The 27-year-old is a free agent after departing Les Gones at the end of his contract in the summer and has been persistently linked with a switch to the Premier League.
Denayer is pushing to make Belgium's squad for the 2022 World Cup, and he previously represented Manchester City, Celtic and Sunderland before moving to Lyon in 2018.
The centre-back recorded eight goals and two assists in 139 appearances for Lyon across all competitions, including three goals from 15 outings in Ligue 1 last term.
However, the emergence of Castello Lukeba saw Lyon allow Denayer to leave the club on a free transfer, and Wolves are being tipped to sign the defender.
According to TEAMtalk, Bruno Lage's side remain in talks with Denayer's entourage, but the Molineux outfit are facing stiff competition for his signature.
The report adds that Wolves have made the most progress in attempts to agree terms with the Belgian, but there is yet to be a concrete "breakthrough" in negotiations.
Lage was asked about the possibility of a move for Denayer earlier this month, and the Wolves boss talked up the 27-year-old's qualities having previously faced him in Europe.
"Let's see what happens in the next days. I know Denayer very well, I played against him in the Champions League," Lage told reporters on September 2.
"You are talking about a player who can play in the Champions League and for his national team. We're very happy with our centre-backs. But there's a gap between the two who are playing and the two who are not playing at the moment.
"If we have a chance to bring in one experienced player that would be better. They could be very important for the club in the future."
Denayer won a Scottish Premiership and League Cup double in the 2014-15 season, and he was crowned Turkish Super Lig champion with Galatasaray in the 2017-18 campaign.
Wolves underwent a significant period of change in the defensive department this summer, with Conor Coady joining Everton on loan while Willy Boly and Romain Saiss completed permanent moves to Nottingham Forest and Besiktas respectively.
Nathan Collins arrived from Burnley to form a formidable partnership with Max Kilman, but he received a straight red card for a dangerous challenge on Jack Grealish in Saturday's 3-0 Premier League defeat to Manchester City.
Collins is now set to serve a three-game ban, which will rule him out of Wolves' meetings with West Ham United, Chelsea and Nottingham Forest following the international break.