2. Amplified Gains and Softened Losses
Last updated
Last updated
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, letโs compare the risk-return profile of 5x leverage with BTCโต, a power derivative on Genie DEX:
Refer to the SquaredLabs whitepaper on calculating the return on power derivatives.
5x Leverage: 100% profit
BTCโต: approx. 148% profit
5x Leverage: 100% loss (leading to liquidation)
BTCโต: approx. 67% loss
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.