#We need to go deeper potions full#

The beauty of the formula is that it calculates the optimal amount of risk that will maximise your edge in the long term.

But whatвЂ™s the ideal amount?Дoes this mean you have been doing it all wrong? Yep, you heard right, there is a right way. Others might more sensibly decide to bet a percentage of their bag вЂ“ say 10, 20, 50 or 99%. Some of you (judging by the many money requests I receive in DMs рџ‚, please stop), might use the edge as an excuse to go all in. If you play long enough, this edge should result in you winning roughly 60% of the coin tosses. Imagine a two-sided coin that is slightly weighted in your favour 60% of the time. To illustrate why the Kelly Criterion is a great fit for crypto, IвЂ™m going to use a simple coin-toss analogy. These days, itвЂ™s a tried and trusted method for risk management tycoons such as Taleb, Buffett, Simons and Thorp. Originally developed by John Kelly in the вЂ50s to help AT&T determine long-distance telephone signal noise (donвЂ™t ask), the mathematical model was later picked up by horse racing enthusiasts interested in determining the optimal bet size based on a predicted outcome. The Kelly Criterion, risk managementвЂ™s best-kept secret. Instead of using the BSM, their options protocol is based on the Kelly Criterion. ItвЂ™s a matter of pure logic: higher liquidity в†’ tighter spreads в†’ increased trading volumes в†’ favourable market! This creates a less favourable environment for liquidity providers (LPs), resulting in a less appealing market for traders.ДЇor crypto options to blossom, we need an intuitive and risk-adjusted way for LPs to write options contracts without excessive risk. Pricing risk using the Black-Scholes Model (BSM) leads to a high risk of bankruptcy for writers of crypto options, yet modified versions of the BSM still remain the gold standard for the industry. The fact is, current options protocols are not designed with crypto volatility in mind. In our beloved crypto world, however, options trading makes up only a small proportion of the slowly flourishing on-chain derivatives market. In traditional markets, the gap between futures and options volumes could be considered negligible. I like to think of options as the overlooked middle child of the decentralised finance family. The issue: why crypto options are the black sheep of DeFi Did I mention I was excited about the launch? If that wasnвЂ™t enough, thereвЂ™s also the compelling NFT launch mechanism that will release this protocol into the public domain whilst bootstrapping a decentralised community.Д®very single aspect of PotionLabs has been meticulously thought through, so letвЂ™s go through them.

#We need to go deeper potions full#

This is an article that requires your full attention.ДЇirstly вЂ“ and this is no small feat вЂ“ thereвЂ™s the pressing liquidity issue in crypto options that the Potion Protocol has been designed to solve. So take a seat, grab a drink, hang a Do Not Disturb sign outside your doorвЂ¦ whatever you need to do. It goes by the name of word of warning: it takes a lot for me to get this hyped about a project, so thereвЂ™s a lot to discuss here. Until nowвЂ¦Д¬ourtesy of the honourable Ben, I recently came across a project that really got my DeFi senses tingling. But in the grand scheme of all things DeFi, they havenвЂ™t really been top of our priority list.