blocmates x Paragon Power Perps Payoff Simulator: How Does It Work?

Reading time: 3m 5s

Paragon rolled out Power Perps last week - an older concept that’s been modified for the present day and is ripe to disrupt the grip that traditional perps have over the crypto/tokenization market.

A Power Perp, in simpler terms, is an instrument that trades similarly to a regular perp contract while simultaneously giving you option-like exposure without strike prices or expiries. 

It’s a contract where the payoff is non-linear because, instead of tracking the underlying asset's price 1:1, it squares, cubes, or raises the underlying asset’s price to the fourth power, creating a completely new payoff and exposure dynamic. 

You get the convexity of options with the simplicity and liquidity of perps. 

If you’re still struggling to grasp the concept, don’t worry; it’s our job at blocmates to simplify the complex. 

Instead of writing out a lengthy explanation, let’s just show you how Power Perps are better with this custom payoff simulator that we created. 

blocmates x Paragon payoff simulator

Let’s first get the lay of the land. 

The box to the left of the chart will give you an explanation of everything, and the boxes at the bottom will change numbers based on the two toggles. 

Before we get to using the toggles, on the top left, you can choose different assets for which you can simulate the Power Perp payoff, and on the top right, you have two options: p=2 is for a squared power perp and p=3 is for a cubed one. 

Now let's get to the fun bit. 

The toggle on top allows you to choose the amount of leverage for the Power Perp, and the toggle on the chart is to simulate price movement. 

So let’s run through some scenarios, and for simplicity’s sake, we’re gonna run all the scenarios with ETH because the only time it can pump is in simulations, so we’ll take whatever win we get. 

Using the simulator 

Let’s kick things off with a simple long on a squared ETH Power Perp. A 1x ETH Power Perp will be equivalent to a 2x leverage long on regular perps. 

Let’s say you believe ETH will pump 50% and want to know the payoff difference between using a Power Perp and a regular perp. 

Simply slide the toggle on the chart to ETH +50%, and you can see the results. 

As you can see, with a $10k starting position, a +50% move on will give you a 100% gain on a 2x long, but a 125% gain with the Power Perp. A convexity edge of $2.5k. That’s a 2.5x power multiple. 

The higher it pumps, the sharper the difference gets. 

Here’s a 100% pump.

Here’s a 200% pump.

Seeing that we’re talking about ETH, it’s more likely that we get downside than upside, so what happens if we get downside? 

On the downside, you actually lose less with Power Perps than you would with a regular perp. 

Here’s a -25% drawdown. 

Here’s a -50% drawdown.

Things get even crazier when you add leverage. Let’s simulate the same scenarios for a 3x-leveraged Power Perp, which is equivalent to a 6x-leverage long on regular perps. 

ETH +50%.

ETH +100%.

ETH +200%.

ETH -25%.

ETH -50%.

But there’s more: if you look at the explanation box on the left of your screen, just below it, you have a little option that says, “compare with a call option.” Once you click on it, you can compare Power Perps' payoff with options. 

Over here, you can input all the details of what your options trade would look like, and once you scroll down, the simulator will give you a complete breakdown of how it compares to a Power Perp in terms of payoff. 

You also have the option to put the option comparison on a chart if you’re a visual learner. 

This is the crux of how our payoff simulator works, a very rough, basic example. Trading is, of course, more complex than this. 

So once you have a thesis, just map out the numbers. Then feel free to input the details relevant to your trade into the simulator and just play around with it. Experiment with different price moves and leverage combinations, as well as options comparisons. 

What we hope to achieve is to make it trivially easy for you to visually map out your trade, making your final decision-making process that much easier. 

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Thanks to the Paragon team for unlocking this simulator. All of our research and references are based on public information available in documents, etc., and are presented by blocmates for constructive discussion and analysis. To read more about our editorial policy and disclosures at blocmates, head here.