Similar to existing DeFi lending platforms, once the average NFT price is below a set Liquidation Price (set by the DeFrag DAO), NFT collateral is liquidated through the exercising of the put option.

How it works:

  1. 1.
    The Liquidity Pool which is underwriting the put options will lock up USDC in the event it needs to be used to purchase the liquidated NFT.
  2. 2.
    NFT sale proceeds are used to close a borrower's open loan.
  3. 3.
    Purchased NFT is owned by the Underwriting pool so it's fractionalized into fractions.
  4. 4.
    Fractions are proportionally distributed between all the underwriters providing liquidity to the pool.
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