H2OFinance Introduces our first generation of Bitcoin Standard Hashrate Token (BTCS19Pro) solves this problem by bringing exchange-grade liquidity to Bitcoin mining. Each BTCS19Pro token is collateralized by 1 tera hash per second (“TH/s”) of Bitcoin mining power. By staking BTCS19Pro, holders of the tokens will receive daily Bitcoin distributions and at the same time will also receive the additional bonus of the equity governance token of H2O. And because the market price of BTCS19Pro is determinable as the discounted cashflow of the underlying mining power,BTCS19Pro in secondary trading will perform as a leveraged Bitcoin token free from liquidation risk. BTCS19Pro will create an efficient market for Bitcoin’s mining power in ways similar to how Grayscale Bitcoin Trust creates institutional liquidity for Bitcoin. So let’s say , buy and hold BTCS19Pro, get the mining revenue, and at the same time, enjoy the equity of this joint mining company. Any future purchases of BTCS19Pro, I can participate in the profit sharing.
Bitcoin mining is a profitable venture with limited liquidity. Most miners must choose between holding onto equipment for years or relying on brokers for infrequent sales. This lack of liquidity means Bitcoin miners have few ways to hedge against or profit from the price fluctuation of mining machines. The same also discourages newcomers from seriously participating in Bitcoin mining. Finally, while traders often have the interest to gain Bitcoin mining exposure for it can be viewed as Bitcoin long options, high transaction costs dissuade them.
Cloud mining is an imperfect solution. While cloud mining lowers the barrier of entry to mining, lack of standardization and strong product coupling make markets hard to form around mining contracts. Our first generation of Bitcoin Standard Hashrate Token (BTCS19Pro) solves this problem , a token collateralized by standardized Bitcoin mining power. By standardizing and tokenizing mining power into BTCS19Pro and provide liquidity for BTCS19Pro token for trading, we can bring exchange-grade liquidity to the mining power market while meeting traders’ need for mining exposure.
Exchange trading of Bitcoin mining power
Each BTCS19Pro is a token collateralized by a standardized unit of actual Bitcoin mining power. Holding the token is legally and functionally equivalent to owning the underlying mining power; staking the token on-chain will entitle the staking holder to receive mining rewards in Bitcoin; and provide liquidity of BTCS19Pro on BNB Chain will bring meaningful liquidity to tokenized Bitcoin mining power. BTCS19Pro creates an efficient market among Bitcoin miners and those interested in becoming one. By trading BTCS19Pro, market participants can freely enter and exit Bitcoin mining exposure in any size, at any time, and with low costs. Even miners without mining power tokenized by BTCS19Pro can make use of the token to capture the profits in or hedge against the risks of mining machine price fluctuation. BTCS19Pro also connects miners with traders in general. Because the market price of BTCS19Pro will perform as a leveraged Bitcoin token, BTCS19Pro will meet a variety of trading needs of proprietary and algorithmic traders in ways that are previously unattainable.
Issuance — freely participable Bitcoin mining power standardization and tokenization
BTCS19Pro will, and can only be issued, when actual Bitcoin mining power has been contributed to or acquired by the project. according to the Cloud mining Power Guarantee Program scheme, the project or partner must hold at least 1.3 times the size of the cloud mining power in BTCS19Pro issured and that size must be distributed over at least two physical locations.
The standardization target of BTCS19Pro is 29.55 W/TH upon launch. Specifically, when eligible units of mining power are acquired, they will be placed in a staging pool awaiting standardization. If the effective efficiency of all staged mining power is not 29.55 W/TH, the project will seek additional mining power with suitable efficiency to be either contributed or acquired so that the effective efficiency of the resultant blend of all staged mining power will reach target.
For example, if the staging pool has a total of 1 PH/s mining power with an off-target effective efficiency of 29.55 W/TH, the project may choose to procure another 10 PH/s mining power with an effective efficiency of 25 W/TH to bring the overall effective efficiency of the staging pool to target.
When blending succeeds for a staging pool, the project will, with the consent of owners of staged mining power, move all staged units of mining power to the project’s tokenization pool and issue one BTCS19Pro for each 1 standardized unit of TH/s added to the tokenization pool. When blending fails, there will be no ownership transfer of the staged mining power and no token issuance.
By operation of token design, the total circulation of BTCS19Pro must at least generate the amount of mining power that all circulating tokens collectively represent. For example, if the blockchain shows 1000 BTCS19Pros in circulation, the project must generate at least 1300 TH/s in Bitcoin mining power.
BTCS19Pro claims mining rewards from the Bitcoin network centrally and distributes rewards to holders de-centrally. The project will partner with a reputable mining pool to claim mining rewards from the Bitcoin network. Namely, the project will direct all mining power collateralizing the token to the partnering mining pool in exchange for daily mining rewards as calculated and allocated by the pool. Centralization of this step is necessary to ensure feasibility and accountability: the mining pool will act as both a service provider and as an auditor that monitors mining power sufficiency. As it is customary, the project expects up to 10% of annual mining power downtime.
If a user holds BTCS19ProPro, by pledging BTCS19Pro, they will receive an additional Farm bonus of H2O, the equity governance token of the H2OFinance project, along with the actual BTC gain. This part of the gain depends on the price of the H2O token and the progress of the release of the H2O token, with an initial estimated APY of 100%.At the same time, 5% of BTCS19Pro's BTC proceeds will be used to buy back and destroy H2O.Since the H2O equity token has a long-term dividend effect and is the only channel for dividing the project revenue of H2OFinance, in a sense, once you purchase and hold BTCS19Pro, then you will be able to enjoy the permanent dividend right of the H2OFinance project. To put it another way, think of H2OFinance as a joint mining company. When you buy a product from this company (BTCS19Pro), you will not only enjoy the benefits of the product, but you will also be able to earn equity in the company. In other words, from the moment of purchase, every BTCS19Pro sold will provide you with dividend income.
Liquidity premium protection
We expect the price of BTCS19Pro to command a liquidity premium as compared to mining power without tokenization. To protect this premium against undue sell pressure, material issuances of BTCS19Pros must be approved by the project’s governance board.
The project platform can only independently issue BTCS19Pros representing 1PH/s mining capacity at most every day. For BTCSTs issued daily representing more than 1PH/s, the issuance must be unanimously approved by the project management committee.
As a leveraged Bitcoin token
Each BTCS19Pro is collateralized by real mining power. Therefore, its fair market value can be determined by the discounted cashflow model. The price of BTCS19Pro in secondary trading should track that of Bitcoin and the token should be able to function as a leveraged Bitcoin token in an efficient market. Further, because BTCS19Pro does not depend upon financial derivatives, it is by design free from liquidation risk.
The project team will serve as BTCS19Pro’s main market-maker. Unlike tokens the intrinsic values of which are hard to ascertain, BTCS19Pro has not only an intuitive valuation model as but also an over-the-counter market for the underlying assets. The project team therefore has clear methodologies and incentives to bring the market price of BTCS19Pro towards equilibrium.
Risk Disclosure and Risk Management
While Bitcoin mining has traditionally been profitable when viewed as a whole, the profitability of individual miners, including this project, is far less certain. Risks inherent in Bitcoin mining are equally applicable to this project because mining power is the base collateral. Tokenization introduces additional risks.
Specifically, mining rewards on BTCS19Pro may temporarily or permanently stop if, among other risks, (i) properties generating our mining power experience damages or losses (including those resulting from floods, landslides, earthquakes, heavy rainfalls, and tornados), (ii) we are unable to enforce our contractual rights (particularly those in place to control our energy costs), (iii) Bitcoin network-wide hashrate increases to a level where our standard unit of mining power becomes profitless, and (iv) mistakes in the project’s dApp cause errors or enable attacks, leading to the loss or inaccessibility of mining rewards.
To manage these risks, the program team will, among other things, (i) select historically stable sites and diversify equipment models, (ii) engage local counsels to perform legal and operational due diligence to ensure high likelihood of enforceability before entering into contracts, which must clearly specify ownership transfer schemes, mining power delivery obligations and remedies during defaults.
Team, Partners and Governance
The program team consists of mining veterans with four years of experience constructing and managing mining sites in USA,Myanmar,Yunnan, Sichuan, Xinjiang and Inner Mongolia provinces of China. One of the team's shareholders is the largest shareholder of a BTC mining company ranked at least in the top 10 in the world.Founding partners of BTCS19Pro include institutional miners with more than 100 PH/s of mining power under management. These founding partners and the partnering mining pool will form a governance board that collectively decides on material issues of the project, which include new issuances, cost level adjustments, surplus profit distribution and future features.
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