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Market Making for Options — DeFi Options Protocol Architecture — Liquidity Vaults and Automated Market Making for Options
On-chain options require liquidity vaults to act as option sellers and pricing models that can be computed in the EVM. Here is how the leading DeFi options protocols — Lyra, Dopex, Hegic — approach this problem. In traditional options markets, market makers provide bid and ask prices for every strike and expiry. They h...
contract CoveredCallVault is ERC4626 { address public immutable underlyingAsset; // ETH address public immutable optionsProtocol; // Opyn, Lyra, etc. uint256 public strikePrice; // Current round strike uint256 public expiry; // Current round expiry uint256 public lockedCollateral; // ETH locked for current options roun...
Common integrations: The Graph, Alchemy/Infura, OpenZeppelin Defender, and popular wallet providers.
Clarify requirements, compliance needs, architecture risks, and launch goals.
Implement core contracts, integrations, product flows, tests, and deployment automation.
Run QA, prepare audit handoff, deploy infrastructure, and support production rollout.
LPs give up upside above the strike price (the call buyer exercises and takes the ETH at below-market price) while retaining the downside (if ETH falls, LP loses ETH value). The premium earned partially offsets this. Best strategy: high-implied-volatility environments where premiums are high relative to actual realized volatility.
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