❓FAQ
Getting Started
What is Alkimiya Protocol?
Alkimiya is a blockspace markets protocol designed to facilitate the creation, trading, and settlement of synthetic blockspace resources such as Bitcoin transaction feerates via a peer-to-peer system of smart contracts.
Users can Buy or Sell BTC transaction fees by interacting with Alkimiya Pools, which are periods during which users can enter, trade, or close their positions.
What problems does Alkimiya Protocol aim to solve?
Public blockchains have finite capacity for blockspace resources, and therefore all on-chain actions compete for inclusions and orderings with transaction fees. The supply of blockspace is inelastic, and the demand is driven by exogenous factors. While scaling solutions can reduce the amount of full-node resources consumed, pricing the right to access them real-time is a fundamentally market-based challenge at global scale.
Why does Alkimiya focus on transaction fees specifically?
As activities grow, the volatility of resource pricing hinders the growth of organizations that frequently settle on-chain, and leaks negative externalities that affect regular users. Previously, users and service providers had no protection against such wild fee swings, merely paying these fees as they processed transactions. Trading network transaction fees allows users to gain exposure to the holistic activities on the blockchain without engaging with secondary assets.
Who can benefit from trading on the Alkimiya Protocol?
Miners: Can lock in future revenue streams by selling BTC transaction fees.
Service Providers: Wallets, exchanges, market-makers, bridges, and Layer 2 operators can hedge against fee volatility by buying BTC transaction fees.
Ordinals/BRC-20/Runes Collectors: Can offset high mint fees by buying BTC transaction fees.
On-Chain Events Traders: Can capture the impacts of on-chain trends.
How do I get started with trading on the Alkimiya Protocol?
Connect wallet: Connect your wallet to the Alkimiya platform.
Buy/Sell: Choose to Buy or Sell BTC feerates based on your market outlook.
Submit payment: Pay the required upfront payment to enter your chosen position.
Trade: Trade your position-representing NFTs freely until the pool ends.
Settle: At the end of the pool’s period, claim the underlying wBTC.
Key Concepts
What are the core components of the Alkimiya Protocol?
Alkimiya Pools: Sets of Buy or Sell positions within a specific pool period.
BTC Tx Fees Index: A benchmark index tracking the median Sat/vB per block.
What are Alkimiya Pools?
An Alkimiya Pool is the collection of all long and short positions within a defined period (e.g., Jun 1 – Jun 15). Users can enter, trade, or close positions anytime during the pool's period. The pool tracks the expanding average of the index from the start to the settlement date, determining the final payout based on the average of the median Sat/vB per block during the pool's periods.
How are a user’s positions in a pool represented?
Users receive NFTs representing their Buy or Sell positions in the pool. These NFTs can be freely traded, and upon settlement, they must be burned to claim the payout. All positions in the same pool are fungible regardless of their entry prices.
How does the Alkimiya Pool settlement work?
Upon settlement, the payout is calculated based on the average of the median Sat/vB per block across all blocks during the pool’s period. Users can claim their rewards with the NFTs representing their positions in the pool.
What is the BTC Tx Fees Index?
The BTC Tx Fees Index is a benchmark that tracks the median Sat/vB per block. It is derived by taking the satoshi per virtual byte of all transactions within a block and finding the median. Alkimiya uses Bitcoin Core RPC methods getblock and getrawtransaction to calculate the median feerate per block.
What are the Cap and Floor of a pool?
Cap: Cap is a predetermined upper bound on the Pool’s payout. The cap is required to limit the downside of the Sell positions. The cap’s value is set before the Pool starts, based on recent historical data. The cap is designed to be sufficiently high.
Floor: Conversely, a Floor is a predetermined lower bound on the Pool’s payout. The floor is required to limit the downside of the Buy positions. The floor’s value is set before the Pool starts, based on recent historical data. The cap is designed to be sufficiently low.
How is the cap and floor set?
The cap and floor will be set prior to the start of the pools and are fixed throughout the pool’s period. They are based on the most recent 3-day moving average of the index. For example, there are two pools from June 1 -15. The 3-day MA as of May 31st was X.
Pool One has cap = 2X / floor = 0
Pool Two has cap = 4X / floor = 2X
Trading Mechanics
How do I buy or sell BTC fees?
For detailed step-by-step guide, please see Trading Tutorial.
How is the initial payment of Buy orders calculated?
Upon entering into a Buy trade, the user pays (Price - floor) * Size
How is the initial payment of Sell orders calculated?
Upon entering into a Buy trade, the user pays (cap - Price) * Size
How is the final payout calculated for Buy trades?
Upon settlement, the Buyer can claim max(min(cap, payout) - floor, 0) * Size
where, payout = avg. (median(block_0_(Sat/vB)), median(block_1_(Sat/vB)), median(block_2_(Sat/vB)),..., median(block_N_(Sat/vB)))
How is the final payout calculated for Sell trades?
Upon settlement, the Seller can claim max(0, (cap - max(payout, floor))) * Size
where, payout = avg. (median(block_0_(Sat/vB)), median(block_1_(Sat/vB)), median(block_2_(Sat/vB)),..., median(block_N_(Sat/vB)))
Advanced Topics
Why is the median used instead of the average?
The consideration is to remove the outliers in a block. With the increasing amount of high-value transactions on BTC, the incentives to snipe partially-signed UTXOs are higher.
Is the index number the real average of the median value of every block during the day or is it sampled?
The index includes all the blocks except for empty blocks during the period, there’s no sampling.
What kind of blocks are excluded from the index?
For blocks with 1 transaction and 0 fees, we exclude it along with any other coinbase blocks.
Mining pools frequently mine empty blocks to keep up with the block template broadcasting latency. For purpose of transaction fees hedging/trading, this behavior is irrelevant for anyone other than pool operators. Hence we exclude these blocks from the index.
If a block has more than 1 transaction with 0 fees, we treat it as a normal block. We analyzed historical data from the past two years, max(0-fees transactions per block) = 6. Given that most blocks have thousands of transactions, the impact of 0-fees transactions on the median of the block is de minimis.
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