How Does a Pool Operator’s Risk Tolerance Affect Their Expected Value Calculation?
A pool operator with a low risk tolerance will set the PPS payout rate significantly lower than the expected value to build a larger reserve fund and ensure profitability even during prolonged 'bad luck' streaks. A high-risk-tolerance operator may set the rate closer to the expected value, accepting higher variance for a larger potential profit margin.
Glossar
Low Risk Tolerance
Exposure ⎊ A low risk tolerance, within cryptocurrency derivatives and options trading, fundamentally reflects a preference for minimizing potential capital losses.
Expected Value
Valuation ⎊ Expected Value, within cryptocurrency, options, and derivatives, represents the probabilistic weighted average of potential outcomes, crucial for assessing risk-adjusted returns and informing strategic allocation decisions.
Risk Tolerance
Calibration ⎊ Risk tolerance, within cryptocurrency, options, and derivatives, represents an investor’s capacity to absorb potential losses relative to expected returns, fundamentally influencing portfolio construction and strategy selection.
Pool Operator
Function ⎊ The pool operator is the centralized entity responsible for coordinating the collective computational power of individual miners within a mining pool to increase the probability of discovering a block.