Lyras 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.
Decentralized options platform Lyra Finance now allows holders of liquid restaking tokens (LRT) to generate an additional yield. The platform will let holders of LTR earn extra income using automated versions of popular strategies like basis trade and covered calls.
The so-called tokenized derivatives yield product has been launched in partnership with liquid restaking protocols Swell NEtwork and Ether.Fi.
It will help holders of rswETH and eETH tokens earn an annualized percentage yield of 10% to 50%, according to a press release shared with CoinDesk. That‘s significantly higher than the 10-year yield of 4.47% on U.S. treasuries, traditional finance’s proxy for the risk-free rate.
rswETH and eETH are native liquid staking tokens of Swell Network and Ether.Fi, respectively. Staking refers to the act of locking cryptocurrencies in a blockchain network in return for rewards.
Liquid restaking protocols, such as Ether.Fi and Swell Network allow users to deposit their ether (ETH) or liquid staking tokens like stETH, which are then restaked in EigenLayer. In return, users receive liquid restaking tokens or LRTs, which can be exchanged with ETH at any time.
Users only need to deposit rswETH and eETH in Lyra and mint a yield-bearing derivative token, which then automatically executes a predefined yield-bearing strategy on-chain. In other words, any yield-bearing strategy can be automated and packaged into a composable ERC-20 token, which can be used elsewhere.
“We believe that tokenized derivatives yield is a game-changing primitive that will underpin the bootstrapping of networks and the expansion of sustainable crypto economic markets,” Forster said.
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.
Initially, users can tokenize basis trade, a popular market-neutral strategy that seeks to profit from discrepancies in two markets. Lyra told CoinDesk that tokenized covered calls will be made available later.
“The basis trade is a delta-neutral strategy that users can execute to earn an extra yield on the tokens that are already generating restaking yield as well as ETH yield,” Nick Forster, co-founder of Lyra Finance, said in an email.
“The covered call strategy involves more risks but uses liquid restaking tokens as collateral to sell ETH calls. So if ETH finishes above the strike price [at which calls are sold], they will potentially have to give up some of their upside but get the USDC yield in return,” Forster added.
The covered call involves selling call options or upside protection at strikes higher than the underlying asset‘s going market rate while holding the asset in the spot market. The premium received for selling insurance against bullish moves represents extra yield on top of the spot market holding. Lyra’s self-custodial vaults automate the strategy.