Walk through example of real world use case as a reality check for Index and Contract design

[CarboClanC]

There are 3 possible roles in the ecosystem:

1. Contract Spec designer who sets the Cap & Floor (currently controlled by Market Protocol);
2. Issuer (Minter) who puts up collateral and mint position token pairs, to earn spread;
3. Traders of different views can buy and trade the long or short positions from market, to hedge or speculate.
   The three roles can overlap, Contract Specs designer can also be an issuer who mint tokens; issuers of tokens can also be holding positions.

Based on BTC difficulty data for past 2 years:

• Avg % chg in difficulty: +4.7%,
• Avg % chg in Index: -4.0%

Based on BTC difficulty data since 2019:

• Avg % chg in difficulty: +3.3%
• Avg % chg in Index: -3.0%
• Current Index Level: 444 BTC
• Latest Chg in Index: -31.5 BTC (-6.6%)
• Biggest drop in Index: -62.8 BTC (-9.1%); biggest peak in Index: +7.1% (+1.2%)

1. How would one design the contract specs (Cap & Floor) based on volatility? If priced too wide/narrow would it cause failure of issuance (not enough tokens issued) because collateral too costly to attract minters?

2. How would an issuer (minter) calculate his/her potential payoff from issuing the token? What should be the spread he/she charges?

3. An actual miner with 2,000 S9 mining rigs (around 30,000 T/s total) decide to fully hedge his/her difficulty exposure, how much tokens does he/she needs to buy from the market?
   BTC_Difficulty&Index_20190707.xlsx