Financial incentive of PoX mining

Community
#1

I’m investigating Stacks technology and have a question about financial incentive to mine stacks. As I’m understanding PoX, it is basically exchanging of BTC for STX (more precisely it can be compared with buying lottery tickets with BTC and expect to get prize in STX). So miners to be willing to give their BTC in exchange of STX have to expect that STX will be more expensive that BTC. How can one expects that STX will outperform BTC 1) in general and 2) specifically in regard to the fact that STX supply in unlimited (125 STX per block indefinitely after first 12 years)?

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#2

The question of short term incentive should be considered separately from the question of suitability for long term storage of value.

For the short term incentive, it is expected to converge towards an equilibrium. When the expected return of STX for one BTC is lower than the expected exchange rate, miners will reduce their investment, leading to a higher return of STX per BTC. And vice versa.

Regarding long term (e.g., for 12 years) storage of value, it’s probably too early to determine. No one does even know for sure whether BTC will survive when there is no mining reward anymore. But as long as it takes considerably less time to convert the STX on an exchange, this should not be of concern since the PoX mining reward can be converted to any asset you consider suitable for long term storage of value.

In the meantime, however, it should not be ignored that the STX that are held can be used to receive additional BTC through stacking. Considering that the locking time required for stacking is comparatively low with respect to the time until there will be a difference in the reward strategy of STX and BTC, this can be relevant for assessing the incentive.

In order to depend on this, it’s of course important that the STX blockchain does actually behave as advertised. So, I think this recent observation is also relevant.

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#3

Based on your answer there is no financial incentive to mine STX which confirms my concerns.

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#4

The financial incentive is as high as miners collectively agree on. No one would deliberately invest BTC unless expecting that the returned STX will be x% more valuable.

It can be compared to BTC mining where miners will only proceed as long as the expected return is x% higher than the energy costs it leads to. But in contrast with BTC where these energy costs vary greatly, STX mining is expected to be about equally profitable no matter where it is performed.

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#5

This is the question I’m asking. How one will expect that STX will be more valuable than BTC?

The incentive of BTC mining is clear. It’s based on three points:

  1. Expectation of further BTC adoption. Questionable.
  2. Limited BTC supply. Deflation model. Unquestionable.
  3. BTC mining is essentially exchange of USD to BTC via payment for energy consumption. USD has unlimited supply. Inflation model. Unquestionable.

Based on this a BTC miner has high enough level of assurance that BTC will cost more than USD with time and he can put X USD into mining and then get Y USD back where Y > X.

In case of STX we have:

  1. Expectation of further STX adoption. Questionable.
  2. Unlimited STX supply. Inflation model. Unquestionable.
  3. Limited BTC supply. Deflation model. Unquestionable.

So STX miners can only hope that STX adoption will grow so fast that it will outgrow both inflated STX and deflated BTC. This is a quit unreliable bet, don’t you think?

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#6

I understand your point, but I still think it doesn’t help trying to put two topics into the bowl:

  1. Mining STX being profitable

  2. Holding STX being profitable

Telling from its headline, I understand this thread to be focused on (1).

A rational miner will mine when it can be expected that the mined coins can be exchanged for more than the price of the invested coins (or electricity, if we want to compare with BTC) today. Not necessarily because it’s expected that the price will rise. If someone wants to speculate on an increasing STX price, it wouldn’t be necessary to mine. It would be more convenient to just buy STX.

Whether STX or BTC will be valuable on the long run is not necessarily relevant for the question of whether mining right now is profitable.

Therefore, I see the bigger question marks here:

  1. Mining being technically robust

  2. Enough exchanges supporting STX

I’m fully with you regarding the different coin supply policy. It’s one of the first things that struck me when I looked at STX. And I wouldn’t be surprised if either STX or BTC would have to change their policy until 12 years from now (assuming that both even exist by then). But I don’t think it’s relevant for assessing profitability of STX mining.

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#7

Then STX mining in essential is arbitrage between STX price in BTC on exchange and price a miner put to win STX. So STX mining in such case can be profitable although quite sophisticated.

Ok, let’s consider consequences of such mining.

If a STX miner will win he will likely immediately dump coins on exchange pushing STX price down. In comparison in case of BTC mining miners will not always dump mined coins due to its deflation nature and therefore hope of long term profits from holding BTC. But STX holding will be not be attractive idea not only because STX has inflation nature but also because STX miners will dump their coins immediately. Yes, there is a counterbalance in the form of STX stacking but to me personally nor STX mining nor stacking doesn’t seem attractive and I think I’m not alone here. Is there any research which would prove that STX PoX/stacking indeed is a viable model?