October 23, 2021

A Crypto Investor

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New DeFi futures to enable hedging against Bitcoin mining difficulty

Decentralized derivatives exchange SynFutures announced a new product called Bitcoin (BTC) Hash Rate Futures that uses the biggest cryptocurrency’s ever-changing mining difficulty as a basis to open long or short positions. 

Touted as fully decentralized hash rate futures, SynFutures’ new offering would let users trade on Bitcoin mining difficulty with Wrapped BTC (wBTC). 

The hash rate and mining difficulty are two core mechanics of Bitcoin that have become even more popular with the miners’ exodus following China’s crackdown. The Bitcoin network requires mining difficulty to readjust in every 2,016 blocks to counter the Bitcoin hash rate — the amount of computing power dedicated to mining.

As explained by Cointelegraph in detail, this two-way mechanism maintains a constant block time, or how long it takes to find each new block while mining Bitcoin. 

According to the announcement, SynFutures developed the Hash Rate Futures, now in closed alpha, by designing an oracle to validate Bitcoin block headers directly and extract the mining difficulty. Each futures contract represents the expected block mining reward in BTC for a difficulty resetting period at a given difficulty level.

Miners would be able to short the Hash Rate Futures to hedge against the risk of mining difficulty increases or long electricity futures to determine the power cost.

Related: How to mine Bitcoin: Everything you need to know

SynFutures founder and CEO Rachel Lin said that the team wanted to allow traders to hedge against all the factors affecting their mining returns. She added:

“There hasn’t been a derivatives product targeting mining difficulty, which is vital to a miner knowing how much return their rigs are going to generate. With Hash Rate Futures, we’re filling in this gap for miners.”

Last month, SynFutures closed a $14-million Series A funding round led by Polychain Capital with the participation of a host of prominent crypto investors, including Pantera Capital, Framework and Wintermute.