Luxor refutes claims that its Bitcoin hashrate-powered product is BlockFi, Celsius 2.0

An upcoming Bitcoin (BTC) hashrate-backed product that could offer a 10% to 13% return should not be compared to failed products from BlockFi or Celsius because its returns come from proof-of-work and not “Ponzi systems,” claims the product’s inventor is the Bitcoin mining company Luxor Technology.

The legitimacy of Luxor’s hashrate-backed product was highlighted in an October 17 “What Bitcoin Did” podcast. Host Peter McCormack expressed his concerns about Luxor’s upcoming offering and discussed what a worst-case scenario for Luxor’s product would look like.

Matt Williams, head of derivatives at Luxor, told Cointelegraph that its hashrate-backed product is not a repeat of BlockFi or Celsius’ products as it is backed by economic production.

“There is actual proof of work and demonstrable economic activity [here]said Williams. “The return comes from miners handing over a portion of the margin they would earn from their mining business to an investor who finances their operations.”

“The most important takeaway: Return comes from hashrate, not fairy dust, Ponzi schemes or rehypothecation.”

Luxor’s product works by investors receiving a cut of loan repayments by depositing Bitcoin as collateral with Luxor – which then lends it out to other miners to fund their operations.

Yield occurs when Hashrate is purchased at a discounted price from a Bitcoin miner and then “locked” when sold at a higher price. Bitcoin in the form of mining rewards comes from this hash rate. Luxor estimates investor returns will be between 10% and 13%.

The process will be managed through Luxor’s upcoming hashrate marketplace.

Williams claimed the offering meant miners would have “better” access to capital because they would not have to sell their mined BTC to fund their operations.

“For miners, this may be a more commercially viable option as they can obtain upfront funding while retaining ownership of their mined Bitcoin,” he added.

Luxor emphasized that it does not use its own mining pool and only acts as an intermediary between investors and mining companies. “We only hold Bitcoin for a very short period of time as we move funds from buyer (investor) to seller (miner),” Williams said.

We understand your concerns about re-purchase, but to be clear, there is NO re-purchase with this product. Yield comes from mining rewards as stated in the podcast.

We look forward to speaking to you on this topic to answer your questions and…

— Luxor Technology ⛏️ (@LuxorTechnology) October 27, 2023

But those interested in making a return on their Bitcoin should be careful, says Joe Kelly, CEO of Bitcoin lending company Unchained.

Related: El Salvador launches first Bitcoin mining pool as Volcano Energy partners with Luxor

“Any investment or loan that requires a Bitcoin holder to give up control of their Bitcoin should be subject to the utmost care and scrutiny,” he said.

“The Bitcoin lending and borrowing markets are still nascent and we are likely to see a repeat of the failures that happened with BlockFi and Celsius unless investors exercise extreme caution overall.”

Williams emphasized that the hashrate-powered product is not available to everyone, but only to those who pass the company’s due diligence checks.

TLDR: @LuxorTechnology intends to take customer Bitcoin and lend it to established mining companies looking for funding.

Luxor conducts “due diligence” on the loan recipient and the donor immediately receives #Bitcoin at a predetermined interest rate (i.e. 10-13%).

— The ₿itcoin Therapist (@TheBTCTherapist) October 27, 2023

Williams acknowledged that Luxor’s hashrate-backed product rightly comes with “inherent fears” given the BlockFi and Celsius bankruptcies, noting that investors are taking on counterparty risk with Luxor.

To mitigate these risks, Luxor will only work with “reputable miners” and may even require them to take out insurance.

Luxor did not say when the product will be available.

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