ComputeOptions
Every mined block already contains an option. The protocol forces it to be exercised immediately and its time value is destroyed. Liquid Mining Tokens make it tradable instead.
Every block already contains one.
A miner who finds a block does not simply receive a reward. They choose which reward to receive — QUAI, the monetary token, or Qi, the energy token. That choice is an option.
max(QUAI, Qi)
At the moment a block is found the miner elects which token to mint. The payoff of that choice is the greater of the two values. That is not a metaphor for an option — it is the payoff function of an exchange option, exactly.
No waiting, no selling
The election is fixed at block time. The miner cannot wait, cannot sell the right, cannot let it run. They are compelled to exercise immediately, at intrinsic value.
Time value destroyed
Time value is the entire reason options are worth more than their immediate payoff. Forced exercise burns all of it, at every miner, every block. That destroyed value is the raw material for everything below.
It looks like a call
- Hold Qi and you hold the right to acquire QUAI
- Energy is the unit you count in, so payoff rises as QUAI grows expensive in energy terms
- Any desk would book this as a call
It looks like a put
- Flip the unit and count in QUAI instead
- The identical contract now pays off as Qi gets cheaper — only the denominator changed
- Any desk would book this as a put
This is the identity behind the block election, and it is standard in currency markets — a dollar call is a yen put, the same ticket sold twice. The practical consequence: you cannot build a straddle by holding both tokens. Holding QUAI and Qi is holding two underlyings. Two contracts are needed, and someone has to write them.
Defer the reward, tokenize the claim.
Instead of taking the reward at once, a miner defers it and accepts a fixed yield. That deferred claim is tokenized and trades freely.
A zero-coupon bond, not an option
Because the election is fixed at block time, a deferred reward is a claim on a known quantity of a known token at a known date. There is no choice left inside it.
That is a feature. Deferred Qi claims form one curve and deferred QUAI claims form another. Qi is minted against difficulty-adjusted work, so the Qi curve is a real rate — the price of energy through time. The QUAI curve is nominal. The gap between them is a breakeven: the market estimate of how fast monetary premium is growing against physical work.
A falling breakeven is the earliest available warning that premium is decaying relative to energy. It is a measurement rather than an assertion, and it exists as soon as both curves trade.
The ladder is inverted at the front
Rolling the three-month four times compounds to 46.4% against 25% for locking twelve months, so under a static schedule the long tenor never prints. Either accretion becomes controller-set, or long tenors carry something the short ones do not. That is live, not settled.
Where the option comes back.
A convertible LMT is a deferred Qi claim the holder may convert into QUAI at a fixed ratio at maturity — or the mirror image, deferred QUAI convertible into Qi.
The miner sells it
The miner accepts a lower accretion rate in exchange for granting the conversion right. They are selling time value they were going to destroy anyway. Nothing is manufactured — an existing right is made assignable.
Floor plus option
A convertible decomposes cleanly into a bond floor and an exchange option. Strip the floor and the option stands alone: energy-denominated downside on one side, the pure conversion right on the other.
An observable volatility
Every convertible that trades reveals what the market pays for the conversion right — an implied volatility on the pair, a number the protocol has no closed form for and currently cannot measure.
Two writers, one position.
One convertible gives you half the shape. Buy the Qi-side convertible and the QUAI-side convertible together, strip both floors, and size them to the same notional — and the straddle exists, because two separate counterparties wrote the two halves.
Convertible Qi — call on the ratio
- The right to take QUAI, so it pays as QUAI grows expensive in energy terms
- Held alone it is a directional bet that monetary premium expands against physical work
Convertible QUAI — put on the ratio
- The right to take Qi, so it pays as QUAI falls against energy
- Held alone it is a bet on premium decay, and the leg a miner with fixed power costs actually wants
Convexity cannot be created, only relocated
A price floor a protocol simply promises is, in options terms, a written put with no collateral behind it. That is precisely the structure that spirals: the guarantee is backed by the same system whose failure would trigger it.
A convertible LMT is different in kind. The conversion right is written by a specific miner, against a specific deferred reward that already exists, in exchange for a specific reduction in yield. It is funded and contractual. Nobody is short an option they have not been paid for.
Once both convertibles trade, the spread between them is a live price of volatility on QUAI against Qi. Floor belief stops being an argument and becomes a quote.