# Fees (APR)

APR = Put Option Premium

The protocol recalculates the put option premium daily, which becomes 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).

Loan-to-Value (LTV) | APR (Yearly) |
---|---|

15% | ~1% |

30% | ~16.5% |

50% | ~76% |

Below are the inputs we currently use for the calculation. You can find all of our deployed contracts here, look for "PremiumPricer."

Input Variable | Value |
---|---|

S (Current NFT Average Floor) | Average NFT Floor Price |

K (Strike or Borrow Amount) | Your Borrowed Amount |

σ (Volatility) | 225% |

r (risk-free rate) | 8% |

t (time to expiration) | 1 month |

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.

Last modified 7d ago