Babbitt Observation丨Being both a miner and a farmer, BTC computing power "tokenization" opens up a new way to play DeFi

In the past two days, there are two new projects that are very special. They try to tokenize Bitcoin computing power. Holding project tokens is equivalent to holding a certain amount of Bitcoin mining computing power, which can obtain daily Bitcoin output. At the same time, if you don’t want it anymore, you can just sell the project tokens.

This is very similar to putting real-world assets on the chain by first mortgaging them and then generating tokens, thereby providing more liquidity from the cryptocurrency circle for a small range of computing power assets. Unlike cloud computing power, computing power coins can bring higher liquidity to computing power assets.

Is this a new way to put assets on the blockchain in the future? Is there room for evil? Are there any arbitrage opportunities? Let’s take a look.

Hash power coin, an amazing creation of the mining circle

There are two well-known hashrate coins, one from the well-known Bitcoin mining pool CoinIn, called pBTC35A, and the other from KE WO YING Mining and Hashrate 360, called BTCST.

Let's talk about BTCST first. In theory, one BTCST is anchored to 0.1 TH/s of real Bitcoin computing power, and its power consumption ratio is 60 W/TH. Therefore, holding BTCST is equivalent to owning an equivalent amount of Bitcoin computing power. As long as the holder pledges BTCST on the chain, he can obtain the mining reward of the corresponding computing power, that is, BTC.

The project owner said that BTCST is backed by 100% of the Bitcoin computing power. What is the total amount of BTCST? In principle, the project owner will determine the total issuance of BTCST tokens based on the total amount of computing power assets under management. On the 13th, BTCST was launched on Binance and has started mortgage mining.

Let's talk about pBTC35A. One pBTC35A is anchored to 1TH/s of real Bitcoin computing power, and the power consumption ratio is 35W/T. Is there any big difference between these two coins? No.

However, the pBTC35A project is obviously more complicated. pBTC35A is not listed on a centralized exchange, but is traded on Uniswap. Biyin also issued a protocol governance token MARS for this purpose.

According to the rules, after investors purchase pBTC35A, they can pledge it into a protocol. As LP, token holders can not only obtain the Bitcoin output of the corresponding computing power, namely wBTC, but also obtain MARS, which totals 2.1 billion. More interestingly, Biyin has also created two pools for the protocol, namely USDT+pBTC35A and USDT+MARS, to provide liquidity for the two tokens.

Currently, Uniswap shows that the price of pBTC35A is relatively stable, around $100, while MARS is amazing, with the price soaring from $0.01 to $0.073, a seven-fold increase overnight. Therefore, if we only look at the APY of the USDT/MARS pool, it is 1627%.

To be honest, being able to graft computing power assets onto DeFi is really a mind-blowing idea.

MARS price on Uniswap

Centralized projects are about heartbeat and cognition

After reading the brief introduction of the two projects, you should have a basic understanding of hashrate coins.

Logically speaking, as long as you hold computing power coins, it is equivalent to holding an equal amount of Bitcoin computing power. As long as the computing power can still mine within the specified power consumption and electricity costs, the computing power coins can continue to obtain corresponding Bitcoin output.

Then, the price of computing power is very easy to estimate. In other words, in theory, there is a range for the price of computing power coins, at least it is impossible to rise indefinitely.

Taking the pBTC35A of Biyin as an example, the price of equivalent computing power is about $70. In other words, pBTC35A on Uniswap currently has a premium of about $30.

Why is there a premium? This can be associated with Grayscale's GBTC. Obviously, American investors can buy BTC directly, so why do they have to buy GBCT with a premium of more than 20%? In theory, buying pBTC35A saves all the trouble of buying real computing power. But the question is whether this convenience is worth the $30 premium.

What’s more interesting is that in the case of CoinIn, as the price of MARS soared, whether this would lead to investors’ irrational rush to buy pBTC35A, thus making it far exceed the true value of equivalent computing power, is unknown, and it depends on the final game of the secondary market.

Some risks:

First, is there real computing power behind the hashrate coin? In a centralized project, we have to be wary of the risks brought by the project party's over-issuance of tokens. Such risks may lead to the bankruptcy of the hashrate coin and a sharp drop in price.

Second, the value of hashrate fluctuates drastically, and ordinary investors cannot accurately estimate it. Under the FOMO sentiment, they may irrationally buy hashrate coins at a price far higher than the value itself. In theory, hashrate coins have a price cap.

Third, in the bull market, the price of Bitcoin hashrate has risen to a staged high along with the price of Bitcoin. At this time, there are certain risks in taking over the hashrate. For example, if Bitcoin plummets and the output decreases, the price of hashrate coins is expected to fall accordingly.

Fourth, at present, the hashrate coins are relatively concentrated. Although there are assets anchored behind them, as the subject of transactions, the behavior of large investors may guide or even influence the secondary market price. The information asymmetry in the market is relatively prominent.

A Bitcoin mine in China

Tokenization of computing power, the first shot in asset chaining?

The emergence of hashrate coins is actually a manifestation of the specialization, concentration, and institutionalization of the Bitcoin mining industry. To some extent, hashrate coins have revitalized the hashrate market and greatly improved the liquidity of hashrate. This is much better than cloud hashrate. At least for secondary market investors, if they don’t want to hold on, they can sell immediately.

At present, judging from the popularity of Binance and Uniswap, the above two hashrate coins have won the favor of a large amount of funds. It is reported that more hashrate coin products will be launched in the future, such as ETH hashrate coin, which may become an important battlefield for mining capital to fight. This will be very interesting. Who would have thought that the most traditional mining industry would start to play new tricks in 2021.

Interestingly, in 2020, we saw FTX put U.S. stocks on the blockchain, and Maker DAO is also working to increase the proportion of real-world assets pledged on the chain. And hashrate coins may be a rare attempt to put real-world assets on the blockchain in the form of tokens.

If we regard hashrate coins as a harbinger of future asset chain and on-chain transactions, then I think it is worthwhile to maintain excitement and attention on hashrate coins.

But it has to be said that hashrate coins seem to have certain legal risks. Both projects have gone too far, and it is hard to say what will happen in the end. Stay tuned, and ordinary investors should be cautious when getting on board!