Business perspective analysis of the rise of DCG’s mining company Foundry

In August last year, the American cryptocurrency industry giant DCG (Digital Currency Group) suddenly announced the launch of the mining company Foundry, and plans to invest at least US$100 million in 2021. As the world’s largest crypto asset management company Grayscale, broker Genesis, and media CoinDesk, DCG, which has invested in hundreds of crypto companies including Coinbase, suddenly made a move to the mining industry that is almost monopolized by China. Twitter has made bold claims that it will “return Bitcoin computing power to the United States.” This series of operations has triggered a lot of discussion in the mining circle.

Perhaps DCG is invincible in the financial field, but in the face of China, which has a mature mining machine manufacturing, mine construction, power supply and even capital investment, DCG’s high-profile move is not favored by everyone. In January of this year, DCG founder Barry said on Twitter that Foundry will enter the top five mining pools in terms of computing power. The Binance Mining Pool, which has suddenly emerged last year, was chased and intercepted. This seems to be an unlikely task.

However, the Chinese government’s ban on a piece of paper brought a dramatic turnaround. The sales of overseas mining machines have soared. The once “impossible” seems to have become “a matter of course” overnight.

Mining finance started

Before the launch of the mining pool business, Foundry was a mining finance company that helped companies with mining needs to obtain loans or help purchase mining machines. Although DCG only officially announced the existence of Foundry in 2020, in fact Foundry has already been established in 2019. According to public sources, Foundry invested USD 23 million in mining equipment from Core Scientific, borrowed USD 20 million from Hut 8 for mining machine purchases, helped Hive Blockchain purchase 3,019 mining machines, and sold 2,300 Whatsminer M30S to Greenidge Generation Holdings. Mining machine, and funded the purchase of 6000 Antminer S19 mining machines.

To put it simply, Foundry is a second seller of mining machines, and by the way, it also provides loan services to companies that want to mine (mostly listed companies or companies planning to go public). In the second month after DCG announced the launch of Foundry, Bitmain and Bit Micro announced their cooperation with them, but in fact, it may have reached a cooperation agreement with domestic mining machine manufacturers as early as before, or after large-scale purchases. Sell ​​at a higher price.

From the perspective of the design of this business itself, it is easy to understand as the overseas “agents” of domestic mining machine manufacturers. As for the business of providing loans to companies that want to mine, it can also be said to be a more important pain point in the market. For the mining business, although the profit margin is very impressive, the initial investment and power consumption have very high requirements for cash flow. Among them, the initial investment includes the construction of mining farms, the purchase of mining equipment, etc., and the electricity bill is also a large fixed monthly expenditure. For a company that wants to enter the mining industry, even if it can afford such a huge amount in the early stage It is also difficult to guarantee that there will be enough room for fault tolerance in unexpected circumstances such as fluctuations in the price of Bitcoin.

At this time, if the company chooses to borrow from the bank, the problem that may arise is that it does not have high-quality mortgage assets. Generally, similar business banks will use the subsequent continuous production of bitcoins or as collateral assets, and once there is a problem, the bank may also have a headache at what price the bitcoin and mining machines can deal with. At this time, the emergence of Foundry has solved this pain point. On the one hand, Foundry utilizes idle funds through loans to obtain stable income. On the other hand, mining companies have also avoided the high investment in the early stage and reduced the cost of mining machines. Passed on.

If the story ends here, then Foundry’s early low-key is meaningless. After all, the above business design is not difficult to think of, and the launch of the mining pool afterwards is the crowning touch of Foundry.

Foundry mining pool at its peak

According to data from BTC.com, the first block mined by the Foundry Bitcoin mining pool was on November 4, 2020, and the number of Foundry block explosions in that month was 11. Comprehensive DCG announced in March this year that the Foundry mining pool will be open to institutional customers after 5 months of beta testing. It seems that Foundry’s Bitcoin mining pool should go online at the end of October or early November.

At present, the Foundry mining pool ranks 7th in the entire network, with a total computing power close to 10EH/s, and the number of blocks produced in the past month accounted for more than 7.5% of the entire network. Compared with a few top mining pools that have been in operation for several years, Foundry took only about half a year to securely sit in the top ten, relying on the foreshadowing and value-added services of its front-end business.

Pre-business foreshadowing

Under the foundation of the mining finance business and mining machine sales business, the launch of the mining pool can be said to be a very good undertaking. With the trust and inertia of the previous cooperation between the two parties, it is logical that Foundry’s early customers have also become mining pools. Of loyal customers. This method of using trust and business connectivity is also reflected in the ant mining pool. As a mining machine manufacturer, a considerable part of the customers who purchase its mining machines also join because of the trust of successful cooperation, thus realizing the ant mining Mining pools have long occupied the top three or even the first place in Bitcoin’s computing power list for a long time.

Value-added services

With the support of DCG’s other businesses, the Foundry mining pool has solutions for almost any aspect except for mining machine manufacturing and mine construction. For institutional customers, Foundry can provide a series of services including custody, realization, loans, investment, and publicity. Custody and monetization can be done by Genesis or Coinbase (foundry’s customers can also generate income similar to bank deposits in bitcoins hosted by customers). Loans and investments, even the provision of mining machines, are Foundry’s previous mature business, and for some listed companies, it is hoped Use relevant news to influence the company’s market value, or take the opportunity to promote the company, CoinDesk can also help. To put it simply, you can mine and make money by finding a venue and power supply and paying a little more money, even if you don’t have to pay, I can lend it to you. This set of solutions can greatly reduce the threshold for institutional customers and reduce the cost of trial and error.

Now let’s look back and see that if Foundry goes online and directly launches the mining pool business, it may be able to solve the problem of customers dealing with mining output, but it is impossible to grasp the stage when customers really want to mine to achieve mining. To a certain extent Reduce customer loyalty. In addition, the value-added services mentioned above, if there is no foreshadowing of pre-services, may also become a dispensable existence. Therefore, for Foundry, whether the order of launching its business is intentional or just luck, it is a magic touch in business logic.

Will Foundry have the power to fight in the future?

At present, in the computing power of the Foundry Bitcoin mining pool, how much old customers have contributed, and whether there will be any strength to compete with the old mining pools in the future. The data we obtained from the public news is a rough calculation as to the end of this year. Foundry’s known How much computing power can customers contribute:

Hut 8 Mining

According to news released by Hut 8 Mining in July, it has purchased nearly 12,000 MicroBT mining machines and will be fully deployed before the end of the year, when its total computing power will reach 2.5EH/s.

Core Scientific

As the largest S19 Ant mining machine distributor in North America and the first Bitmain mining machine repair center in North America, Core Scientific has two businesses: managed mining machines and self-operated mining. Its former senior vice president Mike Colyer is Foundry’s CEO. According to public reports, Core Scientific signed a contract with Bitmain for more than 110,000 S19 series ant mining machines at the end of April this year. If all are deployed, their computing power will be increased to more than 18EH/s, and its total computing power will exceed that of the entire network. 10%.

Block cap

In April of this year, Blockcap announced the completion of 38 million US dollars in financing. Off the Chain Capital and Foundry led the investment. Blockcap had purchased 42,000 ASIC mining machines at that time, of which 12,000 had already been put into use. With 18,000 mining machines online, the total computing power will reach 3.5 EH/s. It is worth mentioning that the founder of Blockcap comes from Core Scientific.

Hive Blockchain

Canadian listed mining company Hive Blockchain once purchased 6,400 Avalon mining machines from Canaan Technology in January this year, predicting that its computing power will reach about 1.2 EH/s by the end of the year, plus it purchased more than 3,000 mines from Foundry in July. At present, we can see that its computing power can reach about 1.5EH/s at the end of the year.

Bitfarms

Foundry announced on its official website in April this year that Bitfarms, a listed Canadian mining company, has joined the Foundry mining pool. According to Bitfarms’s previously published semi-annual report, it currently accounts for about 1.5% of Bitcoin’s entire network’s computing power, and the company plans to Increase the computing power to 8EH/s by the end of 2022. Based on this estimate, in an ideal state, its computing power may reach about 3.4 EH/s by the end of 2021.

other

In addition to the above-mentioned mining companies that cooperate closely with Foundry, they also include Greenidge (currently contributing 800PH/s computing power to Foundry), Bit Digital (announced joining Foundry in May, and the company currently has a total computing power of about 2EH/s) and Bitdeer and others founded by Wu Jihan.

In addition to the computing power deployed by Foundry itself and the partners we may not know about yet, it is expected that by the end of this year, the total computing power of the Foundry Bitcoin mining pool is likely to exceed 14EH/s, which has exceeded the current computing power of the entire network. The second mining pool ViaBTC. Of course, all these are only rough estimates. During this period, many unknown situations may be encountered. Other mining pools may also attract more customers during this period. However, based on the current development trend, Foundry has become the entire Bitcoin network. The top three mining pools seem to be only a matter of time.

summary

Here, the editor wants to put aside the thinking of native projects such as DeFi and NFT in the blockchain industry, and think about the reasons for Foundry’s success from a business perspective. You can say that the success of Foundry is inseparable from DCG’s own resource advantages, “policy dividend”, and the huge mining revenue brought by this round of bull market. But what I want to say is that Foundry has been established in 19 and has gone through the trough at the beginning of last year. Although its success is due to luck, it cannot conceal DCG’s understanding and vision of the mining industry. Through the financial business that I am good at, I use simple business logic to lock in customers, and then use its additional services in addition to the main mining pool business to firmly grasp the old customers and actively expand new customers when the mining industry is developing rapidly in North America. , This series of actions were completed in one go.

All this actually gave us a good case. As the development of mining, which is most biased towards traditional industries in the blockchain industry, it requires some thinking that is more biased towards business logic and models. The infrastructure of this future blockchain world is an area that needs to be continuously explored. In addition to the continuous pursuit of new areas such as NFT, the blockchain “traditional industry” such as mining still has value and space worth further digging. .

 

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/business-perspective-analysis-of-the-rise-of-dcgs-mining-company-foundry/
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