Divergence Protocol
  • OVERVIEW
    • Divergence Protocol
    • Protocol Basics
      • Digital Options
      • Triangular Swaps
      • Convertible Liquidity
      • Options Specs
      • Fees
      • Glossary
      • References
  • User Guide
    • 📈Long Options
      • 🔥Open Longs
      • 🌊Close Longs
      • 👨‍🌾Exercise Options
    • 📉Short Options
      • 💧Open Shorts
      • 🔚Finalize Shorts
      • 📥Close Shorts
      • ⏰Expiry Withdrawal
    • 🍸Dive Bar
  • Technical Reference
    • Smart Contract Architecture
      • Deployment addresses
    • Core
      • Arena
      • Battle
      • Oracle
      • Utils
      • SToken
      • Interface
      • Libraries
        • DiverSqrtPriceMath
        • Position
        • Tick
        • TickMath
        • TradeMath
      • Params
      • Types
    • Periphery
      • Manager
      • Base
      • Interface
      • Quoter
      • Libraries
      • Params
      • Types
    • Audit Reports
  • DIVER Token
    • 🌝Tokenomics
      • Token Distribution
    • 🎃DIVΞR NFT Collections
  • Legal
    • Terms of Service
    • Risk Disclosure
  • MISC. INFO
    • 🔗Official Links
    • 🙌Media Kit
    • 🚢Ditanic Test Coins
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  1. OVERVIEW

Protocol Basics

Get started with foundational concepts of Divergence v1.

PreviousDivergence ProtocolNextDigital Options

Last updated 11 months ago

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In a European transaction, the buyer pays a premium and obtains the right to receive a fixed $1 payout. This right is tokenized and exercisable at options' maturity. The seller receives the premium and assumes the obligation to pay $1.

In a Divergence v1 pool, one pays premiums to market buy options. Before a swap, there must be liquidity for a price range. The liquidity providers (LPs) are passive sellers of options. The liquidity they provide ensures that options can be paid off upon settlement. LPs collect fees for transactions within their liquidity range. The premiums they receive are kept in the pool and reserved for settlement.

Before options expire, one can also provide previously purchased calls or puts as liquidity to close long exposures, or buy puts or calls to hedge and offset long exposures.

At settlement, anyone can call the smart contracts to retrieve a settlement price from . If the underlying price is above or equal to the strike price, the call options are in-the-money. Call token holders can exercise their rights to receive one collateral per option. LPs have the seller obligation to pay for their open shorts in calls. Otherwise, the put options are in-the-money, and put holders can claim one collateral per option. LPs have the seller obligation to pay for their open shorts in puts.

For broader discussions about digital options as a financial derivative, and the core swap and liquidity functionalities of Divergence v1, visit the following pages:

For those who are looking for a quick reference on options trading, view the one-page summary of and the curated playlists in our . To dive deeper, please refer to the and the . For some of the fundamental math concepts of the protocol, check out this .

Pyth
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youtube channel
whitepaper
technical documentation of Divergence v1 smart contracts
Uniswap v3 primer
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Digital Options

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Triangular Swaps

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Convertible Liquidity