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.
    Underwriters effectively become owners of the NFT collateral and can decide to stake the NFTs in their native ecosystem to earn rewards for the underwriters or it can be sold on the open market and prorate the sale to the underwriters.