Payoff curves
Enabling unparalleled customization through parametrization
Last updated
Enabling unparalleled customization through parametrization
Last updated
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:
The payoff per long token is calculated as follows (assuming 0 fees):
As payoffLong + payoffShort = 1
(ignoring fees), the short token payoff is given by payoffShort = 1 - payoffLong.