Luxor denies allegations that its Bitcoin hash rate-supported product is akin to BlockFi or Celsius 2.0.
A Luxor Technology executive emphasized that the yield is derived from hash rate, not from magical solutions, Ponzi schemes, or rehypothecation.
An upcoming Bitcoin hash rate-backed product, which is anticipated to offer returns between 10% and 13%, should not be likened to unsuccessful offerings by BlockFi or Celsius, according to Luxor Technology, a Bitcoin mining firm responsible for creating the product.
In an episode of the What Bitcoin Did podcast on October 17, concerns were raised about Luxor's forthcoming product, including potential worst-case scenarios. Matt Williams, the head of derivatives at Luxor, clarified that their hash rate-backed product differs from those of BlockFi or Celsius because it is backed by real economic production.
Williams explained, "There is actual proof-of-work and demonstrable economic activity happening [here]. The return comes from miners giving up some of the margin that they would produce from their mining business to an investor that is financing their operation."
He emphasized that the primary source of returns is the hash rate, and it has nothing to do with speculative or unsustainable practices like "pixie dust," Ponzi schemes, or rehypothecation.
Luxor's product operates by enabling investors to receive a share of loan repayments in exchange for providing Bitcoin as collateral to Luxor, which in turn loans it to other miners to support their operations. Returns are generated when hash rate is purchased from a Bitcoin miner at a discounted price and then sold at a higher price. This process allows miners to receive funding upfront while retaining ownership of their mined Bitcoin.
It's important to note that Luxor is not using its own mining pool but acting as an intermediary between investors and mining firms. They only hold Bitcoin briefly as they facilitate the transfer of funds between buyers (investors) and sellers (mining firms).
Joe Kelly, CEO of Bitcoin lending firm Unchained, advised caution for those interested in earning returns on their Bitcoin. He emphasized the need for thorough due diligence when parting with control of one's Bitcoin and pointed out the nascent nature of the Bitcoin lending and borrowing markets.
Luxor clarified that their hash rate-backed product is not available to everyone; it's limited to individuals who successfully pass the firm's due diligence checks. Additionally, Luxor acknowledged the inherent concerns associated with this type of product, especially in light of past bankruptcies like those of BlockFi and Celsius. To mitigate risks, Luxor plans to collaborate with reputable miners and may even require them to have insurance.
The specific availability date for Luxor's product was not disclosed.