Proof-of-work mining pool operator Luxor Technologies launches a new derivatives product based on a new commodity called “hashprice.”
The new product, dubbed the Hashprice Non-Deliverable Forward (NDF) contract, is a cash-settled instrument that will expose institutional investors to Bitcoin mining without them directly operating mining equipment.
Luxor joins GDIO and Jihan Wu
Hashprice is a term coined by Luxor. It describes the revenue generated by the company’s hashrate, a measure of the company’s computing power to create a new transaction block and add it to a proof-of-work blockchain. Mining revenue is paid out to miners for successfully adding a new block to the blockchain and consists of a block subsidy and transaction fees. Mining difficulty also influences revenue since the more computing power comes online, the more difficult it is to finalize a transaction block.
In the NDF contract, one party will agree to buy hashprice from the miner at a future date for a certain price. When the contract expires, the hashprice on that day will be compared to the hashprice on the contract. If the miner knows they can output 50 petahashes per second (PH/s) for 30 days, they can sell 1,500 contracts at $100 per PH/s/Day. If, when the contract expires, the settlement value is $70 per PH/s/Day, the miner profits $45,000 ($30 x 1,500). If the hashprice exceeds $100 per PH/s/Day, the buyer pockets the profit. The contract is cash-settled, meaning that the buyer does not take physical delivery of hashrate and
whose capital investment is limited to an initial margin. The NDF’s settlement value will be determined by Luxor using data points from the contract’s duration. According to Matthew Williams, who heads up Luxor’s derivatives business, the most common duration for an NDF is 30 days.
The pivot to derivatives comes as digital asset companies look to raise and employ capital to stave off the effects of the current bear market.
Recently, Grayscale Investments announced a new investment opportunity, the Grayscale Digital Infrastructure Opportunities LLC, to allow accredited investors to invest in crypto mining equipment with a minimum investment of $25,000. Capital will be deployed to buy mining equipment operated by Foundry, a mining company with the same parent COMPANY as Grayscale.
In Sep. 2021, Chinese billionaire Jihan Wu announced plans to raise $250 million to buy assets from beleaguered mining companies struggling to survive in the bear market, with some opting to abandon their hodl strategy and sell the crypto assets that they mine.
Luxor parts ways with Ethereum after Merge
Luxor Technologies is a firm proponent of the proof-of-work consensus mechanism that governed Bitcoin and, until recently, Ethereum. The company did not support the Ethereum Merge, as it felt that proof-of-stake, Ethereum’s new consensus protocol, is more vulnerable to censorship than the proof-of-work protocol. It pointed out in a blog post that staking services offered by liquid staking pool Lido, as well as exchanges Kraken and Coinbase, could be fair game for state actors to impose draconian censorship regimes.
It stopped paying out ETH mining rewards on Sep. 14, 2022.
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