A competition between old and new mining, will liquidity mining threaten the survival of mining machines?

During this period, DEFI has been a hot topic and has been constantly discussed because the concept of liquidity mining has been ignited by the market and triggered a new round of money-making effect.

Those who are foresighted may have changed their minds long ago and rushed in, making a profit, saying it is really good. Another group of people may insist on not touching it, and end up feeling uncomfortable. After finally investing, they ended up with a market correction, or various founders dumping their stocks, or projects running away, etc. They didn’t get to eat the meat, but they did get beaten.

The Jade Mining Project on the EOS platform is a typical example of the first DEFI project to run away. Thanks to the fact that the project did not have multiple signatures and had not been audited, and was just a way to transfer money, it easily transferred tens of millions of dollars, leaving many people heartbroken. Some of the participating accounts were even the genesis accounts of EOS.

Some people say DEFI is a revolution, some people say DEFI is a scam. In fact, we should all treat it rationally.

But it is true that the annualized returns of several times still make many people unable to resist, and they finally said "it's really good". In comparison, traditional digital currency mining has been criticized by some outsiders because of its long cycle, low profit, and various industry chaos.

For example, the most common statement is "Mining is not as good as buying coins", which is difficult to refute.

So how should we view the new and old mining methods? Here is a comparison for your reference.

Liquidity Mining

1. The profit is high, often several thousand percent annualized, which is dozens of times annualized. Of course, it has generally dropped to the level of several times annualized, but it is still a very scary number, which has prompted many people to take risks for profit.

2. Token issuance is transparent and managed by smart contracts. Each person’s participation amount can be displayed in real time and can be cashed out on decentralized exchanges at any time.

3. There are exit loop measures, so that even if the coin price falls, the loss of liquidity mining income is not particularly large, and it can even be said that the profit is reduced.

4. The transaction fee on Ethereum is high, which is not very friendly for users with small funds.

shortcoming

1. It is essentially a way to obtain low-cost coins, similar to airdrops. Due to the low acquisition cost, it is easy to cause a market crash

2. What supports the price of the currency is the governance rights, not the profit dividends of the project. In fact, most projects now do not have a dividend mechanism.

3. Various nesting operations make tokens worthless. The strategy of mining, withdrawing and selling is very popular, which is not conducive to maintaining the token price in the long run.

4. There is all sorts of hype at the beginning, which easily leads to locked-in positions. Mining participants have no feelings for the coins and often cannot hold on to them.

5. The probability of project failure caused by code vulnerabilities is high

Old cryptocurrency mining

To have advantages

1. Physical industry is visible and tangible, and is more practical

2. There are obvious upstream and downstream relationships, which promote the economy, such as absorbing abandoned electricity and promoting the development of design industries and manufacturing industries such as circuit boards and chips.

3. It is not easy to go bankrupt because it is backed by the real industry. Therefore, if it goes bankrupt, the impact will be relatively large, so it may enjoy relevant government preferential measures.

4. The mined coins have a certain value because they consume other things of corresponding value, such as electricity, mining machines, personnel management, venues, etc., which will support the price of the coin.

5. Mining will cause healthy competition, and there are difficulty adjustment measures, which will further promote the development of the industry. Therefore, even in a bear market, mining can continue, and miners can hold on to their coins.

6. It can be split into cloud computing power, which is easy for small and large funds to participate, and easy to cash out in the market, such as Bitcoin mining.

shortcoming

1. Affected by policies, especially power supply policies

2. Unexpected events such as climate and power supply

3. The return on investment is slow, which is a chronic investment, and the return on investment is not particularly high.

Relatively speaking, we can see that the main feature of liquidity mining is that the cost of large funds to obtain tokens is low, and then they can dump the market at close to 0 cost, so the speculation risk is actually relatively large, and generally the coin price will gradually fall. For traditional mining coins, due to the increase in difficulty and the decrease in distributed income, the coin price will gradually rise over time.

In some cases, the coins from liquidity mining are suitable for selling tokens for a long time, especially for public chains like Tron and EOS, which can basically be said to have zero cost. Users will definitely not cherish the tokens very much, and many will throw them away without mercy. Unless the coins from liquidity mining can be injected into project dividends and repurchases and other factors, the basic investment value is not great.

As for coins produced through traditional mining, it is more suitable to buy tokens for a long time. The main reason here is that the cost of mining is relatively high and the difficulty is also very high, which is not something that ordinary people can participate in. This has led many people to participate in DeFi fund speculation rather than participating in the old digital currency mining.

The acquisition cost of traditional mining is the cost of various long-term investments, such as land costs, electricity costs, etc. Even if there is no speculation, there will be a small amount of profit in the middle, otherwise it will cause a reluctance to sell. Therefore, if the DeFi mining coins are not hyped well, it is easy to return to zero. Relatively speaking, the possibility of traditional digital currency mining coins returning to zero is not very high.

In addition, DeFi is built on the basis of traditional public chains, that is to say, it belongs to the category of layer 2, while traditional digital currency mining is at the bottom layer. Without normal block production, there will naturally be no current DeFi prosperity.

Based on this, in fact, liquidity mining may affect the enthusiasm of miners in traditional digital currency mining in the short term, but the current DeFi is still a hype boom after all, and the value behind it is relatively small. The interest rate of the basic DeFi protocol is actually very low, while the profits of various liquidity mining on the basic protocol are frighteningly high. Therefore, it is unlikely that liquidity mining will maintain a high interest rate for a long time. After a period of time, it will inevitably drop to near the basic interest rate (a few percent of the normal interest rate), which will naturally lead to the survival of the fittest in the market. For traditional digital currency mining, although the profit is relatively small in the short term, if the timeline is extended to a few years, it will inevitably obtain higher benefits brought by project development. For the two mining methods, it is not about which one is better or worse, but to weigh and choose based on a certain risk-benefit income and risk level, which is the investment method that is ultimately suitable for you.