A new Bitcoin DeFi project has emerged, which will enable speculation on one of Bitcoin’s key underlying measurements of value and security.

POWSWAP will open the doors for the trustless exchange of hashrate derivatives, on the Bitcoin network.

Why speculate on hashrate?

Currently, miners can utilize Bitcoin price derivatives for hedging against volatility in the market, which is useful to some degree. Hedging against price changes, however, does not take into account the variable of mining difficulty – something which can significantly affect mining revenues.

How does it work?

The project claims to detect changes in hashrate through a mechanism called “block delta contracts”. It appears that this will allow the protocol to indirectly access figures for mining difficulty, since this cannot be sourced directly from the Bitcoin script.

Bids and asks for hashrate positions will be collated into a “bulletin board”, or orderbook. All relayed orders will be required to pay a small commission.

It is claimed that the protocol is strictly peer-to-peer, with no requirement for oracles, escrows, or any other middle-men.

The project’s creator, Jeremy Rubin, has stated that the procotol is already functional on the Bitcoin Core mainnet, without any soft-fork requirements.

Implications on the market

If POWSWAP is successful in its function, it may have positive implications on the stabilization of miner revenues. If more miners can improve the predictability of their profits, this could subsequently improve mining participation, and the overall stability of the network.

This, of course, will also rely on proper function of the protocol, as well as the establishment of significant liquidity in such contracts.

More details to be released

More in-depth details are scheduled to be released for POWSAWP in the near future, which will allow us to examine the inner-workings of the protocol.

Functional clients for using the protocol are still being built, however you can sign up for updates and register for alpha testing at powswap.com.