APR = Put Option Premium
The premium is a borrower's accrued fee. We use the Black-Scholes Formula for this calculation.
Below are the calculations for approximate APRs users would pay based on their loan-to-value ratio (risk).
Below are the inputs we currently use for the calculation. You can find all of our deployed contracts here, look for "PremiumPricer."
All the complexities of the put options are entirely abstracted from the user. They see a standard APR for their loan.
The Black Scholes Pricing Model creates a system that incentivizes healthier borrowing, in other words, those who have low Loan-To-Value loans pay significantly less than high Loan-To-Value. This safeguards our protocol from onboarding too much risk.