You are only somewhat correct. Your risk in the current system is determined by your leverage relative to average leverage. If everyone is levering high and so do you, you don't have much risk and your return is about the same as if the leverage feature didn't exist at all. The risk creeps in if you have your leverage set high and then other investors suddenly reduce there. You are then subject to being quickly wiped out.
Thanks.
On the other hand, if I invest more than others, but leverage less than them, I still get a decent return if the player lorse and if he wins, I end up owning a larger percentage of the bankroll (and if the investors suddenly reduce their leverage, the consequences are les important for me). The downsides (out of a greater exposure because of a greater percentage of the bank) is that I have more to lose in case of the site getting hacked or "hacked" (as you brilliantly wrote it some time ago).
Update: excellent news, bobbax! yesterday when I phoned, I forgot to tell you of my proposal for max profit so here it is. Like to "dump hashed log" proposal that I see you are implementing, this solution is simple to:
1.
Go back to previous system. Bankrage * X = max profit
2.
Change the multiplier. Two options
2.1 Change X as you see fit.
Pros: simpler
Cons: maybe for mathematical reasons (Kelly criterion?) this X should not be changed - this is above my payrate
2.2. Add a second multiplier, Y.
Pros: in case there is a reason for X being X, you can safely change another variable - this will also permit a finer control of the max profit
Cons: you end up with to multipliers (X and Y), which is inelegant if you have no reason to have the value of X being fixed
Hey David,
I have multiple solutions, I'm still working to find which is the best (I personally like the (A) atm).
Note that the following numbers aren't definitive.
An important precision about the leverage: The leverage isn't only a factor of risks, it also allow investors to place less money on the site. You maybe don't want me to manage your 100 btc, but you'll be agree to send 10 with a leverage of 10:1 and keep 90 btc offsite.
A) Decreasing the max. profit multiplierYour (1) is indeed the one that was used to get the max. profit (Bankrage * 0.005, 0.5%).
One solution could be to reduce that value to 0.05%, with a low limit depending of the initial bankroll.
The low limit would be the initial bankroll * 0.5%, so we make sure that the max. profit can't go below that value.
ExampleInitial bankroll: 100 BTC
Bankrage: 2000 BTC
Average leverage: 20:1
Max. profit: 1 BTC (2000 * 0.0005).
Max. profit low limit: 0.5 BTC (100 * 0.005)
B) Decreasing the max. leverageAn other simple solution is to just decrease the max. leverage to 10, and bind back the max. profit to the bankrage.
The effects will be similar to the solution (A) and easier to understand.
Cons: less offsite coins.
ExampleInitial bankroll: 100 BTC
Bankrage: 500 BTC
Average leverage: 5:1
Max. profit: 2.5 BTC (500 * 0.005).
C) Variable house edge with max. profit bind to the initial bankrollThe house edge remain 1% up to the 0.5% max. profit of the initial bankroll.
That system would allow the players to bet above the max. profit but with an increased house edge.
For example, betting 1% of the initial bankroll will result to a 2% house edge. The idea is to increase the house edge by 0.5% every 0.25% above the max. profit.
They will be a max. limit of course. It could be 3% of the initial bankroll, so a max house edge of 6%.
Cons: the max. profit will still be low and the high house edge looks scary.
ExampleInitial bankroll: 100 BTC
Max. profit: 0.5 BTC (100 * 0.005).
House edge: 1% for all the bets below of equal to 0.5 BTC. 2% for a 1 BTC bet, etc...
D) Variable house edge with max. profit bind to the bankrageTo make that solution viable, the max. profit must be reduced according to the solution (A), with a lower max. profit (0.025% instead of 0.05%).
This solution is similar to the (C), except that the house edge increase by 0.5% every 0.025% above the max. profit.
The max. limit could be betting 0.2% of the bankrage, with an house edge of 6%.
Cons: the house edge looks scary again, but the difference with the solution (C) is that you need to bet higher to reach the max. house edge 'penalty'.
ExampleInitial bankroll: 100 BTC
Bankrage: 2000 BTC
Average leverage: 20:1
Max. profit: 0.5 BTC (2000 * 0.00025).
Max. profit low limit: 0.5 BTC (100 * 0.005).
House edge: 1% for all the bets below of equal to 0.5 BTC. 2% for a 1.5 BTC bet, etc...