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6) So, ok, where does this leave us? Well it means that other risk matters to the extent, but not as much. So how much?

7) Here we get to the key point. EV IS LINEAR RISK ISN'T LINEAR. RISK IS SQUARED.

8) Winning $3 is 3X as good as winning $3. Risking $3 is _more than_ 3X as bad as risking $1. In fact it's *9x* as bad. (Assuming law of large numbers.) Why? Well say you have EV = +1 and risk = 1. Then you do that 25 times. You now have EV = +25 and risk = 5 (!!!).

9) That's how gaussians add. And if you have enough things without wacky tails, that's how _anything_ adds. This is equivalent to: variance goes as sqrt(time). So the real cost you pay to risk is the square of the risk.

10) What does that mean? It means that EV / RISK is not the right metric. EV / (RISK * RISK) is. (Unless you're making many bets at once and RISK is correlated between them, in which case you add the RISK!!!)

11) So risking 10% of your stack isn't 1/5th as bad as risking 50% of it is. Risking 10% of your stack is only 1/25th as bad. That's a lot less bad! BUT REMEMBER EV IS LINEAR. "RISKING" 10% IS REALLY BAD IF YOU'RE DEFINITELY GOING TO LOSE EACH TIME!

12) Anyway, I'm not commenting on specific situations, all I can say is that if Alameda _were_ to yield farm: 1) it would bear the risk 2) it would make sure the risk wasn't anywhere near close to in the realm of existential

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kain.eth

@kaiynne

Really interesting dynamic here with @SBF_Alameda going full degen yield farming. Just eyeballing the account it seems like at one point between 20-30% of the entire AUM of Sushi was coming from an account associated with @FTX_Official . Which kind of begs the question…

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13) Here's another way of looking at it. What's the max % of your portfolio you'd put into YFI/LEND/COMP/SNX/etc.? Those were worth < 10% recently, they definitely could maybe go back. If you'd put more than 1.1% in them, you're willing to risk more than 1%.