Power perpetuals exhibit positive convexity, meaning favourable price movements yield greater positive returns compared to the absolute negative returns from equally sized unfavourable moves.
For example, let’s compare the risk-return profile of 5x leverage with BTC⁵, a power derivative on Genie DEX:
Refer to the SquaredLabs whitepaper on calculating the return on power derivatives.
Scenario 1: The Price of BTC Increases by 20%
5x Leverage: 100% profit
BTC⁵: approx. 148% profit
The price of BTC increases by 20%
Scenario 2: The Price of BTC Decreases by 20%
5x Leverage: 100% loss (leading to liquidation)
BTC⁵: approx. 67% loss
The price of BTC decreases by 20%
In conclusion:
a 20% increase in the underlying asset price (BTC) results in a 148% return
a 20% decrease in the underlying asset price (BTC) results in a 67% loss
Read this article and our whitepaper to understand how amplified gains and softened losses compare to traditional leverage.
