Glossary of Terms

Term

Description

Put Option

A put option gives the owner/buyer the right to sell an asset, at a specified price, by a predetermined date to the seller of the put option.This means that no matter how low the price of an asset goes, the investor has the right to sell the asset for the agreed upon price

Premium

The money paid upfront by the option buyers to the option sellers in return.

In the Example Insurance Use Case:

0.01 ETH is the premium paid by person A to person B.

Option Seller

The person who sells an option in return for a premium and is obligated to perform when the buyer exercises his right under the option contract.

In the Example Insurance Use Case:

Person B is the option seller.

Option Buyer

The person who buys an option by paying a premium. This person has right but not obligation to exercise the option.

In the Example Insurance Use Case:

Person A is the option buyer/ owner.

Underlying

The asset that is being protected by the option contract is called the underlying asset. The asset that the owner/buyer of the put option has the right to sell is called the underlying asset.

In the Example Insurance Use Case:

The underlying asset is cDai.

Strike Asset

The asset that the holder/buyer of the put option will receive their payment in if they sell the underlying asset is called the strike asset.

In the Example Insurance Use Case:

The strike asset is USD.

Strike Price

The strike price is the specified price at which the buyer/owner of the option can sell the underlying asset.

In the Example Insurance Use Case:

The strike price is 1 USD.

Collateral Asset

The asset that the insurance provider puts down as collateral is called the collateral asset.

In the Example Insurance Use Case:

The collateral asset is ETH.

putsOutstanding

The number of oTokens issued by a vault.

minCollateralizationRatio

The ratio of collateral to the amount of insurance payout that a vault would have to make is called the collateralization ratio. The minCollateralizationRatio is the lower bound that a vault's collateralization ratio is allowed to be at.

Safe

A vault that meets the minCollateralization condition is considered safe. i.e.

minCollateralizationRatio<=collateral/(putsOutstandingstrikePrice)minCollateralizationRatio <= collateral/ (putsOutstanding * strikePrice)

Liquidation factor

The maximum percentage of collateral that can be liquidated in one call of the liquidation function.

Liquidation Incentive

The reward that is paid out to the liquidator. The liquidator is paid out

strikePriceLiquidationIncentivestrikePrice * LiquidationIncentive

for every oToken that they bring back to the insurance contract to liquidate.

Exercise

To exercise means to put into effect the right to sell the underlying asset at the specified price.

Exercise Window

The time period during which the option buyer/ owner can exercise their option.

Number

value * 10 ^ exponent.

Mint

The ERC20 function which generates new oTokens

Issue oTokens

The function that checks if a vault has sufficient collateral to mint oTokens. If so, it calls the mint function.

Create

Create = Open Vault + Add collateral + Issue oTokens.