Payoff curves
Enabling unparalleled customization through parametrization
In DIVA Protocol, payoff profiles are parametric, allowing the creation of a wide range of unique and tailored payoff profiles with different slopes, barriers, and ranges. The shape of the long payoff curve is governed by four parameters: floor, inflection, cap, and gradient.
Due to the zero-sum nature, the short payoff curve is implied via the relationship payoff(Short) + payoff(Long) = 1. Visually, the short token payoff curve is just a horizontally mirrored version of the long token payoff curve. This is illustrated in the following graphic:

Example long and short payoff curves that result from the parametric approach are illustrated below:
Long payoff curves

Short payoff curves

Payoff formula
The payoff per long token is calculated as follows (assuming 0 fees):
if (finalReferenceValue = inflection):
payoffLong = gradient
else if (finalReferenceValue ≤ floor):
payoffLong = 0
else if (finalReferenceValue ≥ cap):
payoffLong = 1
else if (finalReferenceValue < inflection):
payoffLong = gradient * (finalReferenceValue - floor)/(inflection - floor)
else if (finalReferenceValue > inflection):
payoffLong = gradient + (1 - gradient)*(finalReferenceValue - inflection)/(cap - inflection)
As payoffLong + payoffShort = 1
(ignoring fees), the short token payoff is given by payoffShort = 1 - payoffLong.
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