A crypto mining pool that accounts for nearly 10% of Bitcoin’s processing power has halted payouts, citing liquidity issues, as it blocks members’ access to their cryptocurrency.
Many of the crypto bankruptcies and bankruptcies seen in recent months by firms such as Celsius, Voyager Digital, and Three Arrows Capital all stem – either directly or indirectly – from the collapse of the Terra/LUNA stablecoin ecosystem.
Continue reading: How the collapse of a $48 billion stablecoin rippled over crypto
But Poolin, which allows individual miners to pool their computing power and get a share of new bitcoins and mined ethers, isn’t a lender that made bad loans or a hedge fund that made bad investments. Instead, it’s a collective of Bitcoin and Ethereum miners who pool their computing power in exchange for a share of the 6.25 Bitcoins earned when a member wins the right to add a new block of transactions to the blockchain.
There are many reasons to withdraw earnings – most notably to deposit them in a more secure, private cold wallet under your own control. However, Poolin’s vague statement that it is trading due to unspecified “liquidity issues due to recent rising demands for withdrawals” is troubling – especially as it claims its “net worth is positive” and that all users’ funds are safe.
However, one of the main reasons for withdrawing funds is to sell bitcoin, which would indicate more people are exiting crypto, even if bitcoin is currently below $20,000. The bitcoins earned can be used to rent hashing power from Poolin’s mining farms, thus increasing revenue.
Most miners, however, are hodlers — “hold on for life,” a term popular among crypto believers — so it’s a potentially worrying sign for the industry if they’re withdrawing funds.
Possible DeFi connection?
While it’s not clear — and has only been hinted at — that Poolin’s troubles are linked to the failure of hedge fund Three Arrows Capital, which owed billions to many of the crypto lenders that subsequently went bankrupt, he did business with the fund , reported BeInCrypto. It also did business with BlockFi, a crypto lender that was saved from bankruptcy with the backing of Sam Bankman-Fried, CEO of FTX crypto exchange.
But it had also dabbled in decentralized finance (DeFi) — risky yield farming in particular, according to Cory Klippsten, an analyst at Swan Private, a firm focused on advising companies and high-net-worth individuals on Bitcoin investments.
See also: DeFi Series: What is Yield Farming and Liquidity Mining?
“Poolin was already dealing with DeFi yield farming in February 2021. What could possibly go wrong??” he tweeted on Sept. 5 after the withdrawal halt was announced.
Pull out
A week ago, Poolin represented nearly 10% of global “hash power” — all the computing power used in bitcoin mining. This makes it the fifth largest mining pool according to BTC.com. Now it has only 4.6% and is in eighth place.
Miners unable to withdraw bitcoin and ether from their accounts withdraw their computing power, which they can easily switch to another pool. Therefore, the amount of Bitcoins earned by Poolin will decrease by more than half, which cannot alleviate liquidity problems.
Bitcoin’s blockchain is secured, and new transaction blocks are added via a consensus mechanism called Proof-of-Work, or PoW, in which miners compete to solve a mathematical puzzle that gives them the right to verify the accuracy of transactions add convert them to a block and write them to the bitcoin blockchain. In return, they receive newly minted bitcoins – currently 6.25 BTC per block.
Learn more: Crypto Basics Series: What is a consensus mechanism and why is it destroying the planet?
It is this computerized mathematical race that causes Bitcoin’s massive electricity bill, as well as the resulting pollution, that has caused so much resistance to the currency. Most of the work is done in mining pools like Poolin.
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