Is buying a mining machine a sure win? ——Risk Tips for Crust Mining without Coin Pledge

1. Comparison between Filecoin and Crust mechanisms

Although they are both distributed storage projects, the different consensus mechanisms of Filecoin and Crust result in different token pledge mechanism designs, which are crucial to the long-term development of the network. The token pledge mechanism design should not only consider the cost of miners joining the node, but also the cost of sector failures and fines, while also being able to motivate miners to maintain the stable development of the network in the long term.

1. Filecoin’s staking mechanism

There are three types of Filecoin pledge mechanisms: pre-pledge, post-pledge and market pledge. The main players involved in Filecoin network pledge are miners.

Pre-staking consists of two parts: the first part is that FIL is required to be pledged after the data sealing is completed, which serves to urge miners to complete the proof process of the sealed data. This part of the pledge will be released before the sector proof is completed; the second part is to pledge when the sector proof is completed, and it will be released all at once after the sector expires.

Post-staking means that miners will release 25% of the block rewards obtained through mining first, and the remaining part will be released linearly over 180 days.

Market staking means that client data transactions need to stake a certain amount of FIL to ensure the normal progress of market transactions.

Because the computing power of the entire network is relatively small in the early stage, the sealing of a single sector requires a high token pledge. In order to pursue rapid growth in computing power, miners need a large amount of FIL for pledge. However, due to the limited circulation of tokens in the network, miners can only raise FIL through various means such as lending and cooperation with trading platforms.

In Filecoin's current economic model, there are two main situations in which pledged coins will be deducted: one is that when the sector proof is not completed in time during the sector sealing process, the first part of the pledged coins in the pre-pledge will be directly destroyed; the other is that if a problematic sector is found during the WindowPost process, part of the pledged coins will be destroyed.

2. Crust’s guarantee mechanism

Crust only has GPoS staking, that is, the CRU of the node staking can be owned by the node or from the guarantor. In order to attract guarantors to guarantee it, the node needs to pay a guarantee fee. The guarantee rate is set by the node itself, and the guarantor chooses the guarantee income he is willing to accept to guarantee the node. When the guarantor chooses the node to guarantee, he also needs to bear the risk of the node being punished. If the node is confiscated by the system because the penalty mechanism is triggered, the guarantor will also be confiscated according to the guaranteed proportion.

Crust's Staking module has a penalty mechanism for validators: At the end of each cycle, the network will detect the validator, and the penalty mechanism will be triggered when it is detected that the validator is offline or maliciously attacks the network. The penalty includes proportional deduction of the pledged CRU tokens and removal of the validator identity. The amount of assets confiscated due to disconnection is the maximum confiscation ratio in a cycle multiplied by the number of tokens staked by the validator. As a guarantor, when the guaranteed validator is punished, the guarantor's guarantee amount will also be fined accordingly.

3. Summary

From the above content, it can be seen that Filecoin greatly limits its liquidity through pre-staking, linear release and strict penalty mechanism, but at the same time it also avoids the risk of no coins to mine due to no coin staking.

Crust's consensus mechanism determines the ecosystem's demand for pledged coins. If there is a lack of pledged coins in the ecosystem, and many coin holders in the ecosystem do not know how to securely pledge and gain returns, coupled with the increase in node pledge costs, miners will face the risk of idling without coin pledge.

2. Comparison of the return on investment between Filecoin and Crust

1. Analysis of Filecoin’s payback situation

The object of Filecoin payback analysis is the top students among Filecoin miners. The pledged coins and GAS are based on the official standards. The official requirements are 9.7 coins/T for pledged coins and 5 coins/T for GAS. The effective computing power of the mining machine is 1800T. The data on April 13 showed that each T can produce about 0.09 coins. The cost of the mining machine is 3.72 million yuan/unit, and the miner charges a 15% technical service fee. As of the time of publication, the price of FIL coins is 1,068 yuan. The daily income and payback period are calculated as follows:

Mining daily income = 0.09*1800*1068*85% = 147,063.6 yuan

Pledged coin cost = (9.7+5)*1800*1068=28,259,280 yuan

Filecoin mining payback period

=(3,720,000+28,259,280)/147,063.6≈218 days

2. Analysis of Crust’s payback situation

Data from a Crust mining machine on April 13 showed that the daily output of coins was about 4, and the cost of the mining machine was 168,000 yuan per unit. The miner charged a 15% technical service fee. As of now, the price of CRU coins is 890 yuan. The calculation of daily income and payback period is as follows:

Mining daily income = 4*890*85% = 3026 yuan

Crust mining payback period

=168,000/3026≈56 days

However, the above calculation is based on free staked coins. Assuming that half of the income needs to be given to the staked coin provider, the mining payback period is about 100 days.

3. Summary

Although Crust's payback period looks very attractive, the impact of pledged coins on Crust's revenue is extremely important, so Crust's payback period has a big premise: to ensure sufficient pledged coins. Now, with the rise in coin prices, miners' investment capital for their own pledges has increased, and they also face the risk of increased guarantee rates.

3. Analysis of Crust’s current ecological development

1. Rapid expansion of miners

Compared with Filecoin, Crust's achievements in such a short period of time are undoubtedly very impressive. Recently, with the gradual implementation of Crust's distributed storage applications and the establishment of Crust grants, the Crust project has attracted more and more attention: miners who have access to storage resources, developers who participate in ecological construction, Crust secondary market investors, and miners who have participated in Filecoin in the early stage. With the participation of more and more miners, there is already a risk of insufficient pledged coins in investing in Crust mining.

Due to the shortage of staked coins on the preview network and the increase in the number of miners entering the market, the Crust weekly report on April 12 showed that the full mortgage income of a single P dropped to 8.47 CRU/day.

Data source: Crust official website, DaLing Think Tank

Data source: Crust official website, DaLing Think Tank

Data source: Crust official website, DaLing Think Tank

As can be seen from the above figure, the number of miners has increased sharply, but the number of guarantors has increased relatively slowly, and the output per T has generally decreased. This shows that the risk of no-coin pledge has become prominent. Even so, more and more miners have joined, resulting in a rapid expansion of the miner camp, which has further increased the risk of no-coin pledge.

2. Risk analysis of investment funds

Crust includes the proof-of-work layer MPoW, the blockchain consensus layer GPoS, and the distributed cloud storage/computing layer.

The Crust chain uses the GPoS (Guaranteed Proof of Stake) consensus mechanism, which is a PoS consensus that uses storage resources as a guarantee. Similar to existing PoS projects, nodes need to stake CRU tokens to compete to become validators. The difference is that nodes also need to provide storage resources to obtain the corresponding guarantee amount. Only with the guarantee amount can they stake the corresponding amount of CRU.

In the Crust network, the pledge quota is obtained through the second-layer mechanism (MPoW), which confirms the local storage status of the miner through the protocol under the TEE technology chain. If a node/miner has a storage capacity of 1000Tb, then after the node is checked by the TEE program for legality, a signed workload report will be submitted to the chain, and then 1000Tb will be converted into a pledge quota of 1000CRU. After the miner has this 1000CRU pledge quota, he will compete for the block. Currently, the basic pledge corresponding to 1000TB of free storage resources in the Maxwell test network is 1000CRU (it will be 5000CRU after the main network is launched), which can be expanded by storing meaningful files. The specific process is as follows (taking free storage resources as an example):

Data source: DaLing Think Tank

When the pledge of the entire network reaches a certain ratio, the fixed ratio relationship between storage space and the upper limit of the pledge amount will be transformed into a dynamic adjustment ratio based on the entire network. This has not happened yet and is not considered for the time being.

The current status of Crust is more inclined to the PoS model. After miners purchase mining machines and connect to the Crust network, they cannot generate income without staking CRU, which is called empty mining in the industry.

In order to better sell mining machines, some miners will promise to provide CRU pledge services to miners during sales to lower the entry threshold for miners. As mining machines are continuously connected, the demand for pledged coins continues to rise, and the remaining CRU available for pledge in the entire network is getting less and less, entering a state of token shortage. At the same time, with the rise in coin prices, many miners have been unable to fulfill their promise of "packaging pledged coins", and can only let miners solve the problem of pledged coins themselves. And in the state of token shortage, miners need to set a very high guarantee rate after becoming a node to attract CRU holders to provide guarantees. If miners buy CRU themselves, they need to invest unexpected funds. As the price of coins rises, this fund is already much higher than the mining machine itself, which will cause miners with insufficient budgets to suffer losses.

Therefore, when miners purchase mining machines, they must be wary of the excessive promises of some mining companies, avoid related risks, and avoid blindly investing or expanding the scale.

4. Summary of Crust Mining Investment

The necessary conditions for Crust mining are storage capacity and Token pledge. The maximum possible mining income is determined based on the miner's storage capacity and the number of pledged coins.

In the absence of computing power, Token liquidity is sufficient. After purchasing a mining machine, a small amount of funds can be added to meet the pledge requirements. There is no need for more CRU to provide guarantees. A large proportion of mining income will flow to miners.

In the absence of tokens, mining can only be carried out with CRU as collateral, so the node needs to increase the guarantee rate to borrow coins. At this time, more mining income flows to the guarantor, which is more inclined to the PoS model.

As the price of coins goes higher and higher, the risk of mining becomes greater and greater. The funds required to pledge CRU are much larger than the investment in the mining machine itself. The measures that miners need to take are:

1. When there is not enough CRU for staking, small miners need to join high-quality nodes;

2. Large miners who become nodes need to set a reasonable guarantee rate to attract CRU holders to become guarantors and provide pledges, alleviate the situation of insufficient pledged coins, and ensure the continuity of mining.

However, there are still many CRU holders who do not know how to participate in staking. We have provided a link below on how to stake CRU to obtain higher returns. This information is critical for holders, and we recommend that you read this article carefully or save it.

If more coin holders become guarantors and provide pledges, miners will find more CRU when tokens are in short supply.

To sum up, buying a mining machine is not necessarily a win-win situation. Before investing in Crust, you must understand Crust’s economic model and operating mode, and have a clear understanding of the current Token pledge status. Do not believe in the excessive promises of mining machine sales. Irrational investment will lead to a continuous increase in mining costs.

Appendix: How to pledge?

The Crust account is the embodiment of your identity on the chain and the subject of various transactions. You need a corresponding account to bind to the node to obtain block rewards. Any account with CRU tokens can become a guarantor and use its CRU as a collateral asset with no lower limit for collateral.

If the currency in the trading platform needs to map the ERC20 CRU to the Crust preview network Maxwell, the above specific operation steps can be viewed from the App website, and this article will not explain too much.

This article is reprinted from the official account of Daliang Think Tank. It only represents the author’s personal views and does not constitute any investment advice.

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