Month: January 2021

“Miners are selling” is a popular trope used to explain bitcoin’s occasional downward price action. But on-chain data doesn’t support this narrative, according to analysts and mining pools themselves.

After bitcoin’s correction earlier this week to the tune of nearly 30%, miners were a popular scapegoat. But miners have been extremely consistent in their selling habits for months, according to network data collected by Glassnode and analyzed by CoinDesk.

For the past six months, weekly bitcoin (BTC, +3.36%) flows from mining wallets to exchanges have been steady despite the cryptocurrency’s more than 330% gains over the same period. The only anomalous activity seen among mining wallets happened well before bitcoin’s correction. 

Since July 2020, miners have sent an average of 2,100 coins per week to exchanges, per CoinDesk Research. Miners are currently on track to finish another extremely average week with only 1,200 coins transferred so far from their wallets for cryptocurrency exchanges.

Confirming this observation, Coin Metrics senior analyst Karim Helmy told CoinDesk there isn’t any on-chain data supporting increased miner selling.

“BTC-denominated gross inflows and outflows out of mining wallets have both remained stable, as have net flows,” Helmy said in a direct message.

An unusually large reduction in mining wallet supply, however, did occur over a recent four-day period from Dec. 26 to 30. During this period, the aggregate balance of mining wallets dropped by 21,000 BTC, a 1% decrease. 

But instead of possibly causing a correction, these transfers happened while bitcoin was climbing from $26,000 to $29,000. Over the next nine days, moreover, bitcoin’s price gained another 43% before temporarily topping out just below $42,000 and falling nearly 30% into Monday morning.

These coins don’t appear to have ever been sent to exchanges, per Glassnode data. Over the four-day period, exchange addresses received a total of less than 2,400 coins from mining wallets, an amount far less than the 21,000 withdrawn from mining wallets.

Even if every coin sent by miners exchanges were instantly sold at market, however, their order would represent a tiny percentage of daily trading volume. 

Miners sent 1,890 BTC to exchanges on Dec. 26, 2020, worth roughly $48 million at the time and the largest single-day transfer in the past year. That same day, Binance – currently the largest cryptocurrency exchange by volume – reported over 148,000 BTC in volume on its BTC/USDT pair, the exchange’s largest bitcoin market. 

Assuming miners sold all their coins on one market at one exchange, they would represent 1.3% of its daily volume. 

Leading mining pools are in fact increasing their bitcoin holdings, not liquidating them, with the balances belonging to miners at F2Pool and Lubian – the two largest mining pools by their individual holdings – steadily increasing for the past eight months, per Glassnode. 

“I’m not sure what addresses they’re watching,” said Poolin CEO Kevin Pan, calling anything showing a significant increase in miner selling “maybe fake data.” 

Even though Slush Pool doesn’t closely track what their miners do with their bitcoin payouts, engineer and technical writer Daniel Frumkin told CoinDesk, “We know that many of our miners are long BTC and only sell the portion of their revenue that’s needed to cover costs and manage risk.”

Thus, when the price drastically increases, Frumkin explains, miners are able to and in fact do sell fewer bitcoins, not more since the price appreciation boosts their profit margins per coin mined. 

More than likely, recent price dips are primarily caused by U.S. investors realizing some profits.

For example, Guggenheim CIO Scott Minerd took to Twitter Sunday saying it’s “time to take some money off the table,” referring to bitcoin, after telling CNBC a month ago that bitcoin “should be worth” $400,000. Significant selling activity on Coinbase over the weekend and Monday also signaled profit taking from U.S. investors. 

Regardless of what catalyzed it though, bitcoin’s latest correction wasn’t from miners selling their bitcoins. In fact, they’re accumulating more. 

Galaxy Digital (GLXY) has announced the launch of its miner financial services and proprietary mining operations.

Per a release, the publicly traded digital asset management firm is integrating its existing business lines to miner-focused financial services – internally referred to as "MiFi" – including lending, investment, and risk management offerings.

Galaxy Digital Mining, the firm's mining branch, under development since before October, will also oversee a proprietary mining operation

Fidelity's former director of mining, Amanda Fabiano, is leading the mining operations.

In a statement, Fabiano said Galaxy's proprietary mining operation helps the company "deeply understand and solve for the financial needs of miners."

Galaxy shares have nearly doubled in the past three months, trading at $8.48 in post market hours.

There’s a decentralized autonomous organization (DAO) that lets ETH holders back Ethereum 2.0 without losing liquidity, and it wants to give its participants a vote.

Until Feb. 12, ETH holders have a chance to earn some of the governance token for Lido, a new decentralized finance (DeFi) and staking protocol. There will be other opportunities in the future, but it’s up to LDO holders to decide when.

Since Tuesday, the amount of ETH staked on Lido has more than doubled, breaking 60,000 ETH as of this writing.

Lido sits at Ethereum’s sweet spot, putting the road to Eth 2.0 into DeFi. It gives people a fresh way to contribute ETH to staking on Ethereum’s new beacon chain but still unlock the value of their ETH. It’s one of those stories that somewhat strains credulity, very much an only-in-DeFi kind of scenario. So far it’s working.

Kraken has already rolled out a similar product and Coinbase plans to, but those lack the element of distributed trust.

An early backer of Lido and a member of its DAO, Aave’s Stani Kulechov, told CoinDesk over Telegram, “Tokenized staking ETH is interesting, because you can use the tokenized staked ETH as collateral (for example in Aave) and get more liquidity in ETH so you can leverage quite a lot in Eth 2.0 staking, I’m curious to see how much leverage there will be in staking.”

Additionally, Lido has a governance token but it’s taking a unique approach to distributing it. Unlike Compound’s COMP, which announced a yield farming plan that ran forever or Yearn which unloaded it all super fast, Lido is parceling out its governance token as its stakeholders see fit. 

Lido’s governance token is called LDO. There are 1 billion of the tokens and 64% of them are dedicated to the founders and other early participants who got Lido off the ground, but that giant stash is locked for a year and then will be parceled out (vested) over the following year. 

But, about 360 million tokens are in the DAO treasury, but only 4 million tokens have ever been made liquid, before the new distribution that started on Jan. 13. 

These 4 million were distributed before LDO was announced, to “early stakers and DAO treasury tokens.” 

The distribution that just began, to depositors in the stETH/ETH pool on Curve, will pass out another 5 million LDO until Feb. 12. To get access to the airdrop, users simply need to contribute to Curve’s stETH/ETH pool, and then stake the liquidity provider (LP) tokens they receive into Curve’s gauge. Step-by-step instructions are detailed on the Lido blog. 

As an added benefit, holders who do so will also earn Curve’s CRV token. 

As of this writing, LDO is trading right around $1 each.

Lido is a DAO that’s meant to give users a way to their ETH behind the new iteration of Ethereum without really sacrificing its liquidity. The team spelled it out in a primer. The fact that this works is somewhat remarkable.

As we’ve previously reported, once a user commits their crypto to Eth 2.0 staking, it very likely won’t be available until 2022 at the earliest (though wonders may never cease). Regardless, once the ETH is in, there’s no turning back. 

Those who deposit ETH into Lido to stake for Eth 2.0 will receive stETH in return, which stands for staked-ETH. 

This is the part that will sound somewhat unbelievable to outsiders: This version of ETH is basically trading at parity with regular ETH.

On the downside, stETH is a token on Ethereum, which means it can’t be used to pay gas. That would seem to suggest that it would have less value. On the other hand, stETH earns a return from staking, and ETH does not. So maybe the two balance each other out. 

Last month, CoinDesk estimated that each validator was earning about $6 per day in ETH, but the earnings are locked up too.

But stETH gets those earnings in the form of fresh stETH. It’s a cryptocurrency that rebases every day, like Ampleforth. Anywhere it resides, more stETH will appear. Users can trade it away and whomever receives it will begin earning the returns the former holder had. 

Ethereum 2.0 distributes a fixed amount each day among stakers, so the more ETH goes in, the less each staked ETH earns, so users will earn the most ETH at the beginning of their stake.

“Right now based on the amount of people that are staking, the rate is around 11.1%,” Lido’s marketing lead, Kasper Rasmussen, told CoinDesk in a phone call.

Backers don’t get 100% of the returns; 10% is set aside for the DAO, for now largely funding its insurance against slashing. Eventually it will likely designate some of the returns to pay validators.

As of this writing, just under 63,000 stETH have been minted, held in just under 1,500 addresses.

Staking service providers are chosen by the DAO. Users staking ETH don’t get to choose which staker their ETH goes to when they put it into Lido. 

“To become an approved operator for LIDO it is discussed by the LIDO community and it is voted on by token holders,” Rasmussen explained. 

The stakers are currently well-known staking companies in the space. The current staking providers are all members of the DAO, Stakefish, Staking Facilities, P2P, Certus and Chorus One. Any company can propose joining via the Lido DAO governance portal on Aragon.

The Lido DAO members are “Semantic Ventures, ParaFi Capital, Terra, KR1, P2P Capital, Bitscale Capital, Stakefish, Staking Facilities and Chorus One, Rune Christensen of Maker, Stani Kulechov of Aave, Banteg of Yearn, Will Harborne of Deversifi, Julien Bouteloup of Stake Capital, Jordan Fish and Kain Warwick of Synthetix,” Rasmussen wrote in an email.

They contributed $2 million collectively to get the project off the ground.  

Rasmussen said that the advantage of Curve is that it has accounted for the rebasing factor of stETH. Using a traditional automated market maker (AMM) that simply runs on the ratio of the two tokens in the pool, the daily change can throw the balances out of kilter. 

“The risk is here if you’re providing liquidity, instead of getting your daily staking rewards there’s a risk that it’s arbitraged away by other traders,” Rasmussen said.

The creator of Curve, Michael Egorov, said it was a relatively simple fix, one they had already dealt with via Aave tokens. “We do support the way stETH works (e.g. growing in quantity like Aave aTokens rather than increasing every token’s value as staking is going),” he told CoinDesk in an email.