Bitfinex has entered the bitcoin mining space with the introduction of a new tradable asset tied to hashing power.
The Hong Kong-based bitcoin exchange will offer the asset, which it says will be sold in a live beta tranche. The asset, dubbed TH1, represents hashing power in a pool that produces approximately 3,500 Th/s in mining power, according to its announcement.
The approach is similar to the way hashing power is sold on exchanges like CEX.io, but differs from other types of contract mining in which customers pay for an amount of hashes over the course of an established period of time.
Bitfinex said in a statement that it actively sought a different approach to offering mining power, but emphasized that the initiative could change as future tranches are rolled out, noting:
“We have worked for some time to develop what we believe is a superior approach to ‘cloud mining’ that is smartly packaged to offer simplicity and transparency.”
The exchange indicated that, while excited about the offering, it expects to improve the product during its beta stage. The beta will last three months and feature a total tranche size of 100 terahashes, the price of which includes maintenance fees.
Tradable commodity
By creating an asset, Bitfinex joins other exchanges in seeking to turn hashing power into a tradable commodity that can appeal to more investors. In the case of Bitfinex, exchange members will also have the opportunity to borrow and margin trade TH1.
Rewards for TH1 ownership will be based on the time of purchase in relation to the time that blocks are discovered and paid out, the company said.
Bitfinex explained:
“The block chain time stamp on block rewards will be used to determine ‘holders of record’ at the time that the block was mined. Positions will be aggregated between balances in the Exchange Wallet and trading position in the trading wallet to determine a ‘net position’.”
Bitfinex went on to say that “dividends will be computed as the pro rata share of the block reward less the pool fee”, and those who borrowed or margin traded TH1 will receive dividends as well.
In addition to its latest product, Bitfinex offers three accounts, its basic exchange wallet, deposit wallets that allow users to provide liquidity to traders and trading wallets for leveraged trading.
Advanced bitcoin finance
Assets that generate BTC returns aren’t new to the bitcoin exchange marketplace.
China-based bitcoin exchange Huobi recently closed the sale of a fixed-return investment asset. Like similar products offered on the market, these returns are tied to the rewards of a mining operation owned by Huobi. Demand for Huobi’s fixed-return asset was strong, with the company reporting that the tranche had sold out within two hours of initial offering.
Offerings like Huobi’s and the Bitfinex mining asset point to the continued development of advanced bitcoin-denominated financial instruments.
Yet, the growth in advanced trading options has come at a cost, some say. Recent fluctuations in the price of bitcoin have been connected to these activities, although the platforms that offer margin trading say that it is an important part of the ecosystem that could help lead to long-term stability.
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