Perpetual Futures on Bitcoin's Fee Rate

BlockSpace Markets is the first perpetual futures platform for trading Bitcoin's sat/vB fee rate.

The Bitcoin fee market is central to the network's operation. Every transaction on Bitcoin must include a fee, which incentivizes miners to include the transaction in the next block. The fee rate is measured in satoshis per byte (sat/vB), and when network activity is low, transaction fees tend to be minimal. However, when many users are competing to get their transactions confirmed, they start to outbid each other, driving up the fee rate. Essentially, users pay higher fees to ensure their transactions are processed faster, as miners prioritize transactions with higher fees.

Since early 2023, Bitcoin blocks have been consistently full, driven largely by the rise of Ordinals and other metaprotocols. With the introduction of these protocols, there has been a surge in network activity, particularly related to the minting and trading of non-fungible and fungible tokens. Many of these activities have high time-sensitivity: for example, there is a limited number of Ordinals available to mint, creating urgency as users rush to secure these digital assets. Additionally, some of these assets are highly volatile in price, which means trading them can also be a time-critical transaction, as users seek to capitalize on price movements.

This influx of additional and often time-sensitive transactions has resulted in blocks being perpetually full, increasing competition in the fee market. Users are now regularly engaged in bidding wars to get their transactions confirmed quickly, leading to a sudden and substantial increase in the volatility of Bitcoin's fee rate. This dynamic has fundamentally shifted how the fee market operates, as high-urgency transactions now play a more dominant role.

In response to these developments, we are building a perpetual futures exchange that allows traders to speculate on the future fee rate of the Bitcoin network. This platform provides users with the ability to speculate on or hedge against Bitcoin’s fee rate, offering a new way to gain exposure to the Bitcoin fee market. By offering exposure to a key Bitcoin metric - its fee rate - through a popular financial product (perpetual futures), we aim to bring more flexibility and opportunities to the market.