Hi everyone who is interested in the Quicktoken platform! Today we are going to talk about why the new financial instrument being formed on the platform has reliability and how this reliability can be measured.

Reliability theory for the token package

5K

Mar 4 · 3 min read

So, let’s begin. What is most important for any investor? Someone will say that it is profitability and he will be right! Of course, profitability of a financial instrument is important, but let’s examine an example.

Let’s assume that our financial instrument yields 100% per annum. In other words, for each dollar invested, the investor receives a dollar profit in one year. It is a cool instrument, but the an attentive reader might suspect a catch. Indeed, there is another parameter to consider — the probability of getting that return.

Let us assume that there are a hundred identical financial instruments in the market. Each of them can be bought for a dollar and each one should give a return of one dollar in a year — i.e. it should be worth two dollars. Because of the market risks, only 40 of the 100 instruments achieve the declared result, while the remaining 60 bring the investor a loss of $1, i.e. their value in a year is zero. What is the average return that 100 investors who buy all 100 instruments will get? Obviously, investors will invest $100 and in a year they will receive only $80 — i.e. they will have a loss of 20% per annum.

Of course, you can count on the fact that you will be the lucky one to be among the 40 investors who will get a return of 100% per annum. However, the probability (here we come to that notion) of such luck is 40/100=40% i.e. less than half. Try dropping an ordinary coin. It falls with an eagle with 50% probability. So, your winnings will fall even less often. Would you invest your dollar under these conditions? Probably not, unless a fortune teller told you that you would become a millionaire.

Let’s assume that our financial instrument yields 100% per annum. In other words, for each dollar invested, the investor receives a dollar profit in one year. It is a cool instrument, but the an attentive reader might suspect a catch. Indeed, there is another parameter to consider — the probability of getting that return.

Let us assume that there are a hundred identical financial instruments in the market. Each of them can be bought for a dollar and each one should give a return of one dollar in a year — i.e. it should be worth two dollars. Because of the market risks, only 40 of the 100 instruments achieve the declared result, while the remaining 60 bring the investor a loss of $1, i.e. their value in a year is zero. What is the average return that 100 investors who buy all 100 instruments will get? Obviously, investors will invest $100 and in a year they will receive only $80 — i.e. they will have a loss of 20% per annum.

Of course, you can count on the fact that you will be the lucky one to be among the 40 investors who will get a return of 100% per annum. However, the probability (here we come to that notion) of such luck is 40/100=40% i.e. less than half. Try dropping an ordinary coin. It falls with an eagle with 50% probability. So, your winnings will fall even less often. Would you invest your dollar under these conditions? Probably not, unless a fortune teller told you that you would become a millionaire.

In order to accurately calculate the average income that a financial instrument yields, we use the results of reliability theory. This is a whole scientific discipline that studies reliability of the systems consisting of a large number of components, depending on whether a component of such system is “broken” or not, and how many “broken” components are acceptable for the system to continue working. In our case, such a system is a package of tokens that is purchased by an investor and the tokens themselves are components of such a system.

For lovers of mathematical formulas, a more detailed article on this topic can be found in the well-known scientific journal. For all the rest, the answer is that the platform forms the packages of tokens in such a way that the yield for the investor was not negative with 0.1% probability, i.e. exactly with the probability that regulators set for bank defaults. Thus, by buying our instrument you receive a rare combination of the reliability of a bank deposit and the yield, which far exceeds it.

Next time we’ll talk about how different tokens make up one package so that both the yield and the reliability of the package match the stated figures.

See you soon and subscribe to our channel!

For lovers of mathematical formulas, a more detailed article on this topic can be found in the well-known scientific journal. For all the rest, the answer is that the platform forms the packages of tokens in such a way that the yield for the investor was not negative with 0.1% probability, i.e. exactly with the probability that regulators set for bank defaults. Thus, by buying our instrument you receive a rare combination of the reliability of a bank deposit and the yield, which far exceeds it.

Next time we’ll talk about how different tokens make up one package so that both the yield and the reliability of the package match the stated figures.

See you soon and subscribe to our channel!

Twitter