> For the complete documentation index, see [llms.txt](https://docs.divaprotocol.io/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.divaprotocol.io/introduction/what-is-diva-protocol/what-problem-does-it-solve.md).

# What problem does it solve

The traditional way of creating and managing derivative products relies on centralized intermediaries. This introduces three main problems:

1. **Counterparty risk:** User funds are at risk if the intermediary defaults or becomes insolvent.
2. **Entry barriers:** The creation and management of derivative products is typically reserved for banks and not easily accessible for normal individuals, hence hampering innovation.
3. **Isolated systems & markets:** The derivative products are issued in isolated systems which means assets are typically not tradeable outside of the issuer's infrastructure, hence negatively impacting liquidity.

### How does it solve these problems?

DIVA Protocol leverages the smart contract technology to provide a secure, open and interoperable system for creating and managing derivative contracts without the need for a central intermediary. This is accomplished through:

* **Full collateralization:** By requiring full collateralization of the derivative positions, counterparty risk and the need for margin calls are eliminated, giving users a safe and frictionless experience.
* **Blockchain:** DIVA Protocol embraces the power of public and permissionless blockchain networks to remove entry barriers and foster inclusivity.
* **Standardization:** Derivatives issued on DIVA Protocol follow the widely adopted ERC20 token standard, which enables the seamlessly integration into any centralized or decentralized trading infrastructure, thereby enhancing liquidity by unlocking new trading opportunities.


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