Define the Term “Risk-Free Rate” in the Context of Crypto Options.
The risk-free rate is the theoretical rate of return of an investment with zero risk. In traditional finance, this is often the yield on short-term government bonds.
In crypto options, a truly risk-free rate is debated, but a proxy is often used, such as the interest rate on a highly-rated, collateralized stablecoin lending protocol or a short-term Treasury yield. It is an input to the option pricing model.
