Risk Disclosure

THE RISK OF LOSS IN TRADING ON DIVERGENCE CAN BE SUBSTANTIAL. YOU SHOULD, THEREFORE, CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES. YOU SHOULD BE AWARE OF ALL THE POINTS CONTAINED WITHIN THIS RISK DISCLOSURE STATEMENT.

There are numerous risks associated not only with the derivatives tokens traded on Divergence but also with the smart contract system itself. You must ensure that you carefully read and understand this Risk Disclosure Statement, the specifications of the derivative tokens you may trade, including when they expire, and how the smart contract determines which tokens will be “in-the-money” at expiration, and all other relevant rules.

  1. Digital options have a different pay-off structure compared to vanilla options. The holder of the digital option will not receive any gain in excess of the fixed settlement amount of the option. A digital option is like a capped option in the sense that its maximum return is limited. Besides, the payout of a digital option is all or nothing. Accordingly, the holder may experience a relatively greater gain than the holder of a vanilla option when the option is in the money by a smart amount but a relatively small gain when the option is in the money by a greater amount.

  2. Digital options may be more difficult to hedge than vanilla options. Because of the fixed settlement amount of a digital option, a user wishes to hedge the risk of an increase in the price of a specified quantity of cryptocurrencies, for example, cannot create a perfect hedge by buying a specified quantity of digital options that return a cash settlement amount if the settlement price of the underlying is above the current underlying price. Similarly, a user who writes a digital option on a specific cryptocurrency and wishes to hedge the obligation through ownership of the cryptocurrency would also not be able to do so precisely.

  3. There may be times when certain derivative tokens on Divergence lack liquidity. Certain derivative tokens on Divergence may lack liquidity for users to trade against, especially when derivative tokens approach expiry. There is a possibility that you are unable to liquidate a position that you no longer want to hold in the time frame. Additionally, there is also a chance that no one will offer to sell you a derivative token you want to take a position in due to current market conditions. If that occurs, you may be forced to hold them until they expire, possibly preventing you from hedging the risk to which you are exposed.

  4. Digital option prices may be more volatile than vanilla options prices as expiry approaches. As expiration approaches, uncertainty regarding whether an option will be exercised will increase if the price of the underlying is very close to the strike price. In the context of digital options, such uncertainty imposes higher risks due to its all-or-nothing payoff. The seller of the option will still be obliged to pay the entire fixed settlement amount even if the option expires slightly in the money or at the money. Thus, binary options prices can be more volatile than vanilla options prices as the expiration date approaches and therefore involve more risk.

  5. Holders and sellers of digital options may bear a heightened risk that they will be adversely affected by manipulative behavior in the markets. Because a binary option that is in the money by even the smallest amount will pay the full fixed settlement amount, there may be incentives for holders or sellers of digital options that are at or near the money at expiration to attempt to influence the market in order to cause a series of options to expire either in or out of the money. While market manipulation is unlawful, there is no assurance that manipulation will not occur at all. If manipulation does occur, the settlement amount may be based on the manipulated price and there may be no adequate remedy available to users.

  6. Activities of the platform are subject to various laws and regulations in the countries where it operates or intends to operate. We might be obliged to obtain different licenses or other permissive documents in some or all jurisdictions where we intend to operate our business, therefore, our business in such jurisdictions shall always be subject to obtaining such licenses or permissive documents, if so directed by applicable laws. There is a risk that certain activities may be deemed in violation of any such law or regulation. Penalties for any such potential violation would be unknown. Additionally, changes in applicable laws or regulations or evolving interpretations of existing law could, in certain circumstances, result in increased compliance costs, which could affect our ability to carry on the business model and develop the platform.

  7. Smart contracts may be subjected to exploits. Although we make reasonable efforts to ensure that the smart contracts of the platform follow the high-security standard, there is no assurance they are fully secure and safe against potential exploits or abuse due to flaws in programming or source code. Any of the above may lead to partial or complete theft or loss of digital assets used in transactions carried out on the platform.

  8. Oracles may not provide an accurate settlement price feed. Digital options traded on the platform are settled per settlement price sourced from decentralized oracles such as ChainLink. While oracles pull data from multiple sources that have no communication in between and utilize an array of external sources to send data to the smart contract to boost the reliability and credibility of the information being provided, there's no assurance the data are completely off manipulation or unflawed.

  9. Third-party service providers may be down or malfunction. Divergence will provide users with information from Third Party Service Providers (“TPSP”) that relates to the digital options traded on the platform. Such information includes, but is not limited to, website links, options data, and any other information provided on the website ("Service"). Divergence does not endorse, warrant, or guarantee the reliability of the service provided by TPSP, nor does Divergence represent that the system is fully protected from derivative fishing, malware, or other malicious attacks, that may have a material adverse effect on the operation of the platform, or may lead to losses and damages for you.

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