We integrate directly with mining pools in order to efficiently deliver rewards to eligible parties. We expect, and continuously monitor, that miners have allocated the expected hashrate required to make all payments to the protocol. However, a number of factors can lead to over- or underperformance, including:
Power or network outages
Network difficulty development deviating from expectations
Data center infrastructure or mining hardware degradation/ failure
For streaming-based payments, the amount of Bitcoin owed for a given time period depends on the global hashrate and difficulty during that period. It can therefore only be determined ex-post. The Redemption Service performs these calculations and pays exactly the owed amount to LPs.
To account for this, we use a system of adjustment payments. If a Bitcoin miner under-delivers against their obligation, then their on-chain collateral will be partly liquidated to settle the difference. The Bitcoin miner must then restore the collateral vault to match the LTV of the remaining loan. If they fail to do so, an off-chain collateral seizure process will be initiated.
If a Bitcoin miner has over-delivered, the excess rewards will not be distributed to LPs. They will be held in the Collateral Vault, and used to cover some of the miner’s future obligations. Excess funds in the Collateral Vault after loan expiration are returned to the miner.