Mining machines sold at 20 times premium, BTCST, pBTC35A token analysis

On January 7, Binance announced a new project, Bitcoin Standard Hashrate (BTCST), and started staking mining on January 8. At the time of writing, BTCST has attracted a total of 4,187,965 BNB, 9,165 BTC, and 41,603,705 BUSD to participate in staking. At the current price, the total value of the pledged crypto assets is approximately RMB 3.72 billion.

After being launched on Binance Innovation Zone on January 13, the price of BTCST once exceeded 100 USDT. As of the time of writing, BTCST still maintains a high level of 67.5 USDT.

A few days later, CoinIn Mining Pool also launched the hashrate token pBTC35A and the governance token MARS, which can be obtained on Uniswap by providing liquidity for pBTC35A. As of writing, the price of pBTC35A is about 90USDT.

Whether it is BTCST launched by Binance or pBTC35A of CoinIn, they are trying to tokenize the computing power of Bitcoin mining machines. Tokenization of computing power is nothing new, but it is still astonishing that it can attract so much capital in a short period of time. Today we will talk about the value of tokenization of computing power and whether BTCST and pBTC35A are really worth investing in.

01The value of tokenization of computing power

1. Standardize and normalize computing power

Whether you are buying a physical mining machine or buying cloud computing power for mining, the selection of mining machines is an issue that is difficult for novice users to avoid. Faced with dazzling parameters and different prices, it is simply difficult to know where to start. In fact, the three key indicators that need to be paid attention to when purchasing a mining machine are: the energy efficiency ratio of the mining machine, the price per unit of computing power, and the delivery time of the mining machine .

The first value of the tokenization of computing power is to standardize and normalize computing power. Binance's Bitcoin Standard Computing Power (BTCST) is anchored to a mining machine with an energy efficiency ratio of 60W/TH, and 1 BTCST is anchored to a computing power of 0.1TH/s. At present, the only mining machines on the market with a theoretical energy efficiency ratio of 60W/TH are second-hand Shenma M21S-54T and M21S-56T mining machines, so Binance's strategy is to achieve an average energy efficiency ratio of 60W/TH for a package of mining machines. For example, there are mining machines with a total computing power of 10PH/s and an energy efficiency ratio of 75W/TH, so you can pull in a computing power of 10PH/s with an energy efficiency ratio of 45W/TH. In this way, when the two are averaged, it becomes a computing power of 20PH/s with an energy efficiency ratio of 60W/TH. According to 1 BTCST corresponding to 0.1TH/s, 200,000 BTCST can be issued.

The computing power token pBTC35A issued by the CoinIn mining pool is anchored to 1TH/s of Bitcoin computing power, with an energy efficiency ratio of 35W/T. At present, the Antminer S19-95T mining machine has the closest theoretical energy efficiency ratio to 35W/T on the market.

After the computing power is standardized, it is more friendly to novice users, who no longer need to compare a variety of mining machine models, thus avoiding the difficulty of making choices. Of course, the standardization of computing power is also a prerequisite for the tokenization of computing power.

2. Increased liquidity

People who buy physical mining machines for mining may have a deep understanding that if they can predict the top of the bull market, at the peak of the bull market, the price of the mining machine will have increased several times with the rise in the price of the currency . Selling the mining machine at this time can get several times the profit .

However, the liquidity of second-hand mining machines is poor. If you are not a professional player and do not have the resources of mining machine dealers, it will be difficult to find a matching counterparty. The same is true for users who purchase cloud computing power for mining, and the cost of exiting midway is high.

After the computing power is tokenized, the greatest value is to increase the liquidity of the market . BTCST has been launched on Binance's Innovation Zone and can be traded 24/7 like other tokens. pBTC35A issued by CoinIn Mining Pool has also been launched on the decentralized exchange Uniswap and some second-tier exchanges. If you want to quit mining, just sell the corresponding token.

3. Lowering the threshold for mining

After the computing power is tokenized, the threshold for user participation becomes extremely low.

First of all, there is the operational threshold. Users can participate in mining as long as they buy tokens, and can exit by directly selling tokens. If you buy a physical mining machine to mine, you still need to deal with mining machine dealers, mining farm trustees, etc., and whether it is the purchase of mining machines, mining farm trusteeship, or mining machine maintenance, the water is very deep. Of course, there are also many companies that provide one-stop mining services, such as BiWa, a subsidiary of Litebit.

The second is the capital threshold. The minimum participation threshold for joint mining is a mining machine. The price of mining machines has risen due to the rise in the price of coins. After the computing power is tokenized, it is equivalent to that users can buy one tenth, one hundredth, or even one thousandth of a mining machine, and the capital threshold is greatly reduced.

Lowering the capital threshold does not mean that BTCST and pBTC35A are worth investing in . Below, we will conduct further analysis through data.

02 The value of BTCST and pBTC35A is seriously overestimated by the market

BTCST and pBTC35A are both anchored to the computing power of Bitcoin mining machines, so it is easy to calculate their costs.

Let's first look at BTCST launched by Binance. BTCST is anchored to a computing power of 0.1TH/s and an energy efficiency ratio of 60W/TH. In the above article, we mentioned that the only mining machines on the market with a theoretical energy efficiency ratio of 60W/TH are the second-hand Shenma M21S-54T and M21S-56T mining machines. At present, the market price of these two second-hand mining machines is 180 to 210 yuan per TH/s computing power, that is, 18 to 21 yuan for a computing power of 0.1TH/s. The price of BTCST on Binance is 67.5USDT (the price fluctuates greatly), which is about 430 yuan, more than 20 times the computing power cost of the mining machine . What does this mean? If an M21S-54T mining machine with a market price of 11,340 yuan is BTCST -ized, the price will exceed 230,000 yuan .

Let’s calculate the static payback period of BTCST. According to the formula provided in the white paper, we can calculate the daily mining cost of every 10,000 BTCST: 86.0256 USD.

Mining cost = 0.06kW/TH x 0.1TH x 24h x 0.058USD/kWh x 1.03 x 10000 = 86.0256USD

The 1.03 in the formula refers to the power consumption of the machine itself plus the line loss. The line loss is calculated as 3% of the machine power consumption.

At present, the daily mining output (FPPS mode) for every 1000TH/s computing power is 0.00675BTC, which is about 239.2875USD. Mining the mining cost from the mining output, we can get the daily mining income of every 10,000 BTCST is 153.2619USD, and the purchase cost of 10,000 BTCST is 675,000USDT, with a static payback period of 4404 days, while the static payback period of new mining machines on the market is only 400 to 500 days .

Let's take a look at the pBTC35A of the CoinIn mining pool. pBTC35A is anchored to a computing power of 1TH/s, with an energy efficiency ratio of 35W/T. Theoretically, the total computing power of 10 BTCST is equivalent to the computing power of 1 pBTC35A, and the purchase cost of 10 BTCST is 675USDT, while the purchase cost of 1 pBTC35A is 90USDT, which is a difference of 7.5 times !

In addition, the 35W/T mining machine anchored by pBTC35A is obviously much better than the 60W/T mining machine anchored by BTCST, and the former has a higher safety margin. When the price of the currency falls or the computing power of the entire network surges and causes the mining machine to shut down, the 60W/T mining machine will be shut down first.

Similarly, let's calculate the cost of pBTC35A. The Antminer S19-95T mining machine has a theoretical energy efficiency ratio of 34.5W/T, which is the mining machine closest to the pBTC35A on the market. At present, the spot price of an Antminer S19-95T mining machine is 46,000 yuan, or 484 yuan per TH/s computing power. The price of pBTC35A on Uniswap is 90USDT, which is about 582.3 yuan, which is 1.2 times the computing power cost of the mining machine. Interested students can also calculate the static payback period of pBTC35A. The electricity fee marked on the official website is 0.0583USD/kWh.

Figure: Comparison of price per TH/s computing power

Mining is an industry that requires cost control and careful calculation. The price of BTCST launched by Binance is more than 20 times the cost of mining machine computing power, and the pBTC35A launched by CoinIn Mining Pool is 1.2 times the cost of mining machine computing power. It is very prudent to pay such a high premium for liquidity.

03 Analysis of the Arbitrage Space of Computing Power Token

Since the premium of BTCST is more than 20 times, is there any arbitrage space here?

According to the official website, BTCST is open to the public. Any miner who meets the requirements can transfer their computing power to obtain BTCST. The process is as follows:

First of all, the computing power required for application must not be less than 5PH/s. What is the concept of 5PH/s? According to the energy efficiency ratio of 60W/T, the current market price is 180 yuan/T, and the market price of 5PH/s computing power is 900,000 yuan . This application threshold directly excludes many small miners. Only large households and large miners can arbitrage through BTCST.

BTCST also has regulations on the mining machine models behind the connected computing power, and only allows the following mining machines:

1. Antminer: S9k, S9j, S9i, T17, S17, S17 Pro, T19, S19, S19 Pro

2. Core Miner: T2T, T3+

3. Shenma mining machine: M10, M21s, M20s, M31s, M30s

4. Avalon Miner: A1146, 1066, 1166, 1166 Pro, A1246

Once these conditions are met, you can submit an application to the team behind BTCST. If the mining machine is stored in your own mine, it needs to undergo various inspections and tests, and only after all are qualified can you proceed to the next step. Of course, miners can also transport their own mining machines to the mine designated by BTCST. The length of the review process is also an uncertain factor.

The next step is to ensure that the average energy efficiency ratio of the mining machines behind the computing power reaches 60W/T. After completing this requirement, a contract can be signed to convert the mining machine computing power into a corresponding amount of BTCST.

It is important to note here that the newly minted BTCST has a lock-up period and is released linearly every week. It takes 25 weeks to release all of it. For example, suppose that the miner accesses 5PH/s computing power on January 20 and obtains 50,000 BTCST. These 50,000 BTCST are in a locked state, and 2,000 BTCST will not be released until January 27, so that the miner can sell these 2,000 BTCST on the secondary market for arbitrage. After that, 2,000 BTCST will be released every week until all are released. Because of this lock-up period, there is a risk of arbitrage, and the premium is likely to return to normal levels over time.

Many institutions are also arbitraging GBTC issued by Grayscale Investments, but the arbitrage convenience of GBTC is far greater than that of BTCST. Arbitrageurs can directly borrow BTC from the market and deposit the borrowed BTC into the custody account designated by Grayscale to obtain GBTC. Although GBTC also has a 6-month lock-up period, arbitrageurs can use financial instruments for hedging to avoid the impact of BTC price fluctuations.

In contrast, it is difficult for miners to hedge when they connect their computing power to BTCST for arbitrage. At present, BTCST can maintain a high premium, in large part because there are few BTCSTs circulating in the market. We don’t know how long such a high premium can be maintained.

04 Conclusion

In fact, many attempts have been made to tokenize computing power. For example, Sam, the founder of FTX Exchange, launched a Bitcoin computing power contract, but it has few users. The computing power coins launched by Binance and CoinIn Mining Pool are more scientific in design and more diverse in gameplay than the previous computing power coins. They even combine the recently popular DeFi and liquidity mining designs, but whether they can go long-term remains to be tested by time.

From an investment perspective, both Binance's BTCST and CoinIn's pBTC35A are in a bubble, and they paid a high premium for liquidity. If you really want to mine, participating in the joint mining of BiWang is a more long-term choice, a one-stop service, worry-free, convenient and cheaper; if you want liquidity, it is better to buy BTC directly, after all, the return rate of mining is difficult to outperform the income brought by directly hoarding coins .

If you are a large investor or miner and connect your computing power to BTCST for arbitrage, you need to pay attention to the risks brought by the lock-up period. As time goes by and the circulation volume increases, the premium of BTCST is likely to return to normal levels.

In addition, both BTCST and pBTC35A are issued by centralized institutions. Whether there is actual mining computing power behind each token to support it, whether the token will be over-issued, and what its compliance is, these are all potential risks.

What do you think of the computing power tokens currently on the market? Feel free to write down your views in the comment section.

Risk warning : The content of this article is only the author’s personal opinion, does not represent the views or position of Zhikuang University, and does not constitute any investment opinion or recommendation.