Andy Fajar Handika, co-founder and CEO of Loka Mining, introduced the concept of forward contracts on future hashrate to attract funding for miners in an interview with Cointelegraph.
Small industry players can sell their anticipated computational power for fiat loans, explained the entrepreneur, outlining the tool’s essence.
Handika believes forwards will enable miners to finance operational activities and future growth.
Loka Mining offers such tokenized contracts for terms of three, six, and twelve months.
“This means miners can use the loaned funds to purchase more equipment and hedge the risk of bitcoin price volatility in fiat, which is transferred to investors buying the contract,” stated Handika.
According to him, lenders benefit from the agreement as they can use it as collateral for other loans, similar to asset rehypothecation.
Public mining companies can raise funds through IPO, additional stock issuance, bond issuance, and other corporate instruments. Smaller enterprises lack access to such methods and obtain financing by selling bitcoins or using cryptocurrency as collateral for loans on DeFi protocols.
Handika noted that this strategy carries significant risk due to sudden drops in the price of digital gold, as occurred on August 5. Bitcoin prices then plummeted from around $59,000 to below $50,000.
Amid this price decline, experts at BlocksBridge Consulting highlighted the critically low profitability of bitcoin mining. Daily miner revenue fell to $25-26 million.
In April, the halving reduced the block reward from 6.25 BTC to 3.125 BTC. This exacerbated the financial difficulties of industry participants.
Some, like Rhodium Enterprises, were forced into bankruptcy, while others such as CleanSpark, Riot Platforms, or Bitfarms seized the opportunity to absorb competitors.
Others, like Swan Bitcoin, simply ceased operations.