Loka Rolls Out a Decentralized Futures Market for Bitcoin Miners to Sell Their Hashrate

In the wake of Bitcoin's April halving, which slashed rewards in half, mining giants sparked a wave of consolidation by scooping up smaller rivals.

As Bitcoin mining rewards get slashed following the April halving event, mining giants are snapping up smaller rivals in a bid to Consolidate their positions. This could erode Bitcoin's decentralised ethos and lead to greater mining centralisation.

In response, several players are working on a novel solution: a decentralised futures market for small Bitcoin miners to sell their hashrate.

Here's how it works and why it matters.

Key Takeaways

Some players are rolling out a decentralised futures market for small Bitcoin miners to sell their hashrate.

This could help them weather Bitcoin’s volatility and avoid getting gobbled up by bigger miners.

Ava Labs, Bitnomial, and Luxor Technology already run hashrate futures markets.

Hashrate markets could offer new ways for miners to optimise revenue and better manage their operational costs.

Small Bitcoin miners are facing an existential threat as mining rewards get slashed following the April halving event.

Mining giants are snapping up smaller rivals in a bid to Consolidate their positions in the wake of the halving. This could erode Bitcoin's decentralised ethos and lead to greater mining centralisation.

But several players are working on a novel solution: a decentralised futures market for small Bitcoin miners to sell their hashrate.

The hope is that this will help them weather Bitcoin’s notorious volatility and avoid going bust and getting gobbled up by bigger miners.

Here's how it works and why it matters.

What is a hashrate futures market?

Hashrate markets are a straightforward idea. Just like any other exchange, they charge small fees for matching buyers and sellers. But instead of trading crypto or fiat currencies, these markets trade the computational power used to mine Bitcoin.

The price of hashrate on these markets determines how much an individual miner will get paid for their hashrate over a set period of time, usually a quarter or a year.

This is important because it gives miners a way to sell their hashrate in advance and get paid out in Bitcoin right away.

It's a bit like a corn farmer selling their future harvest. They can start a forward contract in a commodity market and get paid now for their future corn harvest.

This is especially useful in an industry that experiences wild price swings and has high operating costs, like Bitcoin mining.

Hashrate markets are also a type of Bitcoin derivative, which is appealing to investors engaging in complex trading strategies.

“Hashrate futures markets allow for precise hedging of hashrate in the Bitcoin network, which is crucial for miners to manage as hashrate comes online or goes offline over time,” Michael Dunn, President of Bitnomial, told DL News.

It's also a sign that the industry is maturing, said Taras Kulyk, CEO of Bitcoin miner hardware provider Synteq.

“Providing them with various investment instruments so that they’re able to manage their risk accordingly will only drive increased participation,” Kulyk told DL News.

Risks and costs involved in selling hashrate futures

The stability miners get from selling their hashrate comes at a cost, though. They forfeit any extra Bitcoin they might make on their hashrate during the contract period, which goes to the investor who bought the contract.

This is great for those looking to buy Bitcoin at a discounted price. But it comes with additional risks.

For example, if the price of Bitcoin goes up quickly, the miner will still only get paid the price that was agreed upon in the futures contract.

On the other hand, if the price of Bitcoin goes down, the miner will still get paid the price that was agreed upon in the futures contract, even if they could have made more money mining Bitcoin themselves.

Loka has chosen to build a decentralised and permissionless market using smart contracts, as opposed to centrally managed markets like those run by Luxor and Bitnomial. It's a first-of-its-kind technical feat, and a lot could go wrong.

Due to its open-source nature, it’s not uncommon for the code backing crypto projects to get exploited by bad actors — especially if it’s new and untested.

While code-based exploits have decreased, protocols still lose millions each month to them, per DefiLlama data.

Another risk is that Loka is building on the Internet Computer Protocol, a highly controversial project.

Handika said his firm previously tried to build on Stacks, a so-called Bitcoin layer 2 network, before switching.

“On the technology side, I think ICP is superior,” he said.

It's not without controversy. In 2021, the project's ICP token, which peaked at a market value of $18.5 billion, crashed 95% and left investors in the lurch.

The crash was caused by insiders sending billions of dollars of ICP tokens to exchanges and cashing out, according to

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