If you pick 0.25% and I pick 1%, then I make (or lose) 4 times as much as you. Simple as that.
This sounds like one of those problems that you don't truly understand until you try to code it. Then you throw away the first attempt and start over.
Maybe it really is that simple... but it has to be done in a way that scales so it doesn't drag down performance. I hope dooglus will share some details after he's wrestled with the implementation.
Maybe there will be hiccups with implementation, but I can't see it. It seems so simple to me now that I get it:
Investor A and B deposit 100 BTC each.
Investor A selects 0.25% and Investor B selects 1%.
A whale makes the max bet. Investor A risks 0.25 BTC on this roll and Investor B risks 1 BTC. Should the whale win, Investor A would be left with 99.75 BTC and Investor B would be left with only 99 BTC.
A smaller fish comes along and makes a bet to win max_profit / 10. Investor A now risks 1/10th * 0.25% of 99.75 and Investor B risks 1/10th * 1% of 99 BTC.
In other words, they gain or lose in proportion to what they risk
per roll.
If each investor could hypothetically react instantly to maintain their balance at 100 BTC, then Investor A would earn an income stream identical to Investor B, just scaled by a factor of 4.
And on and on...
This is what I thought at first but it doesn't actually decrease Nakowa variance (bet size variance) for risk-averse players. It just decreases luck variance (for less profit). And decreasing Nakowa variance will also decrease chances of profit for risk-averse players.