Bitcoin Mining’s Wild Ride: Luxor’s Aaron Foster Spills the Beans! 🚀

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What to know:

  • Luxor Technology provides services like mining pools, hashrate derivatives, and ASIC brokerage to support miners.
  • The company’s Full-Pay-Per-Share (FPPS) mining pools provide revenue certainty to miners by paying them based on shares submitted, regardless of whether they find a block.
  • Luxor’s hashrate futures contracts allow miners to sell their hashrate forward, receiving bitcoin upfront, which aids in financing growth and hedging risks.
  • Aaron Forster is a speaker at CoinDesk’s Consensus festival Mary 14-16 in Toronto.

Luxor Technology, in its infinite wisdom, seeks to simplify the labyrinthine world of bitcoin mining. To this end, the firm has unleashed a veritable arsenal of products—mining pools, hashrate derivatives, data analytics, ASIC brokerage—aimed at aiding miners, both the titans and the humble, in their quest for digital gold.

Aaron Forster, the company’s director of business development, joined in October 2021, and has witnessed the team balloon from a modest 15 to a bustling 85 in the span of three and a half years. A decade in the Canadian energy sector preceded his foray into bitcoin mining, a background that will undoubtedly inform his discourse on the future of mining in Canada and the U.S. at the BTC & Mining Summit at Consensus this year.

In the leadup to the event, Forster shared with CoinDesk his musings on bitcoin miners’ dalliance with artificial intelligence, the burgeoning sophistication of the mining industry, and how Luxor’s products enable miners to hedge various forms of risk.

This interview has been condensed and edited for clarity.

CoinDesk: Mining pools allow miners to combine their computational resources to have higher chances of receiving bitcoin block rewards. Can you explain to us how Luxor’s mining pools work?

Aaron Forster: Mining pools are essentially aggregators that mitigate the variance of solo mining. Solo mining is akin to a lottery—you might hit block rewards tomorrow, or you might hit it a century from now. But you’re still paying for energy during that time. At a small scale, it’s manageable, but as you scale up and create a business around it, it becomes untenable.

The most common kind of mining pool is PPLNS, which means Pay-Per-Last-N-Shares. Essentially, the miner does not get paid unless the mining pool hits the block. This introduces revenue volatility for large industrial miners. Hence, the emergence of Full-Pay-Per-Share, or FPPS, which Luxor operates for our bitcoin pool. With FPPS, regardless of whether we find a block or not, we’re still paying our miners their revenue based on the number of shares they’ve submitted to the pool. This provides revenue certainty to miners, assuming hashprice remains stable. We’ve effectively become an insurance provider.

The catch is that you need a robust balance sheet to support this model, as the risk is now on us. We plan for this, and we have partners to share the risk, ensuring we don’t bear the full brunt from our balance sheet.

Tell me about your ASIC brokerage business.

We’ve become one of the leading hardware suppliers on the secondary market, primarily within North America, but we’ve shipped to 35+ countries. We deal with everyone from public companies to private companies, institutions to retail.

We’re primarily a broker, matching buyers and sellers, mostly on the secondary market. Occasionally, we interact with ASIC manufacturers, and in certain cases, we take principal positions, using our balance sheet to purchase ASICs and then resell them on the secondary market. But the majority of our volume comes from matching buyers and sellers.

Luxor also launched the first hashrate futures contracts.

We’re trying to push the Bitcoin mining space forward. We’re a hashrate marketplace, depending on how you look at our mining pools, and we wanted to take a big leap and take hashrate to the TradFi world.

We wanted to create a tool that allows investors to take a position on hashprice without effectively owning mining equipment. Hashprice is the hourly or daily revenue that miners get, and it fluctuates significantly. For some, it’s about hedging; for others, it’s speculation. We’re creating a tool for miners to sell their hashrate forward and use it as collateral or a way to finance growth.

We said, ‘Let’s allow miners to sell forward hashrate, receive bitcoin upfront, and then they can take that and do whatever they need to do with it, whether it’s purchase ASICs or expand their mining operations.’ It’s essentially the collateralization of hashrate. They’re obligated to send us X amount of hashrate per month for the length of the contract, and before that, they’ll receive a certain amount of bitcoin upfront.

There’s a market imbalance between buyers and sellers. We have a lot of buyers—people and institutions wanting to earn yield on their bitcoin. What you’re lending your bitcoin at is effectively your interest rate. However, you could also look at it like you’re purchasing that hashrate at a discount. This is crucial for institutions or individuals who don’t want physical exposure to bitcoin mining but want exposure to hash price or hashrate. They can do that synthetically through purchasing bitcoin and putting it into our market, effectively lending that out, earning a yield, and purchasing that hashrate at a discount.

What do you find most exciting about bitcoin mining at the moment?

The acceptance and natural progression of our industry into other markets. We can’t ignore the AI HPC transition. Instead of building mega mines that are just massive buildings with power-dense bitcoin mining operations, you’re starting to see large miners turning into power infrastructure providers for artificial intelligence.

Using bitcoin mining as a stepping stone to a larger, more capital-intensive industry like AI is exciting to me because it gives us more acceptance, as we’re approaching it from a different angle. The Core Scientific / CoreWeave deal structure is a prime example, merging those two businesses together. They’re complementary to each other, and that’s really exciting.

When you look at our own product roadmap, we have no choice but to follow a similar roadmap to bitcoin miners. Many of the products we built for the mining industry are analogous to what is needed at a different level for AI. Mind you, it’s a lot simpler in our industry than in AI. We’re our first step into the HPC space, and it’s still very early days there.

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2025-04-12 22:58