Bankless - Alpha Leak | The Bull Case for Lyra

Episode Date: May 18, 2022

Mike Spain is the Co-Founder of Lyra, an options trading protocol accessing the scalability of Layer 2 Ethereum to provide a robust, lightning-fast, and reliable trading experience. David and Mike chat about how Lyra got started, the impact of on-chain options, Lyra’s newest launch—Avalon—and so much more. Avalon is available now to a select group of users and will be available to the public on May 30th! ------ 📣 ALCHEMIX | Get a self-repaying loan today! https://bankless.cc/Alchemix  ------ 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/  🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/  ------ BANKLESS SPONSOR TOOLS: ⚖️ ARBITRUM | SCALED ETHEREUM https://bankless.cc/Arbitrum  ❎ ACROSS | BRIDGE TO LAYER 2 https://bankless.cc/Across  🏦 ALTO IRA | TAX-FREE CRYPTO https://bankless.cc/AltoIRA  👻 AAVE V3 | LEND & BORROW CRYPTO https://bankless.cc/aave  ⚡️ LIDO | LIQUID ETH STAKING https://bankless.cc/lido  🔐 LEDGER | NANO S PLUS WALLET https://bankless.cc/Ledger  ------ Timestamps: 0:00 Intro 3:38 The Genesis of Lyra 6:20 On-Chain Options 11:36 How Lyra Wins 14:46 Pros & Cons of On-Chain Options 16:42 Lyra Limitations & Roadmap 21:47 Composibilty & Avalon 28:39 The Lyra Vision 30:19 Yield & Options 32:00 Lyra $OP Distribution 33:33 Closing ------ Resources: Mike Spain https://twitter.com/0xmjs  Lyra https://twitter.com/lyrafinance  Avalon https://blog.lyra.finance/avalon-upgrade-primer/  Discord https://discord.com/invite/Lyra  ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures 

Welcome Bankless Nation to the special edition of AlphaLeak. The AlphaLeak episodes are where we explore projects, Dow's, communities, teams, all throughout the crypto space. Today we are talking with Mike, the co-founder of Lyra. Lyra is an on-chain options market, on optimism, on-optimism, on-chim layer 2. On-chain options, of course, there are fundamental financial primitive. Why don't we have them in crypto? The answer is fees. Layer 1 blockchain fees are untenable, and the L1 blockchain just isn't fast enough to

allow for on-chain options. So we know that as a product, options will always have come from layer twos, but layer twos themselves have not yet been ready to support the amount of computation and amount of utility that options bring until now. The fees on optimism, the fees on arbitram are approaching zero, meaning that the optionality for options is going through the roof. And with this, Lyra has finally gotten its Avalon launch out the door. It's coming out this week for the experienced options traders on Lyra and then the rest of the community at the end of this month. And so I brought on Mike, the co-founder of Lyra, to talk all about Lyra and on-chain options in the world that gets unlocked when we finally get on-chain options out the door. So Bankless Station, I hope you

enjoy this Alpha League episode of the Bankless podcast right after we get to some of these fantastic sponsors that make the show possible. If you're trying to grow and preserve your crypto wealth, optimizing your taxes is just as lucrative is trying to find the next hidden gem. Also IRA can help you invest in crypto in tax advantage ways. to help you preserve your hard-earned money. Also, Crypto IRA lets you invest in more than 150 coins and tokens with all the same tax advantages of an IRA. They make it easy to fund your alternative IRA or crypto IRA

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many of your favorite dafts on Ethereum are already on Arbitrum, with many moving over every day. Go to bridge. Arbitrum.com now to start bridging over your eaportem. Heath and other tokens in order to experience defy and empties in the way it was always meant to be. Fast, cheap, secure, and friction-free. All right, Bankless Nation, welcome to this special AlphaLeak episode. We are talking to Mike, the co-founder of Lyra. Lyra's on-chain options based off of the optimism layer two, Mike. Welcome to the show, man.

Hey, David. Thanks for having me on. Let's go ahead and dive right into the genesis of Lyra. Can you kind of give the backstory for the project and how it came to be and how it got started? and who joined the team. Yeah, yeah, of course. So back in 2020, I was working at synthetics during Defi summer as a smart contract engineer. And, you know, we were seeing a proliferation of activity on chain from Uniswap to RVA to compound,

all these new Defi primitives being built and really taking off. People were looking at, you know, what's the next thing? And derivatives were a really interesting kind of frontier that people were starting to explore. So there was some traction back then in perpetuals, like with DYDX, protocol and a few other. but options were still quite an untapped market. And I started to look into options back then. And I noticed some really interesting things. Options are actually really composable primitives, right?

Like perhaps the most composable primitive you can possibly imagine, right? You get the right, but not the obligation to trade an asset for a certain price on a certain date in the future. That's called the expiry. So with this template, you can basically construct any payoff you want, right? You can bet on the price of an asset going up. you can bet on the price of an asset going down. You can even do funny, interesting things like bet on volatility and all these more

intricate payoff structures that, you know, options traders like to use. What this means for defy, though, is it gives people the ability to manage their risk into the future, right? So the way an option actually works is you pay a premium to the option seller, and then you have now the right to do something in the future on that expiry date. And that's a really, really interesting template to start with, I think. So we decided that this would be something to try and build, you know, a liquid market for. And we started to design what, you know, would be an automated market maker for trading options.

Now, we're big fans of the AMM paradigm with Uniswap introduced and then it was popularized by a number of other protocols. But there were some problems when, you know, coming to the options context, because options have a number of different pricing, risk and liquidity issues that really hadn't been tackled before. And we needed to kind of start from scratch with a completely novel design. Mike, the AMM world has been adopted just absolutely just through the roof. It's kind of just a new status quo. One thing I'd like to pick your brain on is why options aren't skeuomorphic in the sense that like Ether Delta once tried to place the order book on chain, but then that just

did that just fell when we when we discovered the AMM through uniswap. So why is on chain options the way to go or is there something in the future that we haven't discovered yet that will just make on chain options just like redundant? Like give us the pitch for on chain options. Yeah, yeah, sounds good. I think it comes back to this template, right? So to give an example, right, take the ETH 3,000 call that expires at the end of this month. That's going to give the holder the right, but not the obligation to buy ETH for $3,000 on the 31st of May.

Now, if ETH was trading up at $4,000, that would obviously be a good trade to make. You'd net a profit of $1,000 per option. But on the flip side, say you think the ETH price is going to continue to go down during the current market conditions. Well, you could buy the $1,500 put or the $1,000 put. and still net the difference if ETH did drop below that amount, right? So you have this template from which you can actually construct any payoff you want in the future. And I think what it kind of gets to is what options are actually doing at their core is allowing people to transfer risk from the buyer to the seller in exchange for paying the option premium.

And that's a really fundamental requirement of any market because it allows people that aren't speculators on the price to enter the market. So you just have to look back at when and how derivatives actually got started. they weren't started for like leverage or speculation or gambling. It was actually to allow people like commodities farmers and producers to be able to offload risk, right? They were going to produce a certain amount of a crop, you know, in a month's time or three months' time. And they actually needed to have certainty right now because they had fixed costs. They had to pay their employees, all these types of things, right?

So without derivatives and without options specifically, you don't have the ability for markets to really onboard non-speculators, right, in a way that's sustainable. So I think the ability for Defi to do that and flashing forward to what Defi is doing, right, it's creating a market for everything of value, right? So tokenization via ESC 20, 721, and all these types of things is pushing more people into the markets than ever before and more people are becoming holders of tokens. Not all these people are speculators, right? A lot of them just want to, say, stake Eath, earn yield from securing the beacon chain or

hold a governance token and participate in that network and do some activity, whether it's staking or use the token in the network. and these people need to be able to control their risk into the future. So I tend to think that's a pretty essential requirement for any market and something that's actually quite crypto-native. So is the argument that the options are such a foundational primitive to the financial world that there is no replacing them in the same way that we kind of replace order books with the AMM, as in they are just so critical and so deep in the stack that there is no way

that an options, the options primitive could be skemorphic, as in it we, we, it's just like a known science and we're going to have options for the rest of time. That's right, because it's such a flexible template that you can literally construct anything from it. So it's more than, you know, it is the sort of fundamental primitive from which you can build any financial payoff that you want with enough options. So why isn't, why haven't options taken off more than they already have?

What's the difficulty and limitations of on-chain options? Yeah, so this flexibility, which is so great for the user, makes market making a very complex endeavor, right? So when you're making markets on options, right, you have a ton of risk. And this is a known science in the real world options market making, but it's something that's very difficult to do on chain in an automated fashion. So early options protocols on chain really went for one of two approaches. The first was the order book, right? And it's kind of similar to the Ether Delta example that you used, you know, early on chain option decks is using an order book, struggled with liquidity and really pricing depth issues on L1.

As we know, L1 is not a great place for building an order book due to latency and now due to gas problems as well. So that didn't really work that well. The other type was the AMM type, right, which is the right approach, but there's a whole lot of complexity you have to deal with to build an options AMM that's able to one, price options efficiently, two, aggregate liquidity, and three, manage risk for liquidity providers. And early protocols weren't able to do this all again on L1.

It's not something you can fit into the, Ethereum L1 gas constraints. You need to basically design a protocol natively for L2. In our case, we chose optimism to be able to solve the pricing, liquidity, and risk management issues. Okay. So definitely one of the big issues is that options, as far as I know, are very computationally intensive.

Maybe not overly so, but definitely more than you would ever want to put on the Ethereum L1. So we need layer two to really get this done. But I think even layer two is in their, in their Genesis state still probably didn't have the low fees that were really required for something like Lyra to take off. Is all this tracking? Yeah, that's exactly right. So we needed, you know, recently optimism's been able to compress call data down a lot

and get gas fees down even lower. We're still staying in the kind of $1 to $3 range on our mainland at the moment. But looking for that to come down with EIP 4844 and some of these other advancements to really into the, you know, cents per transaction. So what's it really going to take for Lyra to eat into like the centralized exchange options market because as far as if I know the numbers, I think like something like Deribate has like 80 plus percent of total market share for options. So what's it going to take for Lyra to eat into the centralized exchange option market? Yeah. So I think it all starts with pricing. And this is where we kind of,

you know, our first innovation at Lyra is building a volatility model that's able to accurately map the option surface, right? So as I said, like Lyra's AMM is quite different to the way other options AMMs work and other AMMs in general. Right. So, you know, if you look at something like unyswark, you're trying to find the ratio of the assets to, you know, determine the spot price. With options, AMMs, what you're trying to actually do. And the key thing you're trying to work out is what's the implied volatility of the underlying asset. And that's the key parameter that is used in options pricing.

So what Lira does is it kind of makes a market around implied volatility so that when traders come to the protocol and buy options, they push up implied volatility. And when they come and sell, they push it back down. So by creating a two-way market for implied volatility, Lira's AMM is able to work out exactly what the market is sort of implying the volatility to be, and then use this parameter as an input to the options pricing formula, which is known as Black Shoals, which is very well used in the traditional world. Once we have a fair price here, we're able to trade options either side at the market value. But unfortunately, this is still not enough. And this is the second

thing that we need to be able to do to really start to tackle the centralised exchange volume, is to actually manage risk for liquidity providers. So options are inherently very risky products, and they incur a number of risks over different dimensions, right? So you've got exposure to the underlying asset price going up and down. You've got exposure to the implied volatility going up and down, all these types of things. And Lara is basically the first protocol to actively manage and sort of mitigate these risks for liquidity providers. So we hedge delta risk for our LPs. We do that actually in a composable way by going off to synthetics and iterating over our liquidity pools exposure to work out exactly how short or how long do we need to be the base asset.

And this helps our LP stay what's called delta hedged, which means that, you know, when the price of eth goes up or down, they're not making any money or losing any money. It's independent for them. The other one as well as implied volatility risk, which is really important because that goes up and down a lot. And this is kind of similar to this notion of IL you get in uniswap. And we have more difficulty hedging this because you need, you actually need options to hedge IV risk.

It's called vaguer risk. We don't have an options protocol to use. That's why we started building Lara. So what we do is we kind of build it into the fee that we try. so that if you come to make a trade that increases the IV risk of the pool, you'll get charged proportionately higher fees. And on the other hand, if you come to make a trade that reduces that risk, you'll get charged a proportionately lower fee. So I think with the pricing and liquidity issues that we are currently solving, once we have that in a position where the prices are

actually as competitive as Deribit and the LPs are as protected as they would be on Deribit on an order book, I think we're able to really start to offer, you know, the best of the traditional options experience with the best of defy which is like the markets are fully permissionless they're always on you know aggregation of liquidity these types of things so when it comes to building an options market on chain what are the differences that you've had to build lyra versus what you would might typically expect out of a typical off chain centralized options market like what what have you had to like re-engineer and build from scratch and overall what are the pros the benefits of like building option markets on chain? Like what does being on chain like get for you?

But then also what are the cost of that as well? Yeah. So I think the biggest challenge for us was liquidity aggregation. So each option is kind of an independent token, right? Even when they have the same assets. And early approaches kind of looked at this model and would kind of separate out and have one liquidity pool per option. This causes big fragmentation problems and means that you never really have enough depth in the market to service, you know, trades of any substantial size. So what we have done at Lyra is build a single liquidity pool per asset so that all the liquidity is stored across like the ETH market, every option that gets traded on ETH. And this allows us to have, I guess, a style that's much more similar to like a uniswap AMM, when all the liquidity

can enter, provide a lot of depth and really minimize slippage for traders. But this has been a difficult thing because when you aggregate all the liquidity together, pool liquidity is great, but it also means pulled risk. And this is where you actually need to start to iterate over the liquidity pool to work out what is the net exposure of all this liquidity to, say, delta, the asset price or mega, the implied volatility risk. So this led to the second problem, which is probably the main thing, I guess, design decision we've made at Lyra, which is that we could never really do this building it on L1. We needed the ability to do computationally difficult things, and that kind of led us to going directly to optimism because we needed, you know,

an order of magnitude, more scalability than we can get. So I think to solve the liquidity problem, you need pooled liquidity, but that introduces the pulled risk problem. And to solve that, you have to go to layer two. So it's been a, I guess, series of steps to get where we are. And one of the things that I've noticed with Lyra is that the options of that are available to users don't go out that far. Like, I would today, right now, if I could take an option out for some ridiculously high eth price in December, right?

Something like a $6,000 to $7,000 ether December calls, because I think the merge is coming. But right now, as far as I can tell, Lyra options only extend out about a month in advance. So what's the limitation there? And what's the roadmap for that? Yeah, that's a great question, actually. It's something we're dealing with at the moment. So the limitation in V1 of Lyra is that liquidity is locked for the entire duration of a trading round. And that's because when liquidity providers want to leave the pool, we have to work out exactly

what their share of the pool is. And that includes exposure to options that are still outstanding today. So it's quite difficult to on-chain work out exactly how much they're entitled to when you don't know how many options are going to finish in the money versus out of the money. In V1, we kind of chose to sidestep this complexity and just lock the money for the entire trading round. But that meant we had to pick a maximum length we would put the money in there for. So we picked a one-month period and we would list options at the start of each month. So at the start of the month, you'd get a fairly good selection at one, two, three, four weeks. But these would drop off as we move into the month.

And then by the last week of the month, there's only one expiry left. All the liquidity is still locked. It's not a great experience for either traders or LPs at that point. So what we've done with Avalon, which is our new release of the protocol that's coming out next week, actually, for some of our more experienced traders. And then a couple weeks later for the public is we're getting rid of those limitations. So we're giving LPs the ability to enter and exit the protocol at any time. So we've designed a mechanism that actually computes the aggregate share of the pool that the LP has. and includes the value of those options

so that they can enter and exit whenever. There's still a short delay, but it means that the follow-on effect from this anytime entry exit thing is that we can list expiries now out to three months, so 12 weeks away, so that whenever you turn up to the protocol as a trader, you'll have an access to, you know,

one, two, three, four, all the way out to 12 weeks. And this will give a much more comprehensive experience, right? I think there'll be up to 100 strike and expiry combinations per asset for traders to use. We're not all the way to 12 months, just yet because we still need to we still do have money it's difficult to incentivize people to lock up for that long there has to be liquidity backing that option so the market hasn't really implied that there's enough demand

there yet for that to happen but we're slowly increasing the yeah the limits with avalon and hoping to get to yeah longer expires as well in the future Bankless Nation don't go anywhere in the second half of the show we go into the details of the Avalon release as well as layer two summer because Lyra as a community as a Dow as an organization is getting a bunch of OP tokens to allow their community to yield farm with. And so I ask Mike, what's he gonna do with all those OP tokens?

So if you want those OP tokens and you also want to explore Avalon, stay tuned as we get through some of these fantastic sponsors that make this show possible. The layer two era is upon us. Ethereum's layer two ecosystem is growing every day and we need bridges to be fast and efficient in order to live a layer two life.

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all this without giving up your ETH to centralized staking services or exchanges. Lido now supports Terra, Solana, Kusama, and Polygon staking. Whatever your preferred proof of stake asset is, Lido is here to take away the complexities of staking while enabling you to get liquidity on your stake. If you want to stake your ETH, Terra, Sol, or Matic, and get liquidity on your stake, go to Lido.Fi to get started. That's LIDO.fI to get started. Okay, so is there a path forward for something like two year long options, or is that just going to be untenable for the amount of capital lockup? There may be. It's going to require people willing to lock liquidity for that long.

so the rate that they demand on that might be quite high. There is, I mean, there is also as well another thing that's coming with Avalon, which can help with this, which is like the ability to partially collateralize options positions, right? So we're giving traders the ability to, rather than have to post the full collateral, actually post a subset of that. And then it does introduce liquidation risk, but it means that they're able to get four to five times more capital efficiency, right?

So if we introduce that on the back end as well to the AMM, then we can perhaps have a position where you can start to partially collateralize further the data options and start to push the boundaries really there maybe out to a year. Okay. I want to dive into the Avalon update just comprehensively, but before we get there, one last generalized question is the question of composability. And there's already a number of things that we've talked about, you've talked about that I think would be useful for the rest of DFI like implied volatility.

That can in theory turn into an Oracle, which the rest of DFI can tap into, right? So like what are the, what's the surface area that? Lyra has that can be composed, composable in the rest of Defi. Like the options markets themselves, I'm sure is one. The implied volatility, Oracle, I'm sure is another one. Just overall, can you talk about the potential for composability with Lyra and the rest of defy?

Yeah, for sure. It really is like, I think, the true power of options on chain is composability. So I guess to begin, their options are, you know, there's two sides to options markets, right? There's the buy side, buying calls and pus. And then there's the sell side, you know, selling options to the AMM, right? So one of the, I think the first area I'd like to talk about, which is something that we've seen really take off in the last kind of 12 months in DFI is this idea of like option

vaults, right? So people who are, you can deposit ETH to a vault and it will sell options on that ETH for you and you'll generate a cash flow, right? This has become a really, I think, fast growing segment of DFI because a lot of people are interested in yield, although it's not exactly, you know, actual yield because you are selling volatility risk for what you're generating. but it's a really natural evolution to that process. And I think Lara provides the first on-chain venue for those projects to actually come and build an option vault that settles fully on-chain, rather than having to go off-chain and make a deal with a market maker or do something like that. You can turn up to Lyra, build your project, and trade directly with the AMM.

And we're actually seeing a couple of projects that have started doing this already. There's polynomial finance who have launched option vaults on top of Lyra. Now there's Brahma finance as well. And they're doing something even more interesting, which is basically, they are taking interest from L1 yield farming, say in convex or curve, these types of things, and they're bridging it over to optimism via an aggregator called Socket and using that interest to actually buy options on a repetitive basis. So it's another vault, but it's on the buy side. And what it's doing is it's kind of boosting the returns or the expected yield of that liquidity

farming or yield farming, which I think is going to be, I think, something that grows a lot in the next couple of months. So there's options on the buy side and the sell side. There's also this whole risk mitigation piece, right? So if you're LPN in uniswap or on a lending protocol or really on any protocol at all, you have some exposure to the asset that you're LPing, right? If you're lending LEP or, you know, LP and unyswap, you're going to have to be able to deal with the ability or the chance that the price goes down. And what Lira lets you do is basically turn up in a composable way and buy puts or buy calls or whatever you need to do to hedge your risk in an automated fashion. So that I think by the time Avalon comes out, this will be perfectly ready for, you know,

these types of integrations. The other one you mentioned as well was implied volatility. And I think having a true on-chain source for IV is something really interesting because that can be tokenized itself and used to allow people to trade the spikes that we see in the market, you know, at the moment and perhaps into the future. Wait. So does this mean that Lyra could like provide the on-chain VIX? Potentially.

Yeah. We're not there yet. But maybe one day out the on-chain markets that Lyra will be the source of implied volatility. Yeah. That's really, really cool. Okay, let's dive into Avalon itself. Let's also start from the beginning. We've talked about it a little bit, and you see some of the features.

But overall, what is Avalon from a high level? Yeah. So Avalon is our biggest upgrade to the protocol since we launched on MainNet last August. It's basically a full revamping of the trading and LPN experience so that it's entirely seamless for users on both sides. The three main takeaways, I guess, from Avalon are the first one is any time entry exit to the liquidity pool. So as I said, that's the ability for LPs to come and go as they please. And the best thing about that is it makes the liquidity pool tokens fungible ERC20s.

So now these tokens can leave the ecosystem and be injected into the range of ERC20 integrations that exist, right? So lending, borrowing, trading on uniswap, secondary markets. It really opens up the EFC20 tokens as like yield-bearing instruments. Then the next one is rolling expires, as I said. So the to go out to three months or 12 weeks, basically, and have options on a consistent rolling basis means that for a trader, you're able to turn up to the protocol, as I said before, and have 100 strike and expiry combinations available no matter when you turn up. This is a really, really good upgrade because not only does it benefit trade is,

but it means the integrators that we discussed before, they have this kind of always on programmable liquidity on a rolling basis, right? So no matter when they're turning up, they don't have the problem of like at the end of the month, there's no options to trade anymore. They can always pick a new subset and build a new integration. The final one, which I think is worth calling out, is this partial collateralization of short options positions. So it's difficult in V1 in Lyra for traders to arbitrage the vols surface back in line.

And that's because you need so much collateral to sell it back down. It's hard to keep it lined up with something like Deribit. What we've done is we've basically introduced a mechanism that you can partially collateralize these positions and you will be at risk of liquidation. if you don't have enough value in your account, basically, to cover the option position. But you get so much more capital efficiency that you can start to bring the DeVal Service in line much more efficiently. So it's great for traders, but it's even better for the protocol because the protocol is a much

healthier position than it was. Very cool. Very, very cool. And then so all of this is coming very, very soon. But what about what's left? What's left to complete the vision of the Lyra protocol? And also, what is the vision of the Lyra protocol if Lyra is maximally successful? Yeah, for sure. So there's still a lot left. So we want fully permissionless automated markets on every asset that exists on chain. Any strike and expiry combination that a user or a protocol wants to trade. We want that to just be available out of the box, right? And that's quite hard because it's a complex thing, options, market making. And you need to be able to design it in a way that's still modular enough so that it can spin up new markets, new options to really fit user demand. One of the best things about defy is the markets can react to, you know,

the new thing and whatever the new demand is on, you know, on a whim. So we need to be able to support that. The second thing is about really like battening down LP risk and making sure that LP risks are mitigated so that they can stay in the game. They can earn the premiums for trading these options. And they can be, you know, I guess a source of uncorrelated yield over the long term that you can't really generate anywhere else on chain. Because options market making can be very profitable. It just requires the ability to manage these risks. So permissionless markets, uncorrelated returns for LPs. And finally, is just making sure the protocol is maximally accessible to the universe of possible integrations, right?

As I said at the start, composability is the best thing about options. The protocol itself needs to support this sort of composability, right? So you need to be able to turn up either as someone looking to offload risk or someone looking to generate yield and be able to access the protocol and the asset that you want. So that's what I think would, you know, we still have to do. The new source of yield got me really, really excited because with the coming of layer two's, Bridges also offer a very strong brand new source of yield, but that's just, you know, in addition to and completely separate from options also providing another source of yield.

I'll frequently make the joke in the crypto space. That's also not a joke, that the crypto space has produced three things that we know, our product market fit. One is store of value money, Bitcoin, Ether. one is yield and defy just there's many many ways to make yield the third is content but this one fits into the category of the second one where yield is just one of the main sources of just economic energy that we see throughout all of defy and i haven't even considered options as being a long-term sustainable brand new source of yields that gets me really really excited exactly i think defy

needs to move off this kind of unsustainable model of yield farming and towards more sustainable approaches as you mentioned and options just present a way to do that. There are risks, obviously, you are selling volatility and you're selling future risk, but I think it's something that's sort of worthwhile if you know the risks and you're educated. Yeah, and it's also a known science, right? It's not like we're inventing the wheel here. Like this is something that happens in Tradfai all the time. Exactly.

Yeah, the options markets often dictate the real markets in traditional finance. Right, certainly, certainly. Yeah, we haven't really unlocked that too much in the world of crypto, at least not yet. I would imagine as the world of layer two comes online, the world of options also gets really, really unleashed. And so that is something very, very exciting to look forward to. Just a last bit of the conversation before I wrap this up, Mike, is the optimism token has recently been announced, and optimism's on-chain activity is hitting new records. And if I'm interpreting theirdrop and the commitment of the optimism team is that every single app on optimism will be getting a share.

of OP tokens to distribute to their users. So any details around that and any plans with the OP token out of Lyra? Yeah, yeah. I think it's a really interesting model that they're pursuing. And Lyra was, so we were the first optimism native project. We qualified for one of the first air drops. And we worked with our community over the last couple of weeks to put forward the first proposal to the OP token house as to how we would distribute these tokens.

So we basically have an approach that is, I guess, centered around the three pillars we think of our digital community that we're trying to build on top of optimism. And the first part of that is the builders, right? Without them, there's no stuff. There's no smart contracts, no public goods. We need to incentivize them to keep building a lasting foundation on optimism, on chain. The second is liquidity. Any defy protocol needs liquidity to function.

It's kind of like electricity, and we need to be able to make that sustainable generate this sort of yield that we're talking about. And then the third are the traders, right? And these are the actual users of Lyra that are really paying the tax that we all pay to optimism. they're the ones generating the transaction fees, giving optimism that revenue, which then gets funneled back into the projects. So we're looking forward to hopefully getting that proposal passed when the optimism token gets released and really starting to test the boundaries of like how we can start

to do new distribution methods in an L2 native way. Amazing, Mike. Well, there are any other details that you want to talk about or we haven't touched on yet that you would like to share it to the Bankless Nation? Not really. I think join, follow us on Twitter, join the Discord, stay in touch. The Avalon release is coming out next week for the first group and in the next couple of weeks after that for everyone else.

So yeah, please join up. Is there a date for this specific Avalon release? Yeah, so we're looking at this 17th for the restricted test net and then the 30th of May for the public launch. Amazing, amazing. Awesome, guys. Well, we'll put the links to Twitter and Discord in the show notes so all the listeners can go and find that there.

Mike, thank you so much for joining me on the ad. Alpha League edition of the Bankless podcast. Thanks to having me.