Bitcoin Mining Confronts Fresh Obstacles as Energy Expenses Diminish Profits

Hello and welcome to The Protocol, CoinDesk’s weekly roundup of the key developments in cryptocurrency technology. I’m Margaux Nijkerk, a reporter for CoinDesk.

In this edition:

• Bitcoin Mining Confronts ‘Extremely Challenging’ Market as Energy Becomes the True Currency
• Bitcoin Liquid Staking Accelerates as Lombard Launches BARD Token and Foundation
• Optimism Collaborates with Flashbots to Enhance OP Stack Sequencing
• Hemi Labs Secures $15M to Boost Bitcoin Programmability

Network Updates

BITCOIN MINING FACES TOUGH MARKET CONDITIONS: Bitcoin miners have traditionally been impacted by the boom-and-bust cycle of the four-year halving. However, industry leaders at the SALT conference in Jackson Hole recently expressed that the landscape has shifted. Increased demand for energy, the emergence of exchange-traded funds, and the potential for artificial intelligence to alter infrastructure needs require miners to adapt or risk obsolescence. “We previously discussed hash rate,” noted Matt Schultz, CEO of Cleanspark. “Now, the focus is on monetizing megawatts.” For years, mining companies relied heavily on bitcoin production for revenue, and the halving cycle dictated their survival. However, industry experts argue that this cycle no longer defines the business landscape. “With bitcoin evolving as a strategic asset, alongside ETFs and treasury strategies, the four-year cycle is effectively disrupted,” Schultz commented. “Strong adoption is driving increasing demand. Recent ETF activities have consumed significantly more bitcoin than has been mined this year.” Cleanspark, now managing 800 megawatts of energy infrastructure and developing an additional 1.2 gigawatts, is exploring avenues beyond proof-of-work mining. “Our rapid energy deployment has opened doors to monetize power beyond just bitcoin mining,” he stated. “With 33 facilities, we have unprecedented flexibility.” Schultz’s views reflect a broader industry transition. Patrick Fleury, CFO of Terawulf, underscored this sentiment and highlighted the challenges miners are grappling with. “Bitcoin mining is an exceptionally tough business,” he commented. He simplified the economics: at five cents per kilowatt hour, it costs approximately $60,000 to mine a single bitcoin. With the bitcoin price at $115,000, nearly half of the revenue is swallowed up by electricity costs. When factoring in corporate and operational expenses, profit margins are significantly narrowed. He believes that securing ultra-low-cost power is critical for mining profitability. — Helene Braun Read more.

BITCOIN LIQUID STAKING ON THE RISE: Historically, bitcoin has been regarded as digital gold: an asset to hold rather than utilize. This static approach has resulted in trillions of dollars’ worth of BTC remaining dormant in wallets, untapped by the yield opportunities and composability inherent to decentralized finance (DeFi). The introduction of liquid staking tokens aims to shift this narrative, enabling bitcoin to function not only as a value store but also as an active asset within on-chain financial markets. Liquid staking allows users to lock their crypto to secure a network, receiving a tradable token in exchange that reflects the staked assets and can be effectively utilized across DeFi while the original tokens accrue staking rewards. Lombard Finance stands out as a leader in bitcoin liquid staking. Its flagship token, LBTC, is a yield-bearing asset backed 1:1 by BTC. When BTC is placed into the Lombard protocol, the corresponding coins are staked, primarily through Babylon, a protocol facilitating trustless, self-custodial bitcoin staking. Users receive LBTC, which can be deployed across various DeFi platforms while the original bitcoin generates staking rewards. This dual utility is crucial, allowing holders to maintain exposure to bitcoin while utilizing LBTC for lending, borrowing, and liquidity across platforms such as Aave, Morpho, Pendle, and Ether.fi. Designed for interoperability, LBTC can traverse Ethereum, Base, BNB Chain, and other networks, mitigating liquidity fragmentation and enabling bitcoin’s engagement in a multi-chain DeFi landscape. — Jamie Crawley Read more.

OPTIMISM PARTNERS WITH FLASHBOTS: Optimism is collaborating with Flashbots to revamp transaction processing across its OP Stack ecosystem, with the ambition of accelerating some of Ethereum’s leading layer-2 platforms, enhancing both speed and customization. This partnership focuses on sequencing—the underlying process that dictates how quickly transactions are confirmed, which transactions are prioritized, and the fees users ultimately incur. Optimism claims that Flashbots’ infrastructure, responsible for building over 90% of Ethereum’s blocks, will soon facilitate near-instant confirmations and user-friendly transaction prioritization across all chains in the so-called Superchain. This development is significant as the OP Stack supports over 60% of all Ethereum layer-2 activity, according to the Optimism team, including widely-recognized layer-2 solutions such as Base, Unichain, World Chain, Ink, and Soneium. Until now, advanced sequencing options like ultra-fast settlement, frontrunning protection, and customized compliance were exclusive to larger chains with the capacity to implement them internally. With Flashbots joining the initiative, these features will be accessible through tools for any project leveraging Optimism’s OP stack. — Margaux Nijkerk Read more.

HEMI LABS RAISES $15 MILLION: Hemi Labs, a Bitcoin programmability infrastructure founded by Jeff Garzik, has secured $15 million in funding to expedite development and broaden its ecosystem. The investment round saw participation from YZi Labs (previously Binance Labs), Republic Digital, HyperChain Capital, Breyer Capital, Big Brain Holdings, Crypto.com, and others, as detailed in a recent announcement. The funds are earmarked to enhance applications for borrowing, lending, and trading on Bitcoin, while also advancing its Hemi Virtual Machine (hVM)—a layer integrating a Bitcoin node within an Ethereum VM, the decentralized system facilitating smart contracts and transaction processing on Ethereum. — Jamie Crawley Read more.

In Other Developments

• Aave Labs launched Horizon, a new platform tailored for institutional borrowers to access stablecoins using tokenized real-world assets (RWAs) such as U.S. Treasuries as collateral. At its inception, institutions can borrow Circle’s USDC, Ripple’s RLUSD, and Aave’s GHO against a suite of tokenized assets, including Superstate’s short-duration U.S. Treasury and crypto carry funds, Circle’s yield fund, and Centrifuge’s tokenized Janus Henderson offerings. The platform aims to provide qualified investors with short-term financing opportunities for their RWA holdings while enabling yield strategies. — Kristzian Sandor Read more.
• Google Cloud is advancing plans to establish its own layer-1 blockchain, which aims to serve as neutral infrastructure for global finance amidst growing competition from fintech enterprises developing their own distributed ledgers. In a LinkedIn post released Tuesday, Rich Widmann, head of Web3 strategy at Google, provided updates on the project, termed the Google Cloud Universal Ledger (GCUL). He described it as a credibly neutral, high-performance blockchain designed for institutional use, supporting Python-based smart contracts to enhance accessibility for developers and financial engineers. “Every financial institution can leverage GCUL,” Widmann stated, emphasizing that Google’s neutral foundation eliminates barriers that might deter firms like Tether from adopting Circle’s blockchain or payment companies like Adyen from utilizing Stripe’s solution. — Siamak Masnavi Read more.

Policy and Regulations

• The crypto sector’s Washington lobbyists are pushing back against a market structure bill currently moving through the U.S. Senate, insisting they cannot support legislation that wouldn’t offer full protection to software developers from liability in cases of technology misuse by bad actors. The industry conveyed its position to the Senate’s Banking and Agriculture committees “in unison,” with a letter endorsed by Coinbase, Kraken, Ripple, a16z, Uniswap Labs, and over a hundred additional crypto firms and associations, encapsulating nearly all major U.S. lobbying organizations. This collective effort precedes the Senate’s upcoming session, likely reigniting negotiations surrounding legislation viewed as the industry’s primary U.S. objective. — Jesse Hamilton Read More.
• Next week, the U.S. Commodity Futures Trading Commission will have just one commissioner remaining with Democrat Kristin Johnson’s resignation, leaving only Brian Quintenz—the nominee for chairman from President Donald Trump—awaiting confirmation. With Johnson’s departure set for Sept. 3, the five-member commission will effectively dwindle to one. In her farewell statement, she highlighted the importance of maintaining foundational resilience that upholds financial stability and supports the broader economy while advancing an agenda focused on growth. — Jesse Hamilton Read more.

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