Providing liquidity gives you an opportunity to "earn yield" from the premiums of selling options. As an option seller you can choose a pool that aligns to your view of the market.
Aside from the usual contract risks there are a few risks liquidity providers need to be aware of:
A pool can have a lock period When you deposit your funds a timer starts and you may be unable to withdraw your funds for a period. This period is configurable by the pool administrator. If you are expecting to need your funds within the period specified then reconsider providing your funds to that pool.
In unlocked pools the pool admin could add a “fake oracle” and use it to drain the funds The system has been designed to allow any new oracles to be added and options sold for it. Unfortunately there is no way of knowing if the next new oracle being added can be trusted. A pool admin could create a fake oracle and use it to drain the funds in the pool. To mitigate this risk pool admins can make a pool read-only, stopping the ability to enable/disable oracles( or change any other configuration ). You should either trust pool administrator or only deposit funds to pools that have been set to read-only.
A pool admin may not delta hedge the pool effectively Optyn provides functionality to delta hedge pool. This isn't automated and relies on the pool administrator to call the function to hedge the pool. There is a risk the pool administrator either doesn't hedge the pool or does a poor job. Exposing the liquidity providers to drawdowns with large price movements. The pool administrator has no direct access to the funds but they may not do a good job of hedging. You should know what the pool admin's delta hedging strategy is and monitor their performance.
Optyn uses UniswapV2 compatible swap pools to store liquidity. When depositing funds you will receive an ERC1155 token that represent your proportional pool ownership.
By adding liquidity you'll earn the fees of all options traded (less the protocol & pool fees) where this pool is used for collateral, proportional to your share of the pool
Premiums are added to the pool locked and are unlocked when options expire and can be claimed by withdrawing your liquidity
Liquidity you add is locked for a period specified by the pool administrator
To withdraw liquidity enter the percentage of the liquidity tokens to be removed.