Taker Optionality

Many variables affect Taker premiums on an ongoing basis, such as the available Asset and Capital liquidity at each point in time the global premium is computed. However, when deciding to join the protocol, a Taker may also consider how they instantiate their individual risk perspective in relation to the current protocol averages. In particular, Takers must select both a fixed term and a floor price, both of which may be compared with the protocol’s:

• Current Taker Asset-Weighted Average Floor Price (TWAF)

• Current Taker Asset-Weighted Average Time-To-Maturity (TWAM)

• Current Taker Asset-Weighted Average Risk (TWAR)

The protocol’s incremental premium is applied to the entire Taker pool (specifically, the Book), but because premia still eventually need to be allocated between Takers, the decision of Term and Floor relative to the current protocol averages determines that position’s she of this accumulating pool-based premia for the period of time the Taker holds that position. In other words, while the magnitude of premia is determined on a collective basis, the individual share of those premia is determined on a relative basis according to the position’s risk-weighting. Hence, an individual Taker may elect to consider the value of their expected absolute premium (by the end of their fixed term) relative to the expected premia of other Takers, because premia is distributed among Takers according to their relative risk ratings.