Corn Farmers Hedge Their Crops With Futures. This Solana DEX Wants Vaildators to Follow Suit

Cypher, which launched a new service Wednesday, thinks the futures markets can help validators hedge their risks.

AccessTimeIconAug 10, 2022 at 9:34 p.m. UTC
Updated Aug 10, 2022 at 10:11 p.m. UTC

Danny is CoinDesk's deputy business editor. He owns BTC, ETH and SOL.

SALT LAKE CITY –– It’s second nature for corn farmers to hedge their crop yield with futures contracts. A decentralized finance (DeFi) trading protocol wants crypto validators on the Solana blockchain to follow that risk-averse playbook for their token rewards.

Decentralized finance derivatives trading app Cypher is preparing to offer a specialty hedging service to Solana’s validators, the server-runners who lend their compute power to keep the network chugging. In exchange for that work they get SOL tokens – a yield whose market is a whole lot more volatile than corn.

Hedging against token volatility is nothing new to crypto’s compute class. Big bitcoin miners keep their cash flow predictable using derivatives that shield them from the changing price of BTC. Even so, the practice hasn’t yet caught on in Solanaland, two industry participants told CoinDesk.

Cypher seeks to change that with a new futures product planned for later this quarter. Called a “validator vault,” it will help validators lock in the price of SOL they expect to receive at the end of every Solana “epoch,” about two days. Core contributors Barrett and Alex discussed the plans with CoinDesk at the mtnDAO hacker house here, which Cypher is hosting.

“We want to offer validators the same hedging opportunities” corn farmers use in the traditional commodities market, said Alex, who hails from corn country, USA. “We have identified that there are a lot of crypto specific commodities – such as validator rewards” that Cypher thinks is ripe for the picking.

Whether validators will jump at the opportunity is not yet clear. Two prominent Solana validators told CoinDesk that they could simply buy put options to hedge against their volatile token rewards – even so, neither have.

“I don't see a need to hedge token rewards for my validator,” Brian Long, a Solana validator and co-founder of crypto infrastructure company Triton One, said. He pointed out that the fees associated with hedging could eat away at cash flow.

Still, Barrett, the Cypher contributor, told CoinDesk that Cypher’s monthly expiration markets could have more appeal versus other on-chain options, which he said have shorter time frames. He also said that the futures route is more streamlined and therefore more liquid than options markets.

The pseudonymous Laine_sa, a vocal Solana validator, said one pain point for validators gaming out future SOL rewards is the changing size of their stake. Token holders can “stake” their assets with larger operators to earn rewards – but they can also de-stake and reduce the pool from which their chosen validator can earn tokens.

“We get payouts every three days, and who knows how much stake you'll have a month from now,” Laine_sa said in a Discord message.

The planned product comes as Cypher beefs up its existing derivatives decentralized exchange with a streamlined trading backend and new tools for pro traders.


Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.

CoinDesk - Unknown

Danny is CoinDesk's deputy business editor. He owns BTC, ETH and SOL.

CoinDesk - Unknown

Danny is CoinDesk's deputy business editor. He owns BTC, ETH and SOL.

Investing in the Future of the Digital Economy
October 18-19 | Spring Studio, NYC