DOT mining concept paper
In just a short period, the Polkadot token has rocketed to the top of the Crypto charts. Polkadot’s protocol connects multiple blockchains, which is an essential aspect for many individual chains. The Polkadot process adds value and data to previously incompatible networks, like Bitcoin, Solana and MXC.
The MXC Foundation has been working with Polakdot to deliver the parachain of the future, which will assist, grow and onboard multiple data chains and the data they manage. In 2022, the M2 Pro is looking to add its fourth (4th) token to its Multi-Token Network. The Polkadot token is designed to be fast and scalable, and we’re delighted to present this mining concept paper. We will discuss the onboarding possibilities Polkadot may bring to the M2 Pro and the multi-token mining network.
Before we dive into how mining Polkadot tokens (DOT) can be made possible with M2 Pro, it’s imperative to note that the full extent of the Polkadot token supply has already been assigned and/or distributed, meaning there is no supply of DOT that can be mined in the traditional sense, the same way Bitcoin or Ethereum (before Ethereum 2.0) are mined through Proof of Work (PoW) mechanism.
The Polkadot NPOS
Polkadot operates on a Nominated Proof of Stake model, or NPOS. The DOT NPOS model relies on two elements: nominators and validators. Nominators are DOT token holders who decide to nominate a specific validator (or multiple validators, should they wish) by staking their DOT tokens on the validator. The validators essentially monitor the Polkadot blockchain, ensuring that the blockchain operates appropriately. However, not all validators are monitoring at the same time. To put it simply, validators draw a random number lottery that determines which validator gets to monitor the specific block.
Nominators who have staked their DOT tokens on the validator receive a share of the DOT token awarded to validators, after taking into account the commission rate of the specific validator. The amount is dependent upon how much DOT the validator has staked on itself, along with how the amount of DOT tokens staked on the validator compares to that of other validators that monitored the same block.
Since the MXC Foundation already operates its own, successful validator on Polkadot, our development team is investigating extending an arm from the current validator to include the M2 Pro miner network, allowing them to mine DOT. Here’s the current process our technicians have identified:
- Sensors and devices encrypt IoT data into the data blocks
- Data blocks are added to the MXProtocol
- M2 Pro miners mine data blocks, and retrieve the encrypted IoT data
- Encrypted IoT data is validated to prove its authenticity
- The validated IoT data is sent to the data receiver or purchaser
- The purchaser makes a payment for the data to the data originator/source
- Normally, the data purchaser would use MXC token, forwarding it to the MXProtocol that engages with the miner network
To allow for M2 Pro to “mine” DOT, there are some additional steps that may need to replace step 7. This is part of the concept phase:
8. A portion of MXC token on the miner side enters a collateralisation phase, while the rest is on the M2 Pro Miner network (as per usual with MXC, DHX, or BTC)
9. During the collateralisation phase, MXC is put into a multi-faceted arbitrage that longs MXC while maximising the DOT gained. This arbitrage model is unique, since it does not rely on one central pair, but instead relies on multiple pairs at the same time (more on this below)
10. With DOT gained through the collateralisation phase, the DOT could enter the MXC Validator on Polkadot as DOT stake
11. The DOT that is extrapolated per era (Polkadot’s usage of term to determine cycle, in which 1 era is roughly 1 day) is automatically claimed by the MXC Validator (usually people need to claim for themselves, and if they forget to do that then their rewards expire in 84 era)
12. The claimed DOT could then be added to the M2 Pro Miner network as part of this concept
Uniqueness of the multi-faceted arbitrage model
Traditional arbitrage usually relies on one pair. Let’s take the MXC-USDT market, for example: an arbitrager may see MXC as $0.031 USDT per token on one exchange, and $0.029 USDT per token on another exchange. The arbitrager can take advantage of the difference in price by initiating a flash swap to take the $0.002 USDT per token arbitrage opportunity.
A more complex traditional arbitrage relies on one type of pair. Let’s say there’s one MXC-USDT pair and another MXC-stablecoin pair such as MXC-USDC. MXC could be priced at $0.031 USDT per token, while being priced at $0.028 USDC per token. This creates another arbitrage opportunity.
Either way, arbitrages do not aim to hold the specific token. Their main purpose is to identify big enough opportunities to initiate a flash swap, allowing them to have more stablecoin at the end of the day, to minimise the volatility of their gains. This means that most arbitrages short on a token. In the case of MXC, the arbitrager would have released all MXC tokens during the process, and would have shorted MXC.
However, a multi-faceted arbitrage model takes multiple pairs at the same time to determine complex, simultaneous swaps across multiple assets. The proposed concept model puts the following assets into the multi-faceted arbitrage model:
USDT, USDC, DAI, ETH, BTC, DHX, DOT, MXC. Example below:
This allows the arbitrage to be completed while it longs on MXC, therefore keeping the price of MXC on an extended upward slope curve, while maximizing the quantity of another secondary token held, which, in this case, is DOT.
The multiple pair essentially puts MXC as a collateral and uses the arbitrage process itself to act as real leverage to obtain more DOT, and, at the same time, to support the price of MXC.
This, in theory, would allow M2 Pro holders’ MXC to be translated into DOT, which can then be used and staked in the validator node and account for the commission rate, while ensuring that the miners can successfully add DOT to the M2 Pro Mining network.
This is a discovery concept paper analysing the validity of DOT mining and adding DOT to the M2 Pro Mining Network. This paper has been presented in order to increase discussion and further concepts to ensure a multitude of tokens (including Polkadot) can be continually added to the M2 Pro Multi-Token Miner. This concept paper does not guarantee nor does it assure any accuracy. This is purely a concept phase, and should be seen as a work in progress concept paper and not a guarantee on any of the aforementioned aspects of this mining process.