“A Luxor Technology Executive Emphasizes Hashrate’s Legitimacy Over Pixie Dust and Ponzi Schemes”
An upcoming Bitcoin hashrate-backed product, potentially offering 10% to 13% returns, distinguishes itself from BlockFi or Celsius by deriving returns from proof-of-work rather than questionable schemes, asserts Luxor Technology, the product’s creator.
The legitimacy of Luxor’s hashrate-backed product was highlighted in an Oct. 17 What Bitcoin Did podcast. Host Peter McCormack expressed concern at Luxor’s upcoming offering and discussed what a worst-case-scenario for Luxor’s product would look like.
Matt Williams, Luxor’s Head of Derivatives, clarifies that their hashrate-backed product is unique, as it’s underpinned by economic production. Williams elaborates, “There is real proof-of-work and observable economic activity at play. Returns arise from miners allocating a portion of their mining business margin to investors financing their operations.”
The main takeaway: the return comes from hashrate, not from pixie dust, ponzi schemes, or rehypothecation.
Luxor’s product functions by allowing investors to earn a share of loan repayments. To do this, they offer their Bitcoin as collateral to Luxor, which then lends it to other miners for their operations.
The returns are generated when investors purchase hashrate from Bitcoin miners at a reduced rate and subsequently “lock it in” by selling it at a higher price. This hashrate is tied to Bitcoin mining rewards. Luxor anticipates that investor returns will fall within the 10% to 13% range.
The entire process will be overseen through Luxor’s upcoming hashrate marketplace.
According to Williams, this offering offers miners better access to capital, eliminating the need to sell their mined BTC to fund their operations.
He explained, “It’s a more financially viable option for miners because they can secure funding upfront while maintaining ownership of their mined Bitcoin.”
Luxor underlines that it doesn’t run its own mining pool; it solely acts as an intermediary between investors and mining companies. Williams clarified, “We only hold onto Bitcoin for a brief period while transferring funds from the buyer (investor) to the seller (mining firm).”
But those interested in making a return on their Bitcoin should tread with caution, says Joe Kelly, CEO of Bitcoin lending firm Unchained.
“Any investment or loan that requires a Bitcoin holder to part control with their Bitcoin should receive tremendous diligence and scrutiny,” he said.
The bitcoin lending and borrowing markets are very nascent and we are likely to see repeats of the failures that happened with BlockFi and Celsius unless investors on the whole exercise extreme caution.
Williams stressed the hashrate-backed product isn’t available to everyone, only those who pass the firm’s due diligence checks.
Williams recognized that Luxor’s hashrate-backed product understandably raises concerns, especially in the wake of BlockFi and Celsius bankruptcies. He pointed out that investors must consider the counterparty risk associated with Luxor.
In an effort to reduce these risks, Luxor has committed to collaborating exclusively with “reputable miners” and might require them to maintain insurance.
Luxor did not disclose the product’s release date.
