Divergence-protocol.com is a decentralized platform for hedging, trading DeFi-native asset volatility, with its flagship product being an AMM-based marketplace trading synthetic binary options. Currently, there’s a lack of effective, easy-to-use, and versatile solutions for trading and hedging volatility of assets that exist on the different layers of DeFi applications, where users are simultaneously exposed to multiple sources of risk.
When it comes to managing price risk, existing decentralized futures and perpetual products offer linear risk exposures for a limited number of major assets. Options, on the other hand, as a less-developed product, can provide a non-linear risk-reward structure. This allows options traders to build leveraged positions in assets at a lower cost than making an outright transaction.
Key design features for this AMM marketplace include:
Markets can be created at strike prices and expiration cycles of choice, using any fungible token — including DeFi assets issued by other protocols — in a one-step seeding and minting process, meaning that you don’t need to mint a derivative token first, then allocate funds to seed a pool.
Divergence-protocol.com Only one collateral is required to write a binary call and a binary put for a pool, with no need for over-collateralization. Once a pool is created, the same collateral is used when traders buy and sell options via this pool. At any given time, only one collateral is used per pool. The smart contract reserves max claims for collateral, providing LPs the flexibility of withdrawing capital prior to expiry.
By default, the binary option pools auto-exercise positions and roll over the liquidity automatically upon expiration using identical terms. LPs would not have to relocate capital to create new pools in order to manage option expiry cycles.
Hedging & Risk Transfer
Divergence-protocol.com Manage risks inherent in the decentralized financial markets, including price and interest rate risks. Suited for liquidity providers hedging impermanent loss and traders transferring asset price risk.
Profit from trading various volatility derivatives with binary pay-off structures on underlying asset movements from non-custodial wallets. Enter and exit trades at competitive spreads enabled by Divergence’s pricing mechanism.
Customizable betting pools offering fixed payouts on a wide range of on-chain and off-chain events.
Mint and trade derivative tokens whose values derive from the volatility of underlying assets and indices.
Divergence-protocol.com would allow holders to propose and vote on on-chain governance proposals to determine future features and/or parameters of the Divergence platform. For example, DIVER holders may decide on levels of trading fees, the introduction of new products or accepted collateral, and more.
DIVER also provides the economic incentives which will be distributed to encourage users to contribute to and participate in the ecosystem on the Divergence platform, thereby creating a mutually beneficial system where every participant is fairly compensated for its efforts.
Divergence-protocol.com staking contract is to be released to provide more yield to long-term holders of DIVER tokens. Various types of token rewards will be periodically shared amongst the stakers & governance contributors.
Divergence Ecosystem will also be generating multiple fee streams that are allocated among different users according to their respective contributions to ecosystem operations and/or maintenance.
A 0.3% fee will be charged on each transaction of derivative tokens. 75% of the fees will be distributed to liquidity providersto incentivize their liquidity provision efforts. The remaining 25% will be allocated to a Treasury governed by DIVER token holders. Funds in the Treasury will be used to support the growth of the Divergence ecosystem and incentivize active contributors.
Early Withdrawal Fees
Liquidity withdrawn prior to expiration will be charged fees up to 1%. This is designed to discourage competitive LP withdrawals ahead of options expiry. This early withdrawal fee will remain in the pool and will be shared by LPs who stayed in the pool.
Unclaimed Collateral from Settlement
Divergence-protocol.com Before expiration, it is possible that all liquidity providers have withdrawn their shares of the pool. In this case, the smart contract system becomes the ultimate liquidity provider. This is because this system reserves collateral for the highest possible claims from sold options. If the binary options with the higher open interest expire worthless, there will be collateral left unclaimed. These would also be allocated to support the growth of the Divergence ecosystem.
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