Create position tokens
How position tokens are created in DIVA Protocol
The lifetime of position tokens starts with the creation of a so-called contingent pool. A contingent pool is a smart contract that, upon collateral deposit, issues two types of tokenized shares, long and short position tokens, with directionally reversed payoff profiles. Combined those position tokens represent a claim on the deposited collateral. In isolation, however, they expose the user to the up- or downside of the asset.
The collateral is held inside the smart contract until any of the below actions occur:
- User sends back an equal amount of both long and short position tokens
- User redeems long or short position tokens after the payout per long/short token has been set
The payoffs per long and short position tokens are determined contingent on the outcome of an external event that a user specifies at the time of the contingent pool creation.
To create a contingent pool / position tokens, a user would need to specify the following inputs:
- Event: the outcome, defined by a metric and an expiration date, that the position tokens derive their value from📈
- Payoff profile: the parameters governing the shape of the payoff curves💰
- Collateral asset: the asset (ERC20 token) that backs the value of the position tokens💵
- Data provider / Oracle: an Ethereum address that is supposed to report the final value of the reference asset following expiration🔮