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

Learn how to create a contingent pool in our DIVA App Training.