Create position tokens
How position tokens are created in DIVA Protocol
Last updated
How position tokens are created in DIVA Protocol
Last updated
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.