Time-Weighted Mining Difficulty Indices for Swap Settlement Risk

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Solution Overview

Problem

Existing systems for transacting swaps and futures based on cryptocurrency mining indices suffer from high tracking errors and require frequent rebalancing due to unpredictable adjustments in mining difficulty, leading to increased counterparty settlement risk.

Innovation Solution

Implementing time-weighted index averages to calculate and settle swaps and futures, using a time-weighted index average (Dwa) of multiple instances of mining difficulty over varying time periods, reducing tracking errors to less than 0.1% and eliminating the need for rebalancing.

Engineering Contradictions & Design Principles

VSEngineering Contradiction Analysis

1Measurement precision

If traditional spot-price indices are used for swaps and futures, then the system is simple to operate, but tracking errors are high and frequent rebalancing is required

Engineering Contradiction:

Improveindex tracking precisionVSAvoidsettlement system complexity

Core Design Contradiction:

Measurement precisionVSDevice complexity

Solution Approach 1:

The patent implements a dynamic index calculation system that continuously updates the index value based on new block data from the blockchain. The index transitions from static spot-price snapshots to a dynamic time-weighted average that automatically adapts as new blocks are mined, eliminating the need for manual rebalancing while maintaining precise tracking.

Inventive Principle:

Principle #15Dynamics

Solution Approach 2:

The patent introduces a time-weighted index average as an intermediary between the volatile spot price and the swap settlement. This intermediary smooths out price fluctuations by averaging multiple spot prices over time, reducing tracking errors without requiring complex rebalancing operations.

Inventive Principle:

Principle #24Intermediary (Mediator)

2Reliability

If spot-price indices with unpredictable difficulty adjustments are used, then the system is easy to implement, but counterparty settlement risk increases due to high tracking errors

Engineering Contradiction:

Improvesettlement reliabilityVSAvoidsystem implementation ease

Core Design Contradiction:

ReliabilityVSEase of manufacture

Solution Approach 1:

The patent calculates the time-weighted index average in advance based on historical block data before settlements occur. This preliminary calculation establishes a stable reference value that both counterparties can rely on, eliminating settlement risk caused by last-minute difficulty adjustments while maintaining implementation simplicity.

Inventive Principle:

Principle #10Preliminary action

Solution Approach 2:

The patent changes the parameter used for index calculation from simple spot-price to time-weighted index average. This parameter transformation fundamentally alters the index behavior, making it resistant to volatility and difficulty adjustments, thereby improving settlement reliability without complicating implementation.

Inventive Principle:

Principle #35Parameter changes

3Measurement precision

If frequent rebalancing is performed to maintain index tracking, then tracking precision is improved, but operational complexity and counterparty risk increase

Engineering Contradiction:

Improveindex tracking precisionVSAvoidrebalancing operation ease

Core Design Contradiction:

Measurement precisionVSEase of operation

Solution Approach 1:

The patent implements a self-updating index system where the time-weighted average automatically incorporates new block data as it becomes available. The system serves itself by continuously recalculating the index without external intervention or manual rebalancing, maintaining precision while simplifying operations.

Inventive Principle:

Principle #25Self-service

Solution Approach 2:

The patent establishes continuous index calculation that operates uninterrupted as new blocks are mined. Instead of periodic rebalancing, the useful action of index updating continues seamlessly, maintaining tracking precision without operational interruptions or increased complexity.

Inventive Principle:

Principle #20Continuity of useful action

4Reliability

If miners must post additional margin due to settlement risk, then counterparty risk is reduced, but capital efficiency decreases

Engineering Contradiction:

Improvecounterparty risk reductionVSAvoidcapital efficiency

Core Design Contradiction:

ReliabilityVSProductivity

Solution Approach 1:

The patent converts the inherent volatility of cryptocurrency prices, which traditionally creates settlement risk, into a benefit through the time-weighted index average. The same price movements that cause volatility are smoothed over time, reducing risk while eliminating the need for additional margin requirements, thereby maintaining capital efficiency.

Inventive Principle:

Principle #22Blessing in disguise (Convert harm into benefit)

Data Source

PatentUS20250299167A1Systems And Methods For Decreasing Counterparty Settlement Risk

Publication Date: 2025.09.25 MARA HOLDINGS INC

AI summary

Apparatus, systems and methods improve efficiency in transacting a swap or other futures based financial instrument, by using time-weighted index averages to decrease counterparty settlement risk. In preferred embodiments related to Bitcoin and several other cryptocurrencies, the swaps are based upon a time-weighted index average (Dwa) of multiple instances of difficulty (Dx to Dy) of mining the cryptocurrency over multiple time periods (Px to Py) where both Ds and Ps are available from the decentralized public blockchain. Traders can use these time-weighted index averages in conjunction with the anticipated values of Ds and Ps for the remainder of the duration of the index, to calculate the index value at any given time.