP token is 30,000,000/29,000,000 = $1.03. Alice receives $100,000/1.03 = 96666.7 LP tokens.
If the liquidity circuit breaker fires on August 3 and stops firing on August 5, then her deposit will be processed on August 8 (after the 3-day cooldown has elapsed).

Delta Hedging

The protocol aims for the MMV to be close to delta-neutral, reducing PNL fluctuations for LPs and aiming to ensure that returns are driven by implied volatility market making.
For a delta hedge to be performed:
  • The time threshold since the last delta hedge must have elapsed (this is a parameter, e.g. every 12 hours)
  • A maximum delta threshold has been met (this is a parameter, e.g. 20 ETH delta)
  • A keeper bot must call the permissionless hedgeDelta() function
The DAO will be running keeper bots, however, this role is permissionless and can be performed by any actor.
If a delta-hedge is performed, the AMM will either open a long or short perpetual futures position using the GMX protocol on Arbitrum or a spot synth position using the Synthetix protocol on Optimism.