Amplified Gains and Softened Losses: The Power of Positive Convexity
In the world of trading, leverage can be a double-edged sword. It offers the potential for significant gains but also comes with devastating losses, often resulting in liquidations and the complete loss of capital.
What if there was a way to access leverage while avoiding liquidation? Enter Genie DEX.
Understanding Positive Convexity
Positive convexity in trading refers to a situation where the price of an asset or derivative increases more rapidly when the underlying price goes up and decreases less sharply when the underlying price goes down. Positive convexity can benefit traders because they can make more money when the market goes up and lose less when it goes down.
In the context of derivatives, positive convexity is often associated with products with a non-linear payoff structure. For example, a power derivative might have a payoff that is a function of the underlying asset price raised to a certain power (e.g. squared, cubed, etc.). This can lead to a payoff that increases more rapidly when the underlying asset price increases and decreases less sharply when the underlying asset price decreases.
Genie DEX and Power Derivatives
Amplified gains are the most exciting aspect of trading power derivatives on Genie DEX.
Let’s compare the risk-return profile of 5x leverage with BTC⁵, a power derivative on Genie DEX.
Scenario 1: The Price of BTC Increases by 20%
- 5x Leverage: 100% profit
- BTC⁵: approx. 148% profit
Scenario 2: The Price of BTC Decreases by 20%
- 5x Leverage: 100% loss (leading to liquidation)
- BTC⁵: approx. 67% loss
Both leverage and power derivatives provide amplified gains, but BTC⁵ offers a higher risk-return due to positive convexity. BTC⁵ softens losses better than 5x leverage, thanks to its positive convexity, and avoids the risk of liquidation.
Conclusion
Genie DEX’s power derivatives offer a unique blend of amplified gains and softened losses, making them a superior alternative to traditional leverage. With no liquidation risk and a better risk-return profile, these innovative products are perfect for traders looking to maximise their gains while minimising losses.
Learn, discover, and join Genie DEX through our White-Paper, Website, Discord, Twitter, and Telegram.
