Divergence Protocol

How are your perps when the markets are calm? Returning 1%, 3%, 5%, on top of funding fees and liquidation risks? With digital options, a trader enjoys freedom of expression, choosing a return up to 99x, no matter the market.

Introduction to Divergence v1

Divergence v1 is an innovative automated market maker (AMM) evolved from Uniswap V3. It presents unprecedented capital efficiency for DeFi options. Its permissionless, peer-to-peer smart contract infrastructure enables digital options to be tokenized, swapped, and settled on Ethereum and EVM-compatible chains.

• Open, Permissionless System: It ensures equal opportunities for anyone to:

  • Create a digital options market of a custom underlying, strike, expiry, and collateral

  • Swap for digital calls or puts

  • Provide liquidity to sell digital calls or puts passively and earn premiums plus fees

  • Settle options using the price feeds from decentralized oracle networks such as Pyth

• Capital Efficiency: The design leverages Uniswap V3 concepts, offering a full suite of DeFi options trading functionalities entirely on-chain. No over-collateralization. No Lockups. Every buyers and sellers decide their own option prices.

Why Digital Options?

Options are DeFi's next frontier. Current markets focus on a handful of major assets such as BTC and ETH. Many centralized and hybrid solutions gate-keep derivatives markets, neglecting a wide array of long-tail assets and their potential to be leveraged.

Digital options are ideal for leverage trading and hedging volatile assets. Divergence v1 empowers DeFi native assets typically bypassed by perpetual swaps. Any ERC20 fungible assets can be used as options collateral and/or underlying. Unlike standard options, the risk and reward of digital options is known before a trade:

• No Liquidation Risk: No stress about wick candles! All options are fully-backed, preventing liquidations during extreme market fluctuations.

• Non-linear Return: Pay a fraction, and earn a fixed 1 collateral when a digital option expires profitably. The % rate of return can far exceed the % price difference of the underlying asset.

• Up to 99x Leverage: An option costing as little as 0.01 $DIVERs returns 1 - 0.01 = 0.99 $DIVERs, achieving maximum leverage. The return is always 1 - premium, quoted in collateral units.

Divergence v1's Protocol Design

The Divergence v1 protocol is designed to cut out the CeFi intermediaries.

It differs from a central limit order book, where buy and sell orders are organized by price levels and are matched with specific orders left by others. In the Divergence v1 Automated Market Maker (AMM), options trading occurs directly with a liquidity pool, which serves as an options market with selected specifications. At each price level, users buys options from aggregated liquidity positions. This order is then redistributed to sellers on a pro-rata basis.

A Divergence option pool handles three assets: calls, puts, and an ERC-20 token that collateralizes and quotes the options. The calls and puts are minted asSpear and Shield tokens, respectively. And the collateral token can differ from the underlying, allowing for synthetic exposures.

In the Divergence v1 AMM, options are fully collateralized before they are tokenized, swapped, and settled. Call and put options are valued relative to each other. Their relative prices change when collaterals are swapped for either calls or puts, and a new market rate for both options is found.

Using a web3 wallet, anyone can manage individual options exposures. They can long or short options anytime before expiry. Unlike standard options, digital options have limited risk. Protocol participants can decide their maximum gain or loss before a trade.

The protocol's interface is one of the ways one can interact with the protocol. Before using the interface, please confirm the acceptance of the Terms of Service and Risk Disclosure.