Hashrate Tokens and their Role in Precog Finance
A sophisticated DeFi ecosystem is one that offers a wide range of tools, trading options and investment opportunities for its users — and such an environment requires an intricate underlying infrastructure to support it. How such a system is implemented depends on the nature of the protocols involved, and with the right configuration, a project can establish a sound, reliable and profitable dApp for users to invest in.
For a protocol such as Sentient for instance — an automated trading algorithm — there would have to be a system in place to not just distribute rewards, but also maximize users’ returns on their investment. To get a better idea of how Sentient works, click here! Also, check out one of our previous articles on investment pools to obtain a better insight into how investors deposit assets into the protocol.
While the entire profit distribution scheme is one that requires an article of its own, the focus of this article will be on a specific mechanism leveraged in the Precog Finance ecosystem — Hashrate tokens.
But First, What Are Hashrate Tokens?
Hashrate is the unit of measurement that expresses the amount of computing power used to process transactions in a Proof-of-Work blockchain network such as Bitcoin. To understand what Hashrate tokens do, we must first take a glance at how the typical PoW network functions.
For the sake of consistency and simplicity, let’s take Bitcoin as the prime example. In order to find the next block and add it to the blockchain, Bitcoin miners compete against one another to solve a very complex hash puzzle; and this is in fact where the most energy is spent — in the computational process. The higher the hashrate of a mining machine(s), the higher the odds of finding a block and thus, receiving mining rewards.
However, there is a small catch. The more miners that join the network, the more difficult the puzzle becomes, requiring more hash power to solve it. To circumvent the uncertainty and to ensure a steady stream of income, miners pool their resources to increase their rate of solving blocks, and share their rewards correspondingly. These are called mining pools, and are not exclusive to the Bitcoin network.
Hashrate tokens represent a certain amount of mining power for an underlying blockchain. Owning a hashrate token is somewhat equivalent to owning a miner with a particular hashrate, as the user receives income based on the mining power they possess.
There are many reasons why one would consider owning hashrate tokens; it could be that their environment can’t accommodate a loud and delicate machine, or that the local electrical infrastructure isn’t reliable enough to constantly provide the resources to keep it running. Whatever the reason may be, they are an interesting revenue stream that — under the right circumstances — makes for an effective means of passive income.
Hashrate Token Usage in Precog Finance
While users can deposit assets in Sentient’s investment pools to generate income, it isn’t the only means in Precog Finance to secure a revenue stream. Users who stake also generate rewards, and hashrate tokens play an important role in that mechanism.
In every profit distribution cycle, the Sentient protocol will utilize 10% of the users’ accumulated profit to purchase hashrate tokens such as GMT.io and BTCST.Finance. Naturally, these tokens generate daily returns in assets such as WBTC (Wrapped Bitcoin), which are then automatically collected in the staking treasury smart contract along with the original hashrate tokens.
As a result, users not only generate revenue in $PCOG but also in tokens such as WBTC, which are distributed according to users’ deposited amounts. While $PCOG has a myriad of utilities within the Precog Finance ecosystem, it is hard to overlook the sheer influence and dominance of Bitcoin in the overall crypto space. With unparalleled network security and almost-unmatched decentralization, its status as a store of value and sound money continuously reaches new heights — and soon, you’ll be able to earn some with our protocol!
Have any questions about our staking mechanism? Want to share your experience with hashrate tokens? Find us with the links below!