How collateral can be withdrawn from existing contingent pools prior to expiration
At any point in time, prior to or after pool expiration but before the payoffs of the long and short position tokens are set, position token holders can withdraw collateral from the pool by sending back an equal amount of long and short tokens to the DIVA smart contract. Position tokens are burnt during that process.
Removing liquidity can be useful in the following two scenarios:
- Lack of buyers: Pool creators that do not manage to sell all of their position tokens have the option to withdraw collateral without waiting until expiry (see example 1 below)
- Liquidity: The market for the opposite asset (e.g., short) is more liquid than the market for the asset held (e.g. long) (see example 2 below)