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What to Know About Investing in Divergence’s IDO

  • September 17, 2021
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  • Category: BitCoin, Blockchain, Cryptocurrency, Investments
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Unless you’ve been living under a rock, you’ve probably heard of Divergence. Divergence is a decentralized platform for volatility trading and hedging with a focus on digital native assets. It has had a massive growth in popularity of late. Major backers of Divergence include top investors such as Mechanism Capital, KRI, Arrington Capital, Huobi Ventures and AscendEX.

Ahead of the upcoming IDO on 20 September 2021, we’ve reached out to its team for a Q&A section on Divergence and its upcoming developments.

Q: What is Divergence?

A: Divergence is a platform for anyone to trade, hedge and profit from DeFi-native volatility. We intend to build an ecosystem that enables the following:

  1. Provide DeFi users with features to protect their holding value.
  2. Offer an additional source of yield — volatility premium, in addition to traditional lending, staking, yield farming rewards for LPs;
  3. Provide an easy-to-use tool for traders to profit from asset volatility changes.

Q: What makes Divergence different from platforms like Aave or Compound?

A: Compound and AAVE are on-chain interest rate markets, whereas Divergence is positioned to be a risk management and volatility trading platform. Interest rate risks that users face from Aave or Compound can be easily managed and hedged on Divergence.

So, in some way, we fulfilled the missing piece of many current DeFi platforms — the ability to help users hedge risks. This will make us good partners to existing DeFi protocols.

Q: Please elaborate on who your competitors are and what is your competitive edge?

A: The space for DeFi options and volatility-based derivatives is wide open at the moment. There are few platforms that support options products on-chain. The major technical challenge is the high cost required to update price quotes and run matching algorithms using smart contracts.

What most platforms do is to separate the minting of derivative tokens and the market-making process. This process is typically capital intensive because LPs have to supply additional assets on the other side of the orderbook/AMM DEX to make a market.

Divergence provides a unique solution by integrating a single-asset AMM model for binary options in our V1 platform. This enables LPs to mint, fund, and make a market for options in a single step. The created single-asset options AMM pool is also one where trading occurs.  Additionally, LPs and traders can use any fungible tokens of choice, including LP tokens as collateral for market-making and trading these options.

Q: What are the other key features of Divergence?

A: We offer a simple and elegant solution that combines our constant product AMM model with the binary options pricing mechanism. In addition, we offer auto-exercise and auto-rollover features, which help us create composable, continuous and capital-efficient on-chain options markets.

This differentiates Divergence from other competitors which either systematically rely on DEXes like Uniswap to swap derivative tokens or settle trades from pooled capital without real-time market price discovery mechanisms.

Q: What is Divergence V1?

A: Divergence V1 is an AMM-based binary options marketplace for DeFi natives assets. Key features include

  1. Composability with other DeFi protocols. Liquidity providers can write binary options with any fungible tokens of choice as collateral. This includes LP tokens, wrapped assets, and assets that are on other DeFi layers. LPs can have higher capital efficiency with options market-making, without having to make a choice between us and other DeFi protocols. This makes us a risk-management / yield-enhancing layer for DeFi.
  2. Market continuity: Divergence smart contracts continuously roll over pools, using preset strike price level or percentage above/below settlement price. All of this is done within a single smart contract and liquidity providers don’t have to relocate assets when the options contracts expire.
  3. Capital efficiency. Liquidity providers are not required to over-collateralize since there is a predetermined amount of payout at expiry. Only 1x collateral is required for writing a binary call and a binary put. Divergence reserves collateral for max possible claims. Say, if a pool has sold 3 binary calls and 5 binary puts, 5 collateral is reserved for payout. This provides liquidity providers with flexibility of withdrawing capital prior to expiry.

Q: Can you briefly explain what Spear and Shield tokens are?

A: Spears and Shields are tokenized representations of binary options positions. Spear buyers make bullish bets on the underlying price or price volatility. 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 settles 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 able to claim 1 collateral at expiry if the underlying settlement price is lower than the strike or within a price range.

Q: What countries/demographics have been prioritized for community growth and why?

A: Divergence is currently focused on English-speaking countries with support for Spanish, Russian, Turkish, Korean, Chinese and Vietnamese. Traditionally exotic options and structured products are heavily traded in parts of Asia such as Singapore.

However, if you look at the broader user participation in the DeFi market, you would get a diverse group of global users. We think the appeal of decentralized options has broad potentials and our product design is flexible enough to serve users of different types of risk preferences.

Q: Do you have any commercial partnerships in place to drive the adoption of Divergence?

Our ecosystem partners, who are also pre-sale round participants, include P2P Capital/Lido, Terra (Do Kwon), DoDo (Diane Dai), Polygon (Sandeep Nailwal) and xDai(Igor Barinov). We recently announced our strategic investors including Huobi Ventures and AscendEx. Because our project will have a lot of synergies with them, we will work with them as we roll out our V1 product. And we will announce the partnership details accordingly.

In addition to the lead funds, some of whom have expressed interest in providing liquidity as LP when we launch, trading powerhouses such as Orthogonal Trading are also actively supporting us.

Q: When is the Divergence IDO taking place?

A: Divergence will host its IDO (Initial DEX Offering) on 20 September 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, and the floor price is $0.05. After the IDO is completed, DIVER tokens will be available for trading on SushiSwap. Future listings are also planned for major exchanges.

Q: What are the future development plans of 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 support additional underlying pairs and improve on the ease of navigation and user experience. Following our mainnet launch we will actively work on integrating with L2 solutions. Detailed roadmap can be found in our documentation.

You can learn more about Divergence by visiting the following links.

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