The liquidity provider’s partnership with mining services company Interhash allows miners to protect against losses and earn yield on inventory via risk management solutions.
Digital asset trading and market making firm GSR has announced a partnership with Interhash, a mining services company.
The companies expect that the collaboration will bring professional risk management and execution services to Canaan’s substantial mining network.
GSR will offer a customised suite of structured products to mining counterparties beginning in January 2020. The risk management solutions will allow miners to protect themselves against losses and earn extra yield on inventory. The product suite will consist of customised swaps, collars and more bespoke structured products.
‘The cryptocurrency industry is more volatile than any other business area, and many participants in the ecosystem are under-hedged or outright un-hedged against adverse price action,’ said Cristian Gil (pictured), co-founder of GSR, adding that miners are a ‘foundational’ component of the digital asset space, and have to consider ‘many’ volatile factors when planning their future revenue streams.
With the cost of mining equipment and electricity constantly in flux, miners must also consider the asset’s mining difficulty and price, according to Gil.
‘The unpredictability of their business models is unprecedented, so it is natural that this segment of the market is exploring ways to better hedge their risk. We are pleased to help build customizable risk management solutions alongside Interhash, who are global leaders in the industry.’
At current prices, roughly US$3 billion of Bitcoin will be mined in 2020 alone.
Richard Rosenblum (right), co-Founder of GSR added that the market for hedging is small when compared to physical commodities markets, ‘however it is compelling for a variety of reasons’.
‘Unlike traditional commodities, digital commodities are experiencing rapid growth,’ he said. ‘Plus, given Bitcoin’s ‘constant supply’ dynamics and other unique characteristics, new products are required to properly deliver quality risk management solutions to miners.’
In traditional markets, the majority of corporate players have hedging programs. In crypto, as portfolio sizes increase and capital expenditure grows, it is prudent for management to explore hedging now that the relevant resources are becoming available.
Cora Jiang the Global Marketing Director of Interhash said: ‘We believe risk management will play an integral role in this industry as it matures. We are proud to partner with GSR who have substantial financial expertise in this area and a proven track record in crypto finance.’
GSR entered the structured products market in Q2 2019 with a Bitcoin Variance Swap and a Bitcoin Accumulator to offer traders more protection against volatility in the crypto trading industry.