Divergence is considered one of the most promising DeFi derivatives protocols for good reasons. It is building a decentralized platform for volatility trading and hedging with a focus on digital native assets. The protocol is backed by top investors such as Mechanism Capital and KR1. Its recently announced strategic investors include Huobi Ventures and AscendEx. The protocol is planning to launch its native DIVER token on 20 September 2021.
Many investors are inquiring about what Divergence is doing, and its upcoming IDO. So we reached out to its team for a Q&A section on Divergence and the key features.
Q: What is the value proposition of Divergence?
A: Divergence is a platform for anyone to trade, hedge and profit from DeFi-native volatility. The key value proposition of Divergence is to
- Provide DeFi users with features to protect their holding value.
- Offer an additional source of yield — volatility premium, in addition to traditional lending, staking, yield farming rewards for LPs;
- Provide an easy-to-use tool for traders to profit from asset volatility changes.
Q: What differentiates Divergence from traditional binary options platforms?
A: Traditional binary options prices are quoted by their implied volatility, and transactions are matched in a centralized fashion. This means that market participants have to trust the dealer who facilitates trades and accept what is being quoted.
Divergence deploys smart contracts that enable open and permissionless market-making and trading on-chain. It is a fully decentralized market where anyone can participate in the real-time price discovery process. There are no centralized authorities to determine the pricing of implied volatility for binary options. The market’s expectations for market volatility is reflected in the transaction prices of derivatives tokens on Divergences.
Q: What are Spears and Shields?
A: Spears and Shields are tokenized representations of binary call options and binary put options. Spear buyers make bullish bets on tokens’ price or price volatility, while Shield buyers do the opposite.
To place it into perspective. Spear token holders will be eligible to claim 1 collateral at expiry if the underlying settlement price is at or higher than the strike. Or in the case of range-strike options, Spear holders get paid when the underlying settles outside a price range. Shield token holders will be eligible to claim 1 collateral at expiry if the underlying settlement price is lower than the strike or lands within a price range.
Q: How does Divergence differ from traditional liquidity pools?
A: The fundamental difference is that Divergence pools facilitate the automatic market-making and peer-to-pool swaps of binary options tokens. Each pool can be considered a specific binary options market with its own underlying expiration, strike price, collateral, and rollover mechanisms (per strike or per percentage). Only one type of collateral is used per pool.
Q: What are the main advantages that Divergence offers to liquidity providers (LPs)?
A: Divergence has different features that provide benefits to liquidity providers. Liquidity providers can have higher capital efficiency since the minting and liquidity seeding phases of derivative tokens (binary options) are integrated and do not involve over-collateralization.
Divergence also allows LPs to create multiple binary option pools using fungible tokens, including DeFi assets from other protocols. LPs can leverage this by depositing a yield-bearing asset into liquidity pools and earn rewards on Divergence in addition to rewards from other platforms.
Q: Is Divergence a cross-chain DeFi platform?
A: Divergence is currently building its DEX on the Ethereum mainnet with plans to deploy on the Binance Smart Chain and on Ethereum L2 in the future. As we are blockchain agnostic, we can see us building where the ecosystem demands us to be.
Q: What is Divergence Flagship Product?
A: Divergence flagship product is an AMM-based binary options marketplace for DeFi natives assets. Key features include
- Composability with DeFi assets. This means that Liquidity providers can write binary options with any fungible tokens as collateral. This significantly increases capital efficiency.
- Market continuity chain: Divergence smart contracts continuously roll over pools based on preset target volatility or strike within a single, smart contract. This means that liquidity providers don’t have to relocate assets once the binary options contract expires.
- Capital efficiency. Liquidity providers are not required to over-collateralize since there is a predetermined amount of payout at expiry, 1x collateral is required for writing a call and a put. Divergence reserves maximum claims for collateral, providing liquidity providers flexibility of withdrawing capital prior to expiry.
Q: Who are the major investors behind the Divergence project?
A: Divergence has successfully attracted investment from different rounds of funding. Some of the key participants include top VCs such as: Mechanism Capital, KR1, Arrington Capital, Trading Firms: Orthogonal Trading and DeFi stakeholders: Do Kwon from Terra, Igor from xDai, Sandeep from Polygon.
Other strategic investors include Huobi Ventures, AscendEx, HoneyDao, ICOPantera, Drops Ventures, Kyros Ventures. Divergence is a unique project, and this is evident with the diverse group of firms and individuals that have invested in the initiative to build a decentralized platform for composable crypto derivatives.
Q: When is the Divergence IDO taking place?
A: Divergence will host its IDO (Initial DEX Offering) on September 20, 2021. The IDO will distribute our native token DIVER to the public. The token sale will offer 2% (20 million) of the overall supply of DIVER tokens through a Dutch auction on SushiSwap’s MISO launchpad.
A Dutch auction is a fair distribution method and a type of distribution in which the token price opens at a higher price and descends over time. The starting price of the DIVER token sale is $0.010, with a floor price of $0.05. After the IDO is completed, DIVER tokens will be available for trading on SushiSwap, and future listings are planned on major exchanges.
Q: What are the future developments planned for Divergence?
A: Divergence expects to launch its Mainnet in the fourth quarter of 2021. The Mainnet launch is expected to include various feature enhancements and interface optimizations from its public testnet on Kovan. LPs will be able to use any fungible tokens as collateral as opposed to one testcoin on the testnet. Divergence also plans to launch additional pairs and improve on the ease of navigation and user experience.