Power Derivatives

Before we get into how Potentia works, we must understand how Power Derivatives work.

Definition

A power derivative is a perpetual derivative indexed to a power $p$ of the price of an underlying instrument.

Given a price $x$ of an asset such as BTC, the theoretical value of the BTC power perpetual is given by ${\text{BTC}}^p=x^p$ where

$$p>=1$$$$p=\text{power}$$$$x=\text{price of underlying asset}$$

Consider the following examples

• ${\text{BTC}}^2$ is an example of a power derivative that tracks the price of BTC.
• ${\text{USDT}}^3$ is another example of a power derivative that tracks the price of USDT

The following shows the ${\text{BTC}}^2$ derivative price in contrast to BTC price.

Upon calculation, it can be derived that, if BTC increases by 4X, the price of power perp ${\text{BTC}}^2$ will increase by 16X.

Why Power Perps?

Look at the following percentage returns of different power derivatives of an underlying asset.

From the above chart, it can be deduced that for all the powers, $p>=1$, the power perp return is extremely sensitive to the underlying asset return. As the underlying asset return increases above zero, the perp return increases exponentially providing built-in leverage. To summarise,

• Traders can take leveraged positions on underlying assets.
• By design, the power perp value $x^p$ always remain positive, ensuring traders are protected from liquidations even during market volatility.

A detailed explanation of Power Derivatives is provided in our whitepaper.