Why did the sudden liquidity crisis occur after the suspension of currency withdrawal and currency printing?

On September 6, Biyin announced the suspension of BTC and ETH withdrawals; the market's previous speculation that Biyin was in a liquidity crisis was further confirmed. What is the content of Biyin's latest announcement and what is its purpose? Why did the mining pool giant suddenly suffer a run? When did the Biyin crisis begin? What dealt Biyin a fatal blow? Can Biyin withstand the liquidity crisis and payment crisis?

The currency printing is in urgent need, and an announcement is issued to suspend the withdrawal of currency

On the evening of September 6, Biyin officially released the latest announcement. Judging from the intention of the announcement, the main purpose is to temporarily alleviate the risk of bank runs, which also indirectly shows that Biyin’s funds are in urgent need. The following article interprets the main content of the announcement:

1. The CoinIn mining pool will implement a zero-fee discount for all customers who are mining BTC and ETH (also applicable to the currencies that will take over the computing power of ETH after ETH is converted to PoS) from September 8 to December 7, 2022. This part is mainly to use the preferential fee to retain the current miners, so as to prevent miners from switching computing power and fleeing to other mining pools. If miners flee in large numbers, the hematopoietic ability of CoinIn will continue to weaken, thus forming a domino effect.

2. "Customers who hold more than 1 BTC, or more than 5 ETH in the mining pool balance or mining pool account will enjoy zero fees for BTC and ETH for one year. The same applies to currencies that will take over the computing power of ETH after ETH is converted to PoS." This part of the content is intended to use the one-year zero-fee discount to hope that customers will keep their funds in the mining pool as much as possible, thereby reducing the pressure of bank runs.

3. "For the settlement function, the following adjustments will be made: the BTC rate model will be changed from FPPS to PPLNS (effective on September 8), withdrawals of BTC and ETH that hold mining pool balances will be suspended (a snapshot of each sub-account balance will be taken on September 6), and the flash exchange function will be suspended (effective on September 6). In addition, because the mining pool account funds are managed by the CoinIn wallet, the specific withdrawal plan will be implemented in accordance with the official announcement of the CoinIn wallet." This announcement was released on September 6, and the suspension time was also on September 6, which did not provide users with any choice. It can be seen that the pressure of the bank run has reached an unbearable level.

Why did the leading mining pool suddenly encounter a run?

Biyin was founded in 2017 by the original core team of BTC.com. According to miningpoolstats data, Biyin's computing power currently ranks fourth in the world, making it one of the largest mining pools in the world. Why did such a large mining pool suddenly suspend miners' withdrawals? And why did miners suddenly withdraw a large amount of money?

In fact, since July 2022, there have been rumors that CoinIn misappropriated the miners' currencies, which resulted in the DeFi liquidation. In May 2022, UST decoupled, and then Luna collapsed, which in turn triggered the Three Arrows Capital liquidation crisis, which directly brought down the Ethereum price during the liquidation process. Judging from the results, CoinIn may have also been liquidated. It's just that the deposited funds at the time were still able to cope with the miners' redemption, so this hole has been covered until today.

The sudden run on a large number of miners is likely related to the upcoming Ethereum merger. Many miners feel that they may not be able to mine after Ethereum switches to PoS, so they choose to sell their machines and withdraw their coins, which increases the pressure on CoinInd to pay in the short term. Moreover, the current payment pressure of miners may have exceeded the critical value of CoinInd's payment . At the same time, some miners who are bearish on Ethereum 2.0 choose to leave and switch to USDT for risk hedging; of course, some insiders flee in advance after knowing the truth, which is constantly creating pressure on CoinInd's payment. All of this directly leads to the "limited redemption" announcement issued by CoinInd at the beginning of the article. However, CoinInd is a mining pool giant after all, and has always had a good reputation. So are there any other reasons for CoinInd's current situation besides these sudden events?

The ice is three feet thick and it didn’t freeze overnight. The crazy expansion was strangled by the policy.

As the old saying goes, "The ice three feet thick does not form overnight." In fact, the crisis of currency printing is not caused by a single collapse event. Its internal crisis may have begun in 2021. In order to better understand the current dilemma of currency printing, let's take a look at the development history of currency printing.

On April 21, 2021, Pan Zhibiao, the founder of Biyin, said in an interview: "The layoffs at the end of 2018 are still very sad to me. At that time, although the entire team had only more than 30 people, in the bear market, in order to preserve cash flow for product research and development investment, layoffs had to be carried out, and only about 20 people were left. However, after this layoff, Biyin made a concerted effort and became the leading mining pool. After this layoff, Biyin has almost no layoffs. Biyin has been expanding slowly. From the second half of 2020 to the first quarter of 2021, it has gradually entered a period of rapid expansion. From the perspective of layout, it is still the same as in previous years, moving the machines from Xinjiang to hydropower generation areas such as Sichuan. Establish one or two mining farms in the second half of the flood season to expand the scale and make the company's and customers' machines safer."

As Pan Zhibiao said, from the second half of 2020 to the first quarter of 2021, Biyin began to enter a period of rapid expansion. First, Biyin expanded its mining field in China to welcome the flood season; second, Poolin mining pool also started to play with mining pool finance; third, it began to vigorously expand overseas markets.

On February 8, 2021, Biyin Mining Pool acquired Novablock Mining Pool and expanded its business to growing regions such as North America. All Novablock's computing power automatically switched to Biyin Mining Pool. On January 12, 2021, Biyin released Mars, a one-stop decentralized standard computing power protocol that combines standardized computing power products and liquidity mining. The protocol currently includes two tokens, namely the computing power token pBTC35A and the governance token MARS. Investing in pBTC35A to enter the Mars protocol will receive wBTC mining income and MARS. In addition, providing liquidity for pBTC35A/USDT and MARS/USDT trading pairs on Uniswap can also obtain wBTC and MARS.

Just as CoinIn was expanding rapidly and prospering, on May 21, the Financial Committee of the State Council called for a crackdown on Bitcoin mining and trading, and resolutely prevented individual risks from being transmitted to the social field. The upstream and downstream of the Bitcoin mining industry chain suffered a huge blow. CoinIn suffered huge losses after a large number of domestic mining pools were closed. Due to the previous crazy expansion, there was also huge cost pressure. Although the crypto market rebounded briefly later, CoinIn’s crisis was temporarily alleviated, but the crypto market fell all the way afterwards. Coupled with the possible liquidation of DeFi caused by Luna’s thunder, the CoinIn crisis finally broke out at the peak of the run before the Ethereum merger.

As of September 6, the computing power coin pBTC35A of CoinIndex has fallen significantly, and the governance token Mars has been falling since very early on. This shows that smart money has already seen the CoinIndex crisis and started to flee early. The current market expectations are pessimistic and the risk of a run is also increasing.

Appeasement is useless, Pandora's box has been opened

On September 4, Pan Zhibiao, founder and CEO of Poolin mining pool, posted on social media in response to the recent "difficulty in withdrawing coins" and stated that the situation was caused by lack of liquidity, the funds are safe, and Poolin's net assets are currently positive. Possible solutions including liquidity debt, debt-for-mining machines, and debt-for-shares will be proposed in the near future.

At around 10:30 am on September 4, the official Telegram discussion group of Biyin also issued a message to reassure the community: Biyin mining pool and wallet operations are normal, and users who are mining can also see that the income of various currencies is maintained. Due to the risk control management of the wallet recently, the approval time is relatively long, but the wallet team is processing it one by one. Please wait patiently, emphasizing that user funds are safe and please do not create panic rumors.

Judging from the effect, the rumor has grown legs and has already spread in the mining circle and the crypto market. The previous announcement still took a long time to review, but today it has been clearly suspended. The market's distrust of CoinIn is spreading. Although CoinIn can suspend user redemption, it is difficult to prevent miners from fleeing. Once the computing power flees in large numbers, the crisis of CoinIn will be greatly magnified. At present, CoinIn is likely to be exchanging debt for mining machines and equity, as well as financing cooperation. It can be said that the current CoinIn is racing against the bank run crisis. We will continue to pay attention to whether CoinIn can survive the crisis in the end.