Bitcoin hashrate futures go live on FTX exchange, for miners to hedge their risks

Quick Take

  • Crypto derivatives exchange FTX has launched bitcoin hashrate futures
  • FTX CEO Sam Bankman-Fried told The Block that the exchange has seen “a ton of interest” in hashrate futures, particularly from miners and related companies
  • Thomas Heller, global business director at mining pool F2Pool, said FTX’s hashrate futures can be used “to structure various kinds of financial products for miners”

Crypto derivatives exchange FTX has become the first notable platform to launch bitcoin hashrate futures. These products help miners to hedge against bitcoin’s mining difficulty adjustments.

FTX's bitcoin hashrate futures settle to the average bitcoin mining difficulty over a period of time, meaning they roughly represent the total hashrate being used to mine bitcoins.

"It's impossible to exactly measure hashrate--the best you can do is approximate it from block times and difficulty. However, given that difficulty adjustments attempt to maintain 10m block times, over long periods of time the average hashrate will be proportional to the average difficulty. So that means that, roughly speaking, difficulty futures should behave similarly to hashrate futures," said FTX.

The exchange first unveiled its plan to launch bitcoin hashrate futures in August, and the product has gone live today after almost nine months of work.

FTX CEO Sam Bankman-Fried told The Block that the exchange has seen “a ton of interest” in hashrate futures, particularly from miners and related companies.

“We've been growing out our relationships with mining firms and intermediaries. So we now think we have enough of a network to bring real interest and flow to these futures,” said Bankman-Fried.

Three contracts 

FTX’s first bitcoin hashrate futures contract - for Q32020 - expires to the average mining difficulty of July-September 2020.

Thomas Heller, global business director at mining pool F2Pool, told The Block that he is “excited” to see the launch of the product. “Until now, there have been limited mechanisms for mining farms to hedge their risks. FTX's hashrate futures can be used to structure various kinds of financial products for miners," he said.

Heller added that as FTX's Q3 product settles based on the average network difficulty for the entire Q3 period, "anybody can now participate in the mining ecosystem even without owning hardware."

What's more, FTX has also launched bitcoin hashrate futures for Q4 2020 and Q1 2021 periods.

Not new?   

It is worth noting that bitcoin hashrate futures are not a new product in itself. Earlier this year, crypto brokerage firm BitOoda launched a hashpower contract, and Interhash - a partnership between Canaan Creative and market maker GSR - was also looking to offer derivative products to miners.

But an exchange launching such products would have more liquidity and access to retail investors as compared to a brokerage firm, an industry expert told The Block.

Bankman-Fried also appears to be less concerned about liquidity issues. He told The Block that there are “a bunch of liquidity providers on FTX in general” and that more will likely sign up in the near future.

Darius Sit, co-founder and managing partner at crypto trading and market-making firm QCP Capital, told The Block that FTX is not the first exchange to launch bitcoin hashrate futures, adding that LedgerX has been offering it for about a year now. But there seems to be no public information about it; the product might have a lower open interest. The Block has reached out to LedgerX to know more and will update this story should we hear back. 

FTX's new product launch comes at an interesting time - a few days after bitcoin's third halving - which saw mining reward drop from 12.5 bitcoins to 6.25 bitcoins. The halving is likely to result in decreased hashrate and mining difficulty, and thus, hashrate futures could turn out to be useful for bitcoin miners.

Notably, like all other FTX products, bitcoin hashrate futures are not available to U.S. residents. 

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Related Reading

Get Your Crypto
Daily Brief

Delivered daily, straight to your inbox.

TRON USDC now available

Delivering on a vision for an interoperable global standard for dollar digital currency, Circle and TRON have partnered to make USD Coin (USDC) available on the TRON blockchain, which has grown to more than 56 million accounts and nearly 2.5 billion transactions since its founding just four years ago. TRON is home to a broad ecosystem for digital assets in Asia and around the world, and the TRON community can now benefit from easy access to the world's fastest-growing, regulated dollar digital currency. 
Read Full Story
Sponsored Post

Layer-1 Platforms: A Framework for Comparison

The Block Research was commissioned by Algorand to create Layer-1 Platforms: A Framework for comparison, which provides a “look under the hood” at seven platforms: Algorand, Avalanche, Binance Smart Chain, Cosmos, Ethereum/Ethereum 2.0, Polkadot, and Solana. We assess their technical design, related ecosystem data, and qualitative factors such as key ecosystem members to get an understanding of how they differ. Having done this analysis, we draw some insights for what the future of the broader smart contract landscape could look like for years to come. 
Read Full Story
Aug 11, 2021, 5:18PM UTC