What Is the Significance of the Risk-Free Rate in the Black-Scholes Formula for Crypto Options?

The risk-free rate (RFR) represents the theoretical return an investor could earn from a completely riskless asset over the option's life. In traditional finance, this is typically a government bond yield.

For crypto options, a true RFR is hard to define due to the lack of a riskless crypto asset. Arbitrageurs often use stablecoin lending rates or a theoretical zero rate, as the RFR's impact is relatively small compared to volatility.