Put Options

The DeFrag lending protocol uses put options to insure the instant purchase of NFTs in the event of liquidation, in this section we discuss this financial instrument.

In finance, a put or put option is a financial market derivative instrument that gives the holder the right to sell an asset, at a specified price, by a specified date to the writer of the put.

How the DeFrag protocol uses put options

To get a loan, borrowers must first purchase a put contract to insure the floor value of the NFT being collateralized. This contract grants the underwriter(lender) rights to purchase the NFT if it reaches a specific price.

Each put contract comes with an initial fee that the borrower must pay in order to take out a loan. The risk of the loan determines the cost of the put contract. The riskier the loan, the higher the fee and vice versa. The fee is paid on a reoccurring bases

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