Oh cool! These definitely seem like they’re on the Pareto frontier for efficiency of asset pairs returns given collateral risk. However, I think this has isomorphic risk-reward as actually owning the assets, just minus the collateral. (If the real asset makes a dollar, this makes a dollar; if the real asset loses a dollar, this loses a dollar; QED.) So, it doesn’t actually fix the fact that the short side has a max return, while the long side doesn’t, or the fact that the median movement is upward, etc. The main benefit here is just the potential for very increased leverage, since there is no minimum capital needed.
(The downside is just in social cost, since you’re adding 0 EV to the economy but still increasing correlated volatility significantly. Normal assets have positive EV)
Oh cool! These definitely seem like they’re on the Pareto frontier for efficiency of asset pairs returns given collateral risk. However, I think this has isomorphic risk-reward as actually owning the assets, just minus the collateral. (If the real asset makes a dollar, this makes a dollar; if the real asset loses a dollar, this loses a dollar; QED.) So, it doesn’t actually fix the fact that the short side has a max return, while the long side doesn’t, or the fact that the median movement is upward, etc. The main benefit here is just the potential for very increased leverage, since there is no minimum capital needed.
(The downside is just in social cost, since you’re adding 0 EV to the economy but still increasing correlated volatility significantly. Normal assets have positive EV)