Decentralized Network and “Pan-Mining”

Decentralized networks generally need to be based on hardware devices, use software code for security protection, and achieve governance through stakeholders in the network. In such a network architecture, the supply side (miners, validators, nodes, etc.) needs to provide a series of resources for the stability and expansion of the network.

This supply-side contribution to the network differs in role allocation due to the different consensus mechanisms of decentralized networks, but most of these participants are currently rooted in specific decentralized networks and are deeply bound to them in terms of profit distribution.

Among all the supply sides, crypto asset mining is still a rapidly developing and very dynamic field. It currently includes traditional proof-of-work mining, new proof-of-stake mining, Merkel mining, verification mining and various mining methods that do not rely on hardware equipment. We call this new stage of mining "pan-mining".

When the Bitcoin network was deployed and launched, no one had special privileges and no pre-sold tokens were issued to redeem Bitcoin. At that time, anyone interested in Bitcoin could deploy a Bitcoin node and use their computing power to enhance network security and obtain Bitcoin.

But currently, it is relatively easy for ordinary users to join a blockchain network, but it is very difficult to mine in the network. This not only requires a lot of investment, but also requires basic accumulation in technology, market, and marketing, which leads to a lack of participation among many users in the network.

As the blockchain space enters its next phase, it becomes increasingly important for investors, developers, and other stakeholders to truly participate in these emerging networks. .

Therefore, in the stage of pan-mining, in addition to profitable economic opportunities, people hope for more decentralized participation from the supply side, better allocation of resources, and better utilization of energy.

Mining and Verification

It seems that the winners in this field will be infrastructure manufacturers with large commissioned nodes, and capital still has a large advantage. Chip production is a business with high research costs and high fixed costs. Not only is chip design very difficult, but producing and distributing chips is a high-intensity process that requires huge capital expenditures.

It is very difficult to prevent ASIC (Application Specific Integrated Circuit) mining at this stage, especially on a proof-of-work network. What you need to do in PoW is to perform a specific type of calculation in a competitive manner. If you can do it faster than others, you can get a reward.

These calculation methods mean that at the chip level, the act of mining can be made more professional through specific optimizations.

As long as PoW still requires specific types of computation, they will be embedded in optimized chips that are used to strengthen economic functions. These chips are difficult and expensive to produce, so production will be centralized and everyone will eventually buy roughly the same chips.

Therefore, PoW is a game that revolves around infrastructure and is best suited for companies that focus on infrastructure development and construction. This is a relatively traditional industry with high fixed costs and is closely related to technology.

In Proof of Stake (PoS) and Delegated Proof of Stake (dPoS), miners stake valuable tokens behind the network votes. If they reach consensus, they are rewarded, and if they don’t, they are subject to some economic penalty (reward slashing, inflation, etc.).

From an economic perspective, this looks a bit like a fixed income product - investors buy financial investment assets that may suffer large unexpected losses and receive returns on a regular basis.

Like PoW, this is also a binary game in investment, where you can only choose to participate or not. Because all tokens are equal in profitability, individuals cannot selectively make better investments. In other words, ordinary investors have no gross profit leverage.

In such a network, the real leverage is delegation. Given that delegated voting is a zero marginal cost business, those super nodes that manage large delegation pools will receive excess returns.

Supply Side and Third-Party Economy

• The interconnection between supply and demand

In a more comprehensive decentralized network, pan-mining is not just an act of maintaining network stability, but more closely tied to the client.

The supply side will be widely involved in the crypto network. Each decentralized network has different requirements for network usage. They mainly reach end users by configuring services across networks. Examples include:

Transcoders on Livepeer : End users want to watch live content, and transcoders provide that service by calculating idle traffic and bandwidth in the network.

Miners in Filecoin : End users want to store files, and miners can provide storage space to the network and periodically submit proof that the data is stored correctly.

Orchid Relays: End users want to browse the web anonymously, and relays act as routing nodes for this internet traffic, ensuring that the user's identity can be masked.

Source: liverpeer transcoder

In the case of Liverpeer, the responsibility of the token holder is to either complete the work (transcoder) or commit someone to complete the work on their behalf (delegator, which requires collateral).

In exchange, participants can earn new tokens and a share of fees from the network, thereby increasing their total token ownership in the network. People without delegated collateral can easily gain liquidity, but their ownership in the network will decrease as new tokens are issued.

But it can be seen that in Liverpeer's network participants tend to give up liquidity immediately in exchange for increasing their ownership in the network and helping the network have better quality and higher security.

Livepeer’s current daily inflation rate (paid to transcoders and delegators as a combined incentive) yields an annualized rate of return of over 25.8%.

To prevent inflation from being higher than the delegated staking returns, the inflation rate will be adjusted based on the staking participation rate (p-rate) to encourage more delegation.

In summary, Livepeer is an example of a new type of decentralized network that provides a balanced economic mechanism for active participants and third parties willing to do useful work for the network. Livepeer encourages token holders to bond their tokens to protect themselves from inflation-related dilution; while participants with technical capabilities should consider running transcoders or becoming miners to exchange technical resources for benefits.

• Third-party economy improves ecological balance

Most crypto networks are essentially a multi-sided market, and even Bitcoin can be viewed as such a market: users want a secure ledger where they can influence its movement, and miners provide that service in exchange for transaction fees and block rewards.

The common pattern is that one group requests a service and is provided by another group. This way of mediating relationships and enforcing rules through agreements is very similar to the way Didi mediates between drivers and passengers.

As crypto networks proliferate, it is expected that an almost unlimited number of services will be offered on the network, with demand and supply for these services continuing to expand.

Because crypto networks naturally have economic attributes, extensive economic activities will emerge around a large, self-circulating network, which can be called a third-party economy.

DAI is a stablecoin issued by Maker through on-chain collateral. In this model, users use crypto assets as collateral, and the system issues coins based on the value of the underlying collateral, a process similar to custody or "locking". Stablecoins are backed by crypto asset collateral, and their stability is linked to the total value of the underlying assets.

The collateral that supports stablecoins is itself a decentralized auditable asset, which provides the advantages of transparency and auditability. However, crypto assets are currently highly volatile as collateral. In order to resist rapid price drops, an excess proportion of crypto assets is often required to be pledged in exchange for stablecoins, which reduces capital efficiency.

Under this mechanism, in order to seek a constant value for stablecoins, Maker launched an "arbitrage robot" to provide various profit opportunities for network participants and encourage others to participate in the network as Keepers.

Keeper uses this automated robot to detect and exchange the price differences of collateral assets in Dai Core, OasisDEX and various other trading platforms and make profits from it. For Maker, the goal is to maintain market equilibrium.

Source: Github open source arbitrage robot

From the network's perspective, this activity is generally welcome and in most cases critical to the proper functioning of the network.

For example, Keepers are an integral part of the Maker network: a group of Keepers who actively seek arbitrage help ensure that DAI is properly collateralized while adding liquidity to market makers. Maker itself encourages such "arbitrage" behavior and has built an open source database for it on Github.

In the future, in a wider range of crypto networks, many investors are considering how to better obtain the value of distributed technology? How to participate as an investor when there is no token or equity? Is it possible to not be deeply bound to the network, but have the opportunity to participate in the network as a "third party"?

The value of pan-mining is to enable investors to actively participate in the networks they invest in. They will not only contribute capital, but also serve as miners, validators, binders, dispute resolvers, observers, network routers, etc. according to different demand sides.

Whether as a client or a third party, direct participation in the basic network will be the only way to obtain the value of specific technologies in the future. In other words, once participants are separated from the network, there is no value improvement in the quality and security of the network, and such a network will be like a castle in the air and will easily collapse.