Topic: Ideas on how to hedge against the risk of mining assets (Read 1184 times)
Things will get interesting when/if glbse introduces shorting.
There are two existing mechanisms.
The first one is shorting mining assets. It is not implemented yet on GLBSE. You could do it privately, but it's not as handy and involves more trusting-related risks.
The second one is to bet using HEDGE.x bonds or just on the http://betsofbitco.in/. The former is attracting less BTC than I originally expected, perhaps because all the current bets are too one-sided to be interesting. The latter suffers from the lack of strict and formal contracts on bets.
My idea is that one can make financial derivatives directly from the mining difficulty. Here I throw out several random proposals, I myself will probably not implement them, at least not soon. When investors manage their portfolios, if they are afraid that the rising difficulty will drive the price of mining assets lower, they could buy some of the following derivatives to reduce or totally eliminate the risk from the difficulty aspect.
1. Difficulty Future Bond
This bond has a face value of, for example, (future difficulty at the calling back time)/1,000,000. And is sold at (current difficulty)/1,000,000 in IPO.
2. Difficulty Cap
This asset pre-defines a cap on the difficulty, any time the difficulty exceeds the cap, the buyer will be paid with some Bitcoins, it could be done weekly, or each time difficulty changes. If the difficulty remains lower than the cap, the buyer will not be paid.
3. Positive Difficulty Correlation Coupon Bond
The coupon of this bond has a positive correlation to the difficulty level, instead of negative correlations like mining bonds do.
To be succeed, all of them have to answer these questions:
How to guarantee the fulfillment of contract?
How do the issuers of these derivatives hedge their risk?
Will there be other incentives than pure speculation and gambling for the issuers?
The first one is shorting mining assets. It is not implemented yet on GLBSE. You could do it privately, but it's not as handy and involves more trusting-related risks.
The second one is to bet using HEDGE.x bonds or just on the http://betsofbitco.in/. The former is attracting less BTC than I originally expected, perhaps because all the current bets are too one-sided to be interesting. The latter suffers from the lack of strict and formal contracts on bets.
My idea is that one can make financial derivatives directly from the mining difficulty. Here I throw out several random proposals, I myself will probably not implement them, at least not soon. When investors manage their portfolios, if they are afraid that the rising difficulty will drive the price of mining assets lower, they could buy some of the following derivatives to reduce or totally eliminate the risk from the difficulty aspect.
1. Difficulty Future Bond
This bond has a face value of, for example, (future difficulty at the calling back time)/1,000,000. And is sold at (current difficulty)/1,000,000 in IPO.
2. Difficulty Cap
This asset pre-defines a cap on the difficulty, any time the difficulty exceeds the cap, the buyer will be paid with some Bitcoins, it could be done weekly, or each time difficulty changes. If the difficulty remains lower than the cap, the buyer will not be paid.
3. Positive Difficulty Correlation Coupon Bond
The coupon of this bond has a positive correlation to the difficulty level, instead of negative correlations like mining bonds do.
To be succeed, all of them have to answer these questions:
How to guarantee the fulfillment of contract?
How do the issuers of these derivatives hedge their risk?
Will there be other incentives than pure speculation and gambling for the issuers?
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