🔎Protocol Overview

Key Concepts

BTC Tx Fees Index: The BTC Tx Fees Index is the underlying protocol benchmark. The index tracks the median BTC/kB per block, by taking the Sat/vB of all txs within a block, finding the median, and converting to BTC/kB (by dividing by 10^5). The index is constructed by collecting and organizing data from Bitcoin network nodes, primarily through the use of the getBlockStats() RPC endpoint.

Silica Pool: A Silica Pool is the set of all long and short positions within the same period (e.g. April 1 - April 30). Users can enter, trade, or close their positions anytime during the Pool’s period. The Pool tracks the rolling average of the index since the start (e.g. April 1). Upon settlement (e.g. April 30), the final payout is based on the average of the median BTC/kB per block across all blocks during the Pool’s period.

Orders: Orders allow users to enter into long or short positions at specific prices. Users can create limit orders indicating their breakeven price (in BTC/kB) and order size (in kB). If other users find this order favorable, they can fill it to take on the opposite side. Users can also fill outstanding orders instead of creating their own orders.

Cap: Cap is a predetermined upper bound on the Pool’s payout. The cap is required to limit the downside of the short positions. The cap’s value is set before the Pool starts, based on recent historical data. The cap is designed to be sufficiently high, such that the probability of the final payout (average of index across the Pool’s period) exceeding the cap is ≤ 1%.

Core Functions

Long: Users who expect the average network transaction fees to increase over the Pool’s period.

• To enter into a long position, the user has to submit an upfront payment:

Payment = breakevenPrice * size​

• The user will receive a number of NFTs that represent their long positions in the Pool. The user can then freely trade these NFTs. All long positions in the same Pool are fungible regardless of their breakeven price.

• Upon settlement, the user burns the NFTs to claim their payout:

Payout = max(cap, avg(index in Pool’s Period)) * size

​Short: Users who expect the average network transaction fees to decrease over the Pool’s period.

• To enter into a short position, the user has to submit an upfront

Payment = (cap - breakevenPrice) * size

• The user will receive a number of NFTs that represent their short positions in the Pool. The user can then freely trade these NFTs. All short positions in the same Pool are fungible regardless of their breakeven price.

• Upon settlement, the user burns the NFTs to claim their payout:

Payout = max(0, (cap - avg(index in Pool’s Period))) * size

Risks and considerations

• Market Volatility: Changes in the chosen index can affect the contract outcome.

• Smart contract Risk: The smart contracts may contain bugs or vulnerabilities that can be exploited by malicious actors or cause unintended consequences