Diva Protocol

GM, GA, GE everybody. Welcome to what's going to be another great DevNTell.

So if you didn't know, DevNTell is a 30-minute window for members of the DAO to showcase something they're passionate about or have been working on.

This could be an awesome project they've been working on, demonstrating unit testing best practices, automation goodies, smart contracts, how to structure a project, etc.

Basically, if you've got a passion for something, this is your opportunity to share it with the community. And today I am going to welcome to you Walodja1987 and team, who's going to be presenting to us the Diva Protocol. Take it away, Walodja1987.

Cool. Thanks a lot for the introduction. And yes, thanks for having us and giving us the opportunity to introduce what we are currently building.

Maybe some brief background on myself. I have a financial background or background in financial mathematics and worked in the financial industry for a very long time.

And I always had the passion for programming, so I started learning Solidity back in 2018. And kind of like that's how everything started.

But yeah, with a friend, we actually were looking to kind of like work on a concrete project and that's how Diva Protocol was born.

And I will share some slides. You let me know whether you see them on the screen.

It's loading. Yes, I can see them.

All right. So I will show a few slides and then I can also show you like give some insights into the app that we're building that is not yet released.

So there might be some alpha in this call. All right. So the protocol is called Diva Protocol.

And it's an open and permissionless protocol to create and settle fully customizable derivative products. So before I explain how it works, I think, especially for people that don't have a financial background,

I want to briefly explain what a derivative is and I will make it very simple, explain it in very simple terms so that it's understandable for everyone because that's actually relevant to basically understand how it's working.

So what is a derivative? The simplest example of or sorry, one step back. So a derivative, like the formal definition is like it's a financial instrument that derives its payout from the outcome of an event.

So the simplest example is a sports bet, right? You have like a team and there's an outcome. Team A wins or loses and there is a payout attached to each outcome.

So if team A wins, you get like one dollar. If they lose, you get zero dollar. Another example is an insurance.

So everybody knows what an insurance is, but at its core it's also a derivative. It has the same concept underlying.

So you have an event, your house burns down or it doesn't and you have a payout attached to that. So if the house burns down, the insurance taker will get one dollar. If it doesn't, he will receive nothing.

So that's kind of like a very simple kind of like introduction to derivatives. Now you can generalize this concept, right?

Instead of using like an event with two outcomes, you can also use a metric that has a continuous kind of like range, like the Bitcoin price for instance, or the temperature or I don't know, the gas price.

So that's on the event side, how you can generalize that. And on the payoff side, instead of having like an all or nothing pattern as you typically have in a sports bet or insurance,

maybe you want to use something that goes up linearly the more the Bitcoin price goes up. So something like that for instance, right?

And you can also use a reverse pattern that will benefit if the price goes down. So down is now to the left.

So you could construct something like that and then benefit as the price of the Bitcoin goes down. So that's kind of like the core concept of a derivative and I mean, as you can imagine, you can kind of like build in all kinds of complexities, but at its core that's what it is.

And maybe one thing to note about derivatives: when you hold a derivative, say on Bitcoin, you don't hold the underlying asset which is Bitcoin.

You just hold kind of like a right in the payoff that you receive that will be derived from the Bitcoin price. So that's kind of like a brief introduction to the concept of derivatives.

And this brings me now to how Diva Protocol works. So again, like a little bit of explanation before I explain the concept to you.

So the concept underlying Diva Protocol is referred to as asset claim decomposition. So maybe you know long time ago, people have deposited gold in banks and then received kind of like a claim on that gold.

So whoever had that claim could go back to the bank and claim that gold. So it was kind of like a one-to-one claim and like how much gold you received was completely independent of its price, right?

So that's basically what you see on the left hand side. So your payoff was always kind of like one ounce of gold or whatever, irrespective of what the underlying, say, the price of gold was.

Now in Diva, what we do is it's a similar concept. So you deposit an asset, but instead of getting one a one-to-one claim, you actually get two legs with directionally reverse payoffs.

So we refer to them as the short and a long leg, that if you combine them, if you hold both of them, they represent a claim on the asset, say the gold that you deposited, right?

But if you hold them in isolation, say you sell the short one, right, then you are exposed either to the up or downside.

So that's kind of like the basic concept that is underlying Diva Protocol. Now another feature that we have in Diva Protocol is here in this example,

I just used like a random function, random linear function. Now maybe you want to have exotic, maybe a binary one as I've shown before, or maybe a combination between a linear and a binary kind of like part.

So what we have done is we have introduced four parameters that govern the shape of these payoff curves. So we have a parameter which is called floor,

which basically means, okay, if the price or the underlying values at or below this value, the long position will get zero payout and the short position will get the maximum payout of one, right?

And then we have the cap on the right side, which is basically just the reverse. So that's if the underlying price is at or above this level, the long position will get the max payout and the short position will get zero.

And we also have like a point in between which we refer to as inflection and the gradient, which basically where you define, okay, at that point, at that inflection point, the payoff of the long is equal to the gradient.

So in that case we chose kind of like at 0.5, which gives you like a nice linear curve, but you could also move it up or down and get like various payoff profiles.

So we have seen the linear one, but we could also just set the floor, inflection, cap at the same value and have a binary one like in a sports bet or like in an insurance.

So what this means, like these kind of sports betting platforms or prediction market platforms like Augur or Polymarket, which mainly offer these binary type of bets, it's just one special class of payoff patterns in Diva Protocol.

And then yeah, depending on how you set the parameters you see you can have get something that looks like convex, concave or a combination between like a binary like a jump and some linear component which are the below two payoff profiles.

So that's for the long and the short is just kind of like a mirrored version of the long payoff. So that's one feature of Diva Protocol.

So we have now covered the payoff part, right, in if you remember this kind of like part here. So we've now covered this part which is fairly flexible. Now on the event side, you can basically choose everything as your underlying event.

So it can be the Bitcoin price, it can be also the ETH gas price, the average over the last seven days, right? Or also a binary event, whether Aave was hacked or not.

Or you can also say take the amount how much was hacked in Aave Protocol in 2022 and then attach a linear payoff to that.

So you can construct really interesting products that do not exist in that form yet. And so before I continue with the rest of the presentation, I think it would be interesting could be interesting for the audience

to briefly have a look at the app that we are currently building and how this will eventually look like for the user. So you can define the event here. So you can say, okay, I want to create derivative assets on the Bitcoin price.

And the Bitcoin price end of May, right? That these two fields basically define your event. But you could also write something else. I don't know, Aave gets hacked, right?

So it's pretty flexible. There is kind of like we have like a drop-down list or a list of data feeds that users can choose from, but it also allows you to create your very kind of like customized type of derivative assets.

Everything good? Yeah. Mat Russell, if you have if you don't have a question, could you please mute?

I think we're good. Continue.

Walodja1987, are you still there?

Yeah, I'm still here. Sorry. I am muted.

Oh, I thought you were muted because you didn't say anything, but you're not muted. Yeah. You're good.

No, no. I'm just I was just thinking there was a question in the background. That's why kind of like I was silent.

Someone was answering their phone and didn't mute themselves. Okay. Cool.

Good. So then we have covered the event. Then the user will have to deposit an asset like in my example at the beginning it was gold, but in our case it will be like an ERC20 token.

So this is now a test token. And then here is basically where this magic happens. So you can really kind of like customize the payoff profile to your needs. So like here you see now based on these inputs,

you would create a long position token that would kind of like start paying off at 60 and reach the max at 100K Bitcoin price. And you have like a short position token that will basically pay out zero if Bitcoin price is above 100K

and the max if it stays below 60K and kind of like a linear payout in between. But if you don't like that, you can actually change that. So and that's what I've shown on the on the slide before.

So you can really configure the payoff profile according to your risk appetite. So just me personally, I don't like binary type of patterns because you can be slightly wrong and lose everything.

So what I personally prefer, but that's just me, right, is probably more something like that where kind of like the payoff reduces if it drops below a certain threshold. So that's kind of like covers this part that I just explained.

And if I briefly go back to the presentation... are there any questions so far? No.

Okay. And so what's our vision? I mean, our vision is to power like most of the derivative protocol or most of the derivative prediction insurance type of platforms.

And like you could for instance, as I as I mentioned earlier, you could rebuild Augur or Polymarket using Diva Protocol as the as the underlying infrastructure. So you don't need to kind of like program these smart contracts yourself.

We have we will have a nice documentation where you kind of like will see how to execute these functions. We also have subgraphs where you can easily query all these data and yeah, actually build your own application on top of Diva Protocol.

What you have just seen, this Diva app that I briefly shown, that's kind of like the first app implemented using Diva Protocol as the underlying, but it's we hope it won't be the last one.

And we hope people come up with great ideas and try to kind of like realize their own prediction market insurance type of platforms. Maybe one word regarding the trading.

So the protocol itself, it can only create and settle these assets. So settlement I can I can talk in a bit, but trading is not covered.

So this long and short positions, they are represented they are tokenized and these are ERC20 tokens, which means you can integrate them into any decentralized or centralized infrastructure.

So you can I don't know, create a pool or Uniswap or Balancer or theoretically like Binance or Coinbase could list them and make them available to their users.

In our app, we will be leveraging 0x Protocol, which some of you may be familiar with. So it's kind of like a limit order protocol which allows to create orders off-chain

with on-chain settlement. And yeah, we chose the order book approach because we feel for derivative assets there are much more dimensions that you have to incorporate when you price them.

And yeah, the current versions of AMMs we feel are not yet there to allow trading these type of assets. Yes, so here a brief overview, like how we are different compared to our like or to other protocols that exist.

So Augur for instance, as I mentioned now several times in the presentation, so it's a prediction market. They can also offer any underlying, so you can also choose the weather or whatever as the event, but the payoffs are limited to binary payoffs.

So all or nothing. And there are also other protocols which are similar to Opyn. So you basically yeah, so on the underlying side you can only choose assets that are native to Ethereum.

So you cannot use the temperature or the gas price because you have to actually lock in one of these assets and yeah and also the payoffs are limited to just linear structures.

So and in Diva we kind of like have flexibility in all these areas.

Then one thing that is actually quite critical for Diva Protocol is the oracle, right? And maybe I can briefly go back here.

So when we have created this asset and we are happy, we can go to the next step. And now someone needs to report the Bitcoin price as of end of May, or the temperature or the ETH gas price, whatever.

Diva Protocol was designed to be oracle agnostic. So we don't force anyone to use any oracle. So in Diva Protocol the oracle is actually just an address, right?

You can just paste an address and then this will be the oracle. So this address is supposed to report the final value. So this can be an externally owned account like my account now here, right?

So it can be a human reporter. Could be interesting, I don't know if institutions, like two banks, want to create something, some derivatives trade with each other and want to assign a third party that they trust as the data provider.

In those kind of setup this could be interesting. We and also this could be a smart contract that is equipped with some logic, maybe some dispute mechanism

to basically pull the final value and report it to the Diva smart contract. So this is pretty flexible. And the problem with that flexibility is that if you're a pool creator or you want to buy these assets

and you see just a random address, you never know like whether this is now a random address that will never report a value, right? And so how we are solving that is Diva token holders or the Diva DAO

when it's when it goes live, will maintain a whitelist of trusted data providers. So there will be like a whitelist that will be maintained on the blockchain, transparent and accessible for everyone, where users that users can reference

when they create pools and when they when they want to buy these type of position tokens. Yeah, and then so that's the last step. And basically yeah, then you just have to review everything, approve and create.

And then just a brief insight how it will look like. So these positions will show up. You have basically the long and short position, two legs, right, as I described before, and they will show up as two separate lines on the market page.

So this pool creation or position creation part, which I just described, this you only need to do once. So most users will probably just come see, okay, I like that asset here,

ETH price between 2,500 and 4,000. I click here and then I want to buy it, right? So they are not involved in this creation process. It's more like a one-off thing that happens from time to time.

But most users are actually interested in kind of like trading those things and this is how it will look like. We are currently fine tuning kind of like updating the design and we are having a testnet launch probably in two weeks, we hope if there are no unexpected issues incoming.

Yeah, so I think I would open up for questions. I've now talked a lot, so would be curious to hear what you think guys.

Oh, this is fantastic Walodja1987. Thank you so much for sharing. I have a couple of questions, but I will open it to the floor. We do have just about seven minutes here. So does anybody in the crowd have any questions for Walodja1987 and team?

All right, all right. If you are still warming up, maybe I'll get some of mine in. So you said you were you have a financial background as well as one in mathematics. Like what was you and in your team's inspiration behind building this? Like what gaps did you see out there that inspired you to create the Diva Protocol?

Yeah, when I started learning Solidity, I quickly understood that this is something you can use to build financial applications, right? So you don't need to ask like like regulators or like

all right to build or kind of like realize your vision of a financial application and like this combination of knowing how to code in Solidity plus having the financial background or this knowledge of how to yeah, basically how on the finance side,

I think that is what kind of like motivated me to start this project with with like a bunch of people and yeah, it's just great it it just combines the these two things which kind of like I like building and finance.

Fantastic, fantastic. And I assume it's built on Ethereum. Could you speak a bit on the tech stack behind the protocol?

Yes. So the plan is yes, we will deploy a version on Ethereum, but we will also deploy other versions on other EVM compatible chains, including Polygon.

So we expect most users to use this platform on Polygon because it's much, much cheaper to interact with the protocol, especially if it's about like there are only small amounts involved, right?

So the plan is actually to launch on Polygon or Arbitrum, some sidechain Layer 2 solution. It has not been decided yet but yeah. Our goal is to kind of like make this protocol available to as many users as possible

so that they can realize their visions or their platforms, insurance or prediction type of platforms, be it on Avalanche, Ethereum, Polygon, Arbitrum, whatever. So that's kind of like how we see it and how our deployment strategy will be. Fantastic, fantastic.

And is there any social media handles or anything people can follow you and your team's progress with or?

Yes, there is divaprotocol.io on Twitter and so it's DivaProtocol_io. So that's our handle. Nice. And also we have a Discord channel. So the easiest way to find it is you go on our webpage

and then there is a link to our Discord and also to our Twitter. There is also an old version of the white paper attached, which will be replaced by a GitBook very soon. So have a look to kind of like read the initial vision.

Some things have changed in the meantime, but the general or the basic idea basically yeah, is is is the same. So if you guys are interested, have a look. Awesome, awesome. I have a question. Yeah, yeah. Exactly. Go for it.

Can I model my own car insurance on Diva? Your own car insurance on Diva? Yes, I mean, yeah, I mean, technically, let me go back here.

Something simple like uh my car is broken, car broken, the car broken insurance. Car breaks. Okay. And then until end of year, you can select end of year. Yeah, it's possible.

So your insurance company, oh sorry, what did I do here? So your insurance company could actually create these kind of this thing here, could deposit an asset and could say I don't know, create something like that,

like a binary payout, right, where one will represent yes, it's broken, or it and zero it was not broken. And the insurance company could create this and sell you kind of like the long position.

So basically if it breaks, you get a payout and if it doesn't break, the insurance company just can get out the collateral that they put in plus keep the premium that they charged you for or that you basically paid for

buying this insurance from them. So in the best case for the insurance company they can reclaim the capital that they put in plus keep the premium like say 50 Magni tokens that you paid to purchase it.

So yes, it's it's possible, yeah. I mean, the only thing you have to make sure is you have an oracle that actually reports, right, that your car was broken in that period.

So that's the only thing, but if there is like yeah, I could imagine oracle services to evolve around Diva Protocol that will offer these kind of things and will be probably some local services I could imagine, but yeah, technically it's possible to create these kind of things.

Awesome, great question. We have about a minute and a bit left. Is there any final question questions here? Going once. Going twice. Sold.

Well, this was an awesome presentation, Walodja1987. Thank you so much for for coming on DevNTell and sharing sharing this project with us. We'll all be watching and and waiting for the actual release so we can all start trading away on Diva Protocol.

It will be awesome. We will let you know.

Fantastic, fantastic. All right. So for the crowd, I will post a a Google Sheets link um for the POAPs and Walodja1987 I'll also share um special speaker POAPs for you and your team.

Um and with that, I wish everybody a very happy Friday, Saturday, weekend and we will see you back here next week for another great installment of DevNTell. All right. And with that, I will stop the recording.