Hedging hashrate reduces Bitcoin mining pool block reward variance.
This chart shows the expected earnings of a pool if they bet against themselves every block for one difficulty epoch.
By hedging hashrate every block, pools reduce 2 standard deviations of risk to less than 1.
This chart shows the variance reduction if the pool has 3% of global hashrate (the pool in the first chart has 5% of global hashrate).
The reduction in expected value reflects the value of the insurance that the miners purchase by hedging.
If the pool has 15% of global hashrate then hedging is still a good idea.
By hedging miners and pools can eliminate payout swings due to pure randomness.
Making money most of the time reduces the risk of not making money sometimes!
