Inspiration

We believe in the value of giving millions the access and the freedom to "mine" any cryptos of their choice and bringing them closer to the variety of crypto communities through synthetic mining contracts. As mining has become more and more concentrated in a few hands & on a few coins, the underlying decentralized foundation of our crypto world is threatened.

In light of the tremendous volatility in the bear market, the late BCH forking war, the many miners and stakers pulling out of the scene, we created the prototype HashEdge at the ETHSingapore hackathon:

(1) to rearchitect the opaque, oligopolistic crypto-mining industry, (2) by creating a marketplace for tokenized mining contracts that are transparent, tradeable and trustless.

What it does

HashEdge is a decentralized marketplace for generalized crypto mining. In this peer-to-peer marketplace, “miners” can issue tokenized synthetic mining contracts within a few clicks, and investors can trade these standard contracts with limitless liquidity.

In this context, "generalized mining" broadly includes "network seigniorage", incorporating POW, POS, DPOS, and centralized incentive schemes. The marketplace provides Expedia-like aggregator service, allowing different coins, underwritten by agents of different credit ratings, making information transparent, and presents investors with choice.

However, the great majority of derivatives and tokens on any platform are starving for liquidity. This is why HashEdge incorporates a solution bootstrapping liquidity upon issuance of derivative tokens by crowd-funding automated market maker: the Kickstarter for Liquidity. Instead of seeding a project, you are seeding its liquidity pool and owning a share of the transaction fees.

How we built it

De Fi Protocols utilized:

A few decentralized finance protocols are at play here.

We create a token generation solution where contracts in the form of ERC20 tokens will be minted once minimum crowd-funding liquidity threshold of the contract has been reached, and tokens traded at price specified by bonded curve. Anyone who stakes a project’s liquidity can get a share of transaction fees. Our solution is inspired by automated market makers that provide deterministic liquidity with bonded curves such as Bancor/Uniswap, and shared liquidity model of Kyber.

For this hackathon, in light of derivatives’ reference rate and fair value which are fundamentally different from purely liquidity-driven valuation of instruments without intrinsic values, we choose to modify Uniswap’s constant product formula to accommodate the existence of external market. We deployed modified Uniswap protocol primarily because it has the liquidity crowdfunding mechanism for ERC-20 tokens where investors can receive dividends from transaction fees if they stake their assets(ethers). Uniswap is also cheaper in terms of gas cost than the comparable Bancor Protocol.

(In the future, we plan to incorporate Set Protocol to mint ERC20 index tokens on top of our generalized mining tokens, to allow investors to invest in indices such as POW mining index, 30-Day mining liquidity index, etc. We also plan to utilize Kyber Network to convert stakers’ and investors’ coins and tokens to ETH since the numeraire of our contracts is ETH, to be fed into the modified Uniswap formula.)

Client Interface

We have three groups of target users: (1) miners who issue tokenized contracts, (2) stakers who invest in liquidity of tokenized contracts, and getting transaction fee dividends, (3) investors who trade tokenized contracts.

We standardized mining contract layout so that users have lower onboarding cost. A tokenized mining contract includes the following major elements: underlying asset, expiration date, issuer credit rating, trading price. For our specialty feature liquidity crowdfunding, a crowd funding goal, progress bar, my stake, my staking dividend will also be included.

For an ordinary investor, he/she is going to see two tabs, one with a list of tokenized cloud-mining contracts that needs liquidity crowdfunding to launch, the other with the contracts that already met the minimum liquidity crowdfunding threshold. If the investor managed to stake in or purchase one of the contracts or more, it will be displayed on his/her portfolio page.

For miners, he/she is going to face a contract issuance page where all details of a tokenized cloud-mining contract can be modified. After issuance, the portfolio page will display the underwritten contracts.

Challenges we ran into

We ran into difficulty in tokenizing certain types of derivatives such as futures and swaps (in contrast to options) into ERC20. It is important for liquidity reasons and for the fact that most of the De Fi protocols are ERC20s.

Issuance solution leveraging existing AMM solution with deterministic liquidity such as Bancor and Uniswap both face significant challenges in dealing with external market liquidity. Using AMM to price issuance in the tokenization process, entails all tokens issued follows the same bonded curve, and pricing solely based on liquidity. However, derivatives have underlying value; their price cannot be solely determined by supply and demand within the closed ecosystem. Furthermore, there is no solution for shorting in the issuance process using AMM. Lastly, derivative tokens should be standardized products of which quantity in circulation on external markets may not be able to control. We spend a significant amount of time testing different approaches to the external market problems, such as introducing a time-decaying variable to the Uniswap constant product formula, introducing a DAO to the Bancor mechanism in allowing stakers to modify the CW factor in the Bancor formula, all of which can be interesting direction for further research. We finally settled on an experimental approach of pegging the external market issuance quantity to variation of internal staked liquidity pool.

We also encountered challenges on the UI/UX design for the project, as there are three types of users each with different flows.

Accomplishments that we're proud of

We put together a team across the Pacific. Despite one of our devs did not receive his Singapore visa in time, our amazing full-stack Tal, wrote every line of code on his own and was able to finish in time. We are able to start from scratch and come up with an original solution that tackles one of the most important issue of our decentralized world.

What we learned

We researched the differences across De Fi protocols to figure out what has been done and the best fit for our use case. In particular, we learned the limits of all existing liquidity solutions and the particularities about tokenization of different derivatives.

What's next for HashEdge

We will continue to research the optimal liquidity solution for issuance and trading of long tail derivative instruments. At the mean time, we plan to carry on the mission of democratizing the oligopolistic crypto mining industry, and build HashEdge, the generalized mining contract exchange with Kickstarter for liquidity within the next 6 months.

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