The NFT and Decentralized Cloud Mining Power Market of DMEX
The Temptation of the Mining Market
Since the birth of Bitcoin, mining has been one of the most important components of the cryptocurrency industry. Whether it is the PoW mining of Bitcoin or Ethereum, or the newly-emerged PoS (Proof of Stake) mining, or the liquidity mining of DeFi, mining has always been the pivotal component that supports the continuous operation of the cryptocurrency industry.
Mining is not only the most important but also the most profitable sector of the cryptocurrency industry. At present, BTC’s block reward is 6.25 coin per block. Suppose BTC is valued at $18,000 USD each, the annual mining income would be nearly $6 billion. Consider the new coins mined for ETH, suppose it is priced at $550, its annual mining income would be approximately $2.7 billion. Filecoin released around 121.8 million tokens in the first year. If FIL is priced at $30, its annual mining income would be around $3.6 billion. Those three platforms combined would generate over $11 billion incomes yearly. Nevertheless, annual income does fluctuate according to changing market conditions such as price factors and oversupplies. Even so, judging from the current market situation, one must admit that the gigantic mining market is very enticing.
Problems of Cloud Mining
Mining market is very tempting. Many average users want to participate in the cryptocurrency mining industry. However, not everyone has the opportunity.
*High entry barrier for individual miner
For most average cryptocurrency users, the era of individual mining is long gone. The biggest mining cost is electricity fees. For individual users, obtaining cheap electricity is very difficult. Professional custodian facilities are hard to come by. The users would also need to hire professional technicians to maintain the mining machines. Once you want to start mining, uncertainties will come at you one after another. Which token has the highest mining yield? How to switch between different mining rewards? Which mining machine should I buy? Where do I buy them? Which custodian facility should I go to? The list goes on.
The cryptocurrency mining industry is already highly specialized. Under current situation, although there are still numerous individuals who are keen to join the cryptocurrency mining business, most of them would never have a chance.
Since most average users could not go through the trouble of buying the mining machines themselves and finding a mining operator (mining farm) on their own, cloud mining has emerged as a new option. Mining farms calculate their total mining power, divide it into smaller portions and sell them to the users. Users will receive mining incomes proportionate to the percentage of mining powers they own. This business model sounds terrific as it does make mining investment easier for the users. Users no longer need to worry about mining machine purchase, custodianship and maintenance. However, as the time goes by, several underlying issues have emerged to hinder its further development.
*Cloud mining lacks transparency
Since individual users are buying mining power from centralized miners, users have to rely on the miners to obtain information on their effective mining power and the proportion of actual mining power versus purchased mining power. Users often have no option but to trust the miners. This has led to non-transparency in mining incomes and potential economic loss for the participants.
If the non-transparency in mining income only causes a partial income loss, the more serious issue is the total absence of promised payout. Users paid for mining machines and mining power but they never received any income. This will lead to major economic loss for individuals. In addition, the majority of the average users are confused on the definition of ‘cloud mining power’. They are prone to misleading information. Some users purchased the unprofitable Filecoin cloud space instead of the profitable effective storage power because they mixed up the jargon. Many users suffered a loss.
*Cloud mining power lacks liquidity
At present, individual user’s cloud mining power is typically purchased from one specific miner. Trading mining power is very difficult for the users if they need to get liquid capital. They can only sell their mining power to another user who uses the same miner service. The transaction procedure is a big hassle. It is nearly impossible to trade across different miners.
*Cloud mining power has a poor fund utilization rate
After buying cloud mining power shares, users have no other options but to simply wait for mining income. Their assets cannot be utilized in other financial activities. The fund utilization rate is less than ideal.
Decentralized Mining Market
As is explained above, if we want to make mining accessible to everyone, first we would have to solve the problems of entry barrier, transparency and liquidity. So, what is the solution?
Since mining activity contributes to the cryptocurrency industry, crypto technology also provides potential solutions for the mining market. One of the most significant solutions is decentralization. Decentralization has the potential to reform the cloud mining market with the helps from smart contract, DAO governance and NFT.
This is what DMEX is trying to do. DMEX endeavors to revolutionize the mining market with decentralized models, so as to improve transparency and liquidity of the current cloud mining power market.
The Decentralized Mining Power Market of DMEX
DMEX stands for Decentralized Mining Exchange. It is a decentralized trading platform for cloud mining power. DMEX is building a cloud mining power trading platform for the average users, so that they could enjoy the freedom for participation, transparency in incomes and liquidity in assets. In order to realize this mission, decentralization is the key. DMEX platform does not rely on third party suppliers to construct the cloud mining market. Instead, DMEX plans to earn users’ trust by adopting a rigorous technical framework. A trustworthy platform will receive larger market shares.
There are several keywords in DMEX’s design: NFT, DAO and DeFi. They are the cornerstones of DMEX’s decentralized cloud mining power trading platform. To be more specific, the effective mining powers on DMEX platform are represented by NFT. Different NFTs stand for different effective mining powers. When users purchased the mining power NFT, they will receive the corresponding mining incomes. NFT can also be transferred and traded, hence bringing liquidity to cloud mining power assets. In order to sell NFT mining power products, communal DAO is brought in as the arbitrator. There will be zero reliance on centralized institutions. Therefore trust and transparency can be guaranteed. Finally, NFT can be used for lending, mining, community insurance or other DeFi activities so as to obtain greater return.
DMEX’s procedures can be explained as follow. As DMEX is a cloud mining service market, the corresponding mining power of NFT is provided by the miners. In order to sell mining power NFT, miners have to file an application to DMEX first. The application is reviewed by DAO community and the community will vote. When the vote is passed, in order to further protect the interest of NFT buyers, miners will also need to stake a DMC collateral, i.e. the platform coin of DMEX. When the mining power NFT is minted, average users who wish to participate in mining can purchase it on the market. After users purchase the NFT, they will be able to receive the mining incomes. They can also participate in other DeFi activities such as lending, mining or community insurance.
How is DMEX’s mining power NFT produced? How can it guarantee that every NFT is corresponding to effective mining power? How does mining power NFT participate in DeFi activities?
If you are familiar with the cryptocurrency industry, NFT should be no stranger to you. NFT stands for non-fungible tokens. Fungible tokens are interchangeable. For example, you have one ETH token and your friend has another one ETH token. Those two tokens are exactly the same, having the same value and completely interchangeable. On the other hand, NFT is not interchangeable. Every NFT has different attributes. They are uniquely marked. Think of two NFT tokens as two paintings. You cannot convert a da Vinci painting into a Picasso painting.
Why doesn’t DMEX use fungible tokens to represent the mining power sold by the miners? This is because every cloud mining power product on DMEX is different. The differences include node information of the mining power providers, mining power valid period, quantity of effective mining power, the corresponding mining incomes. These variables are better represented by NFT. NFT can make market tradings and DeFi activities more convenient.
Through tokenizing mining power into NFT, mining power assets can be uploaded to the blockchain. Once the asset is linked to the blockchain, all the records will become tamper-proof. This will also greatly improve asset liquidity. Such transparency and liquidity will encourage more people to participate in the cloud mining industry. This also improves the capital efficiency.
Miners provide mining power NFT to be traded on DMEX platform. Before the mining power can be minted to NFT, it must be reviewed and voted by the DAO community. If the vote is rejected, miners will not be able to sell their mining power as NFT. If the vote is passed, miners would still have to stake a corresponding amount of DMC tokens (DMEX’s platform token) before they can proceed to covert mining power into NFT products. Mining power NFT has various attributes such as miner information, mining power valid period, quantity of effective mining power, mining incomes.
After mining power is tokenized to NFT, it can be sold on DMEX cloud mining power market. There are two kinds of sales: fixed price or auction. When average users purchase a mining power NFT, they can check the NFT details in their wallet. These details include miner information, mining power valid period, quantity of effective mining power, as well as mining incomes which is the most important aspect for the users. Mining incomes will be automatically deposited into users’ wallets everyday.
Since mining power has been tokenized to NFT, it can now be transferred. If some users need working capitals, they could sell their NFT. All attributes of the NFT will be open and transparent.
In conclusion, once the mining power is tokenized to NFT, the entry barriers for average users to participate in mining will be greatly reduced. Users need only to buy NFT to obtain the corresponding mining incomes. In addition, the tokenization of the mining power also improves its liquidity.
The tokenization of mining power makes it possible to sell and trade mining power, as well as improving its liquidity. But how to ensure every NFT can corresponds to effective mining power? This is the most tricky part of converting non-digital assets to blockchain assets.
DMEX has three safeguards to guarantee the value of mining power NFT. Before mining power NFT is minted, miners need to submit their mining power details to the DMEX community. These details include authentic individual or company information, total mining power, quantity of effective mining power, and estimated incomes. The community is governed by DAO. All DMC token holders can cast their vote to determine if the miner is allowed to tokenize their mining power into NFT and sell it on DMEX platform.
When miners tokenized their cloud mining power to NFT, they also made a promise on blockchain that they will pay mining incomes to the users as the purchase contract stipulates. What if miners take back their mining power after they sold it? How to guarantee the value of mining power NFT?
After mining power NFT is sold, DMEX executes a fund risk management contract to secure mining income payouts. DMEX’s fund risk management contract linearly releases the funds users paid to purchase NFT by days according to the NFT’s valid period. It means that miners cannot take away the entire payment at once. This is a safeguard against miner defaults. At the same time, miners are also obliged to distribute mining incomes to the users everyday according to users’ purchased NFT portion. If a miner fails to distribute mining income as the contract stipulates, or if the mining income is more than 20% lower than the market average, the DAO community can vote to terminate payments to the miner and return the remaining payments to the users.
The benefit of using smart contract to release payments for NFT purchases and mining incomes is that it could ensure the effectiveness of mining power NFT. Since the smart contract will not release the full payments for NFT purchases to the miners all at once, if the miner fails to distribute mining income as the mining power NFT contract stipulates, the smart contract mechanism will minimize users’ loss. Meanwhile, users can receive the corresponding mining incomes everyday. This will also boost users’ confidence.
DAO governance can also establish community insurance. Community DAO can manage the funds in the community insurance. At present, DMEX plans to allocate 10% of its DMC tokens as the initial funds for the community insurance. As time goes by, all DAO community members can collectively determine another set percentage to direct more funds to the insurance. If a miner black swan event occurs (such as earthquakes), when NFT’s value cannot correspond to its mining power, the community insurance will compensate the NFT holders.
DAO governance is not accomplished at one stroke. Every DMC holder has the right to participate in platform management. According to DMEX’s plan, the DAO governance will be implemented by stages.
During the early stage of DMEX’s launch, DMEX will select 7 representatives from its team and advisors to launch the platform. At this stage the platform will be managed with Multisig Wallet. Every early proposal needs to have 4 or more consenting votes before it can be accepted.
After the DMEX platform is launched, DMEX will start the communal DAO governance. The community can vote for new managers for the Multisig Wallet. Communal DAO can raise new proposals for various agendas on DMEX and vote on it. Things that can be governed by community votes include but not limited to: mining power NFT minting review, mining power NFT mint fee adjustment, mining power NFT trades service fee adjustment, mining power NFT loans and other DeFi products’ interest rate adjustment, suspension of payment release according to risk management contract (miner fails to distribute mining income for 7 days, mining income is 20% lower than the market average for 7 consecutive days), miner defaults that cause substantial loss to the users, initiate insurance compensations, etc.
DMEX is a marketplace for cloud mining power NFT. What does it has to do with DeFi? Once cloud mining power is tokenized to NFT, it turns into working capitals and thus has the chance to participate in DeFi activities. DMEX plans to launch with the Filecoin mining power market, then move on to Bitcoin and Ethereum mining power market.
On DMEX platform, there are two kinds of assets available for collateral loans. One is mining power NFT. The other is mining income. DMEX tokenizes mining incomes. For example, when users purchased FIL cloud mining power NFT, they will receive FIL incomes from the miner everyday. DMEX maps FIL to iFIL tokens at 1:1 ratio via Ethereum platform. It means that the mining incomes users receive everyday is Ethereum-based iFIL token. When users decide to leave DMEX platform, they can convert the iFIL back to FIL tokens at 1:1 ratio. DMEX plans to distribute Bitcoin mining incomes with wBTC or tBTC tokens. The Ethereum mining incomes might be distributed with wETH tokens or directly as ETH.
Users can stake their mining power NFT or mining incomes (such as iFIL, wBTC and wETH) as collateral to take out a loan in stablecoins such as USDT. They simply need to pay back the loan at its maturity with the corresponding interests. Lenders can post their demands on the DMEX platform, while borrowers can also apply for collateral loan by staking their assets. If the loan payment is overdue, the smart contract pertained to the loan will automatically transfer the staked cloud mining power NFT assets or incomes (such as iFIL) to the lender.
Users stake NFT assets that can be mined to obtain DMEX’s platform token DMC. Users can earn DMC token incomes by providing liquidity to the DMC token pool. Users can also obtain DMC token incomes from behavioral mining by purchasing cloud mining power NFT.
* Community Insurance
By staking their mining power NFT assets or DMC tokens, users can earn premium income. At the same time users might also be liable to losses caused by miner problems.
DMEX’s Token Model
DMEX’s platform token is DMC. It has a total of 100 million tokens, of which 50% is generated through mining and 10% is reserved as a risk-sharing fund managed by the DAO.
From the perspective of DMEX’s sustainability, its centerpiece is its mining activity distribution model. DMEX needs to motivate miners to provide more mining power NFT through the mining model. It also needs to encourage average users to buy more cloud mining power NFT in order to build a sizeable cloud mining power NFT trading market.
According to DMEX’s white paper, DMEX’s mining activity mainly involves three parts: behavioral mining, liquidity mining, and node staked mining. Of the 50% mined DMC tokens, behavioral mining accounts for 30%, liquidity mining comprises of 10%, and node staked mining amounts to 10%.
Behavioral mining refers to the purchasing of cloud mining power NFT, trading NFT and participating in DMEX’s DeFi activities. 5% of users’ payments for mining power NFT will be paid to miners as a channel fee for selling mining power. The channel fee will be used to purchase DMC tokens and repay the users. This will create a demand for DMC. In addition, when users trade their NFT on the DMEX marketplace or participate in DeFi (NFT staked loans, etc.), 2% of the transaction fee will also be used to purchase DMC tokens and repay the users. This will further fuel the demand for DMC purchases.
Liquidity mining is achieved through users providing liquidity for DMC/ETH or DMC/USDT liquidity pool (such as on Uniswap and other DEX). Users can earn platform token DMC by providing liquidity. The liquidity mining period is one year.
Node staked mining mainly targets promotional nodes. DMEX has community master nodes and light nodes. The community master node needs to stake 20,000 DMC tokens. The master node has the right to recruit light nodes, which is required to stake 2,000 DMC. The master nodes and the light nodes help to promote the mining power NFT. Both type of nodes can earn the corresponding commission as well as the staked DMC tokens’ mining incomes.
From the descriptions above, we can identify three main functions of DMC: participating in DAO governance, providing credit guarantee, and earning platform incomes. Participation in DAO governance means that only DMC token holders can vote to decide on various proposals to the platform. Credit guarantee is similar to qualification credentials. For example, miners can only mint mining power NFT by staking a corresponding amount of DMC tokens. For community promotions, only by staking DMC can one becomes a community node and participate in node staked mining. If any miner is dishonest with his mining power NFT, his staked DMC tokens will be deducted. To earn incomes from the platform means that the DMC token has the potential to acquire the platform’s transaction fees in the future.
The cryptocurrency industry is rapidly growing almost every day. The cloud mining power market is no exception. With the development of smart contract, there is a golden opportunity for us to build a decentralized cloud mining power market through instruments such as NFT, DAO, community insurance, smart contract fund release, and token incentive mechanism. We could establish a brand new mining power market with income transparency and asset liquidity. Our endeavor will not only lowers the entry barrier for average users to participate in cloud mining,but also we could truly earn users’ trust and take advantage of the opportunity to expand the market share and reshape the cloud mining industry.