đź’° Padding profits and hashrate tokens

Published: Tue, 04/06/21

April 6, 2021
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Market Overview

Data as of 12:00 UTC

Ethereum miners are padding profits with transaction ordering.

Ethereum miners are printing money, but not only in the traditional way of claiming block rewards. By reorganizing trades inside a given block, miners are able to take advantage of off-chain price movements. This process is called “Maximal” or “Miner” Extractable Value (MEV), and it’s very lucrative.

According to MEV research group Flashbots:

  • Roughly $42 million in MEV was “extracted” across eight major decentralized finance (DeFi) applications in the last thirty days alone. (For reference, Ethereum miner revenue reached $1.38 billion in March.)
  • Nearly 30% of Ethereum’s hashrate has been onboarded to Flashbots MEV tooling.
  • Proprietary software used by other mining pools pushes that number north of 50%.

A great example of MEV is this Ethereum transaction from late March. It shows one part was the victim of an unsuspected “sandwich” trade where one transaction was front-run and another back-run to induce price slippage on the middle transaction.

 

The result? Netting 13 ETH, which were worth more than $22,000 at the time.

 

These complex swaps are usually left to specialized traders. But ongoing Ethereum development – specifically EIP 1559 and the network’s transition to proof-of-stake – has pushed mining pools to join the game. They also have the most to gain as the final arbiter of most any trade.


Early data suggests that individual miners are also increasingly aware of MEV and want a cut of the action. Mining pool Flexpool’s hash power, for example, grew 358% last month alone as one of the most aggressive MEV-pools on the market.
 

Hashrate tokens are off to a rough start.

A few new tokens tied to Bitcoin's hashrate are trying to push forward the financialization of cryptocurrency mining. But to date the road has been rocky. Recent performance of Poolin’s and Binance’s tokens demonstrates the immaturity of these mining financial products. 

 

The pBTC35A token 

 

Launched by Poolin in mid January, this ERC-20 token was designed to represent 1 terahash per second (TH/s) of mining equipment that had a power efficiency of 35 Joules per TH (J/TH).

  • Throughout January, the token bounced between $60 and $230 before leveling off around $120 for the next two months.

  • Over the same period, mining rigs with an efficiency of 38 J/TH or lower — roughly the same efficiency range — steadily climbed from just below $60 to near $110 at the end of March, per pricing estimates from Hashrate Index. 

In other words, pBTC35A token holders paid an large premium for months before the real hashrate market started to catch up.

Part of the token price’s distortion problem comes from highly illiquid markets. On Uniswap, the token’s most liquid market, daily volume for the past two months averaged less than $500,000, according to TradingView data, with only five days reporting volume above $1 million. 

 

The BTCST token

 

Backed by Binance, BTC.TOP, and Genesis Mining, the “Bitcoin Standard Hashrate Token” represents 0.1 TH/s at an efficiency of 60 J/TH, a tad lower than Poolin. But its price relative to real machines hasn’t fared much better. 

  • Through February, the token climbed from $65 to roughly $490. A full TH/s from hardware with an efficiency range of 38-60 J/TH rose from $50 to near $60 over the same period. Big difference. 

  • The token stayed severely disjointed from the real hashrate market even after a significant repricing in mid March when BTCST traded between $30 and $60. 

Other financial products

 

Hashrate tokens aren’t the only product that hasn’t succeeded in financializing the mining market. On cryptocurrency derivatives exchange FTX, bitcoin hashrate futures have also struggled to gain traction and suffered low volume with the exchange discontinuing the contracts after Q1 2021. 


Despite these troubles. other teams are still chasing the prize. Blockstream recently launched its own hashrate security token on the Liquid Network, for example. Perhaps one day tokenized hashrate will reflect real hashrate markets. But not today.

Mining Newsfeed

🧭 Bitcoin mining difficulty hit a new record high.  

After a 6% increase last week, Bitcoin's mining difficulty reached a record high above 23 trillion. At 21.8 trillion before the recent adjustment, difficulty skipped 22 trillion mark completely, something it has done only twice before.

🧭 Hong Kong Customs seized hundreds of crypto mining GPUs.
The Customs and Excise Department in Hong Kong seized  300 crypto mining graphics processing units (GPUs) as part of a recent anti-smuggling operation. Exactly what type of machines were seized is unclear, but local news reports named Nvidia’s new Cryptocurrency Mining Processor (CMP) as a possibility.

🧭 Bitcoin miners raked in $1.75 billion last month. 
Marking a 28% increase from February, total network fee and block subsidy revenues for bitcoin miners hit $1.75 billion last month, a new record. 9.6% of that sum came from network fees, the lowest percentage in 6 months. 

Proof of Work Overview

* measured by $/TH/s

Quick Bits
  • Kazakhstan’s electricity prices reportedly spiked by 25% as of April 1. 
  • Great American Mining launched an Environmental, Social, and Governance ("ESG") conscious mining venture with Fortress Technologies. 
  • Ethereum miner revenue reached an all-time high of $1.38 billion in March. 
  • Chinese mining company Nanjing Ribensi Electronic Technology was acquired by New York-based public software firm Future FinTech in a bid to enter bitcoin mining. 
  • FTX calls it quits on the quarterly hashrate futures it launched in May 2020 by not listing Q2 2021 contracts.
  • Blockstream launched a security token on Liquid Network tied to Bitcoin’s hashrate for qualified, non-U.S. investors. 
  • Ripple CEO Brad Garlinghouse told Bloomberg TV he thinks one bitcoin transaction is equivalent to burning 75 gallons of gasoline. 
  • Miami’s Mayor wants the city to become a hub for bitcoin mining.
 
 

About Compass
 

Compass is a modern media and Bitcoin mining company focused on driving the mass adoption of cryptocurrency. Our research analysts and content creators strive to provide actionable and engaging content on the most relevant industry topics.
 

For more information, to share content ideas, or to discuss mining news, email us at media@compassmining.io.

Written by Zack Voell and Will Foxley. 

   
 

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