Replicating Zero-Liquidation Loans using Deribit Markets
<p>On the other side, as a borrower considering using a Zero-Liquidation Loan for the first time, you might wonder about the reasonable APR and LTV at which you should <strong>borrow. </strong>For instance, if you want to use your ETH to borrow USDC, what would be a fair APR and LTV for you? While previous articles have explored a theoretical pricing approach (i.e. Black-Scholes Model) to this, there’s another mental model we can refer to: a <strong>replication strategy</strong>.</p>
<p>Surprisingly, one can use <a href="https://www.deribit.com/" rel="noopener ugc nofollow" target="_blank"><strong>Deribit</strong></a>, a leading marketplace for crypto derivatives, to emulate a Zero-Liquidation Loan and associated payoffs. Let’s explore how this can be done </p>
<h2><strong>Zero-Liquidation Loans with Deribit</strong></h2>
<p>Let’s imagine a simple theoretical scenario where you hold 1 ETH and want to borrow USD against if for about a month. A replication strategy that allows you to emulate such a Zero-Liquidation Loan can be presented in three steps:</p>
<ol>
<li>Sell your ETH for USD.</li>
<li>Use part of your USD to buy an in-the-money ETH call option.</li>
<li>Retain the leftover USD as your loan.</li>
</ol>
<p><a href="https://medium.com/mysofinance/replicating-zero-liquidation-loans-using-deribit-markets-fa280da7172e"><strong>Website</strong></a></p>