500% APR: Myths and Truths About DeFi Liquidity Pools

06/13/2020 1,729 2 Reading time: 9 min. Rating:

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: Konstantin Bely

Let's continue the conversation about investments and today we will look at another important concept - investment pool . What is it, for what purposes and in what cases is it created, what are its pros and cons, is it worth investing in a pool of investors - you will learn about all this and be able to draw conclusions by reading this publication.

Investment pool - what is it in simple words?

Different types of investments require different amounts of capital that must be invested to generate income. There are instruments in which you can invest even 100-1000 rubles, and there are investments that require millions of dollars. It is clear that the second option is beyond the capabilities of most investors, even professional ones. And to solve this problem, you can create an investment pool.

An investment pool is a pooling of capital from a certain number of investors for the purpose of investing in a capital-intensive project.

In most cases, investment pools are created for the purpose of investing in real estate or business, but there can be any other investment objects - this is not limited in any way.

The term itself comes from the English word pool, which means “common boiler”.

Merged mining – mining of several cryptocurrencies

Merged mining is the joint production of several cryptocurrencies at once. Those hash solutions that were not useful in calculating the Bitcoin block signature are used for calculations for other cryptocurrencies configured for joint mining. Among the parallel mined forks are Namecoin, Devcoin, IxCoin, I0Coin. All of them are characterized by enormous complexity and low exchange rates.

Some Bitcoin pools involve cooperative mining of one or more forks, usually Namecoin. It gives miners 1-2% additional income. Therefore, when choosing a pool, pay attention to the possibility of using merged mining.

Co-mining is supported by Litecoin and Dogecoin. Since both cryptocurrencies use the same Scrypt algorithm, there are no technical problems with this.

Anyone who mines Litecoin receives an additional amount of Dogecoin and vice versa.

Why create an investment pool?

Let's consider the main prerequisites for creating an investment pool by private investors:

1. The need to invest a large amount. This is the main reason. If the investment object involves the need to invest a large sum of money, which investors do not have available individually, they can unite and create an investment pool.
2. Diversification of investments. Investment pools are another type of investment asset that allows you to diversify your investments: invest not only in “independent” instruments, but also in pools.
3. Investments in inaccessible assets. There are assets that “mere mortals” cannot invest in, even if they have the required amount. Only qualified investors or investment companies with certain rights can have access to them. For example, only for legal entities or only for professional participants in the securities market. In this case, non-professional investors can combine capital with a professional one, creating an investment pool, which the professional investor will place on his own behalf, having the appropriate clearance.
4. Lack of experience. Likewise, a novice investor may not have sufficient knowledge and experience of investing in certain assets. Joining an investment pool with more experienced investors solves this problem if among the participants there is one professional manager who will take over the management of the pool.

List of other popular servers

Many popular pools support several cryptocurrencies, and large multipools even allow you to mine more than 10 “coins”. Giants such as NiceHash work with all algorithms: from the popular Scrypt and SHA-256 to less popular ones, like DGB on Qubit.

In addition to the number of cryptocurrencies, such sites are often classified according to requirements and operating conditions, where the main place is occupied by the registration process. For some servers this is a mandatory rule, while others allow access without registration.

With registration

Some servers require registration of participants as a mandatory step for mining cryptocurrencies. The largest servers include:

• Bitfury;
• NiceHash (supports almost all known coins, from the largest to specialized ones, like Zcoin and others);
• Mining pool hub;
• Aikapool (one of the largest Dogecoin mining servers).

Without registering

In the list of mining pools without the need for participants to register, the most popular are:

• ETHpool/Ethermine;
• NanoPool;
• Baikalmine (allows you to mine several rare “coins”, like CLO).

How does the investment pool work?

The investment pool operation scheme is approximately as follows.

Stage 1. Investors who want to pool their capital into a pool gather and select/appoint a manager who will manage this pool.

Stage 2. The manager invests the entire pool in one or several assets, the list of which is negotiated and fixed by investors at the time of its creation.

Stage 3. The resulting profit or loss is distributed among the pool participants in proportion to their investments.

For his work, the pool manager receives an agreed remuneration, which can be fixed or as a percentage of the profit. Making a profit is the main purpose of the investment pool, but the manager can receive remuneration from investors' funds, even if the pool operates at a loss (if this is stipulated by the conditions for creating the pool).

Sometimes an investment pool has its own mini-exchange, where some investors can sell their shares to others. In this case, the shares become more liquid, which increases the attractiveness of the pool for all investors, including new ones.

Reward distribution methods

Each pool has its own reward distribution system. Most schemes work taking into account the so-called "ball". Share is not yet a solution to finding a block, but one of its options. The more shares a particular miner searched before a block was found, the larger share of the reward he will receive.

A simple payment distribution option is the pay-per-balloon (PPS) model. Only the rates paid per ball can change - for example, the total maximum pay per ball (SMPPS) or the expressed total maximum pay (ESMPPS). Also, the mining pool may or may not use payment priorities.

Other possible distribution methods:

• Proportional. All balls are equal, but their value is calculated at the end of the block search round.
• Older round balls weigh less than newer ones. This will prevent those who want to game the system by switching between pools during a round to increase their chance of profit. This scheme was first used in Slushpool.
• P2P pool. The responsibilities of the server are decentralized, miners perform operations on a blockchain called “share-chain” and mine blocks at a lower difficulty. When a block is created, it is transferred to the blockchain and the reward is distributed among the miners. P2p pool involves launching a full blockchain node.
• The principle is similar to proportional, but the reward is calculated not on the basis of all shares in the round, but on the basis of a certain number of shares. The shorter the round, the more income miners receive.

There are several other methods, more complex and rare. The transaction payment system also depends on them.

The most common is PPS; with this method, payments to pool users include the block reward and a share of transaction commissions, based on network congestion.

Bitcoin mining pool:

• Pool.BTC.com is the world's leading blockchain and cryptocurrency team. The BTC.com mining pool was founded in 2016. It has more than 10E/PH hashrate and supports different coins (BTC, BCH, ETH, LTC, etc.). The pool provides many services that guarantee high user income and security.
• AntPool is a Chinese system. Has 18% of all computing power units in the world. There is support for a Russian-language interface. Payment - in different ways. Withdrawal of funds without paying a commission.
• ViaBTC is a Chinese multi-cryptocurrency mining pool. Supports Russian language. In terms of mining Bitcoin blocks, the pool is second only to the top representatives of the industry (AntPool, BTC.TOP and BTC.com). At the same time, he periodically displaces one of them from the top 3 when he finds the next block. Three types of cryptocurrency accrual systems are supported: PPS+, PPLNS, SOLO.
• Poolin , a global online platform, has become a Top1 hashrate mining pool in terms of BTC, LTC and ZEC. Poolin supports mining of several cryptocurrencies including BTC, ZEC, LTC, ETH, DCR, DASH, CKB, BCH, BSV. An accurate profit calculator, privacy-protecting observer mode, and comprehensive mining rig management make mining hassle-free.
• NovaBlock is a mining pool from North America. High security and stability. Favorable reward system. “NovaPPS +” is a guaranteed reward system for users who paid for the promotion. Unlike PPS, NovaPPS+ pays transaction fees. The reward for NovaPPS+ users is 10% higher than those who use the PPS reward system.
• P2Pool is a decentralized pool, each node of which is a component. No registration required. The only pool with 100% protection against DDOS.
• Bitfury has centers in Iceland. The pool earns digital currency; strangers are not allowed into the system. Control of 15% of the Bitcoin system.
• BTC China is a Chinese development without a Russian version, it occupies from 10 to 13% of all units of computing power.
• BW Pool - Server from China, takes up 9% of the system. Payment is made through the PPLNS network, there is no commission.
• Kryptex is a program for computers. The profitability of mining depends on the computer used, as well as on the current Bitcoin exchange rate. You can withdraw earned funds through payment systems QIWI, Webmoney, Yandex Money, as well as by direct transfer to a Bitcoin wallet or bank card.
• HashCity is a multi-currency mining pool created by a group of crypto enthusiasts. The pool operates according to the PPS system - payment for each share. There is no need to guess whether the pool will find a block or not, you will receive a reward in any case. Rewards are awarded every 5 minutes; the complete transaction history for the entire period can be found in your personal account. Supports 11 coins for mining: Ethereum (ETH), Monero (XMR), Ethereum Classic (ETC), ZCash (ZEC), Bitcoin Gold (BTG), Bytecoin (BCN), Callisto (CLO), Moac (MOAC), Prl ( PIRL), DubaiCoin (DBIX), Lethean (LTHN). There is an affiliate program with 10% of the pool income from your referrals.
• MinerGate is a popular and profitable crypto pool where you can mine not only bitcoins, but also other cryptocurrencies. For example, ethereum, dash, monero, zcash and others. The program is installed on your PC and automatically produces cryptocurrency. Everything you have mined can be withdrawn to an exchange or personal wallet. The service commission is 1.5% of the amount.
• MiningRigRentals is an English-language resource that offers miners to rent “drilling rigs” and mine bitcoins with their help. The service appeared recently - in 2014, but has already won the gratitude of miners from all over the world. Available statistics, as well as a small commission, make this service very attractive for miners.
• NiceHash is the largest mining pool. Buyers have access to greater power for cloud mining on all major algorithms. You can also install the program on your PC and mine coins on your equipment.
• Minerall is a multicoin pool in Russian and English. BTC, ETH, ZEC, ETC, RVN, BCH are available for mining. There are detailed instructions for setting up miners. Auto-payment settings are available for registered users.
• SlushPool is the world's first mining pool. Industry leader in operational transparency and innovation. Since 2010, more than 1.25 million BTC have been mined. From 2022 you can mine Zcash. The head office is located in the Czech Republic.
• Zpool is an American mining service. Withdrawal only works in Bitcoin. Exchange operations occur automatically. The service script is unique and you do not need to register with it.
• F2Pool is a Chinese service, operating since 2013, the only one that practices the PPS payment system. This resource currently holds about 1/5 of the entire network hashrate. The service recommends immediately withdrawing money from your accounts, since everything that remains there after 90 days goes to the development of the pool.

Pool for Ethereum mining:

• 2Miners - Multi-currency mining pool that uses Ethash/Equihash algorithms. Includes joint and solo pools, differing in the payment system and commission charged (PPLNS - 1%, SOLO - 1.5%). Users renting power from the Nicehash service can use a separate port, which is based on the stratum protocol, guaranteeing 100% compatibility. Telegram bots monitor the operation of farms and ensure the delivery of alerts about found blocks. 2Miners is a very understandable system for a Russian-speaking user.
• Sparkpool is a Chinese pool, you can mine Ethereum, Beam and Grin. You can register for the pool using your phone number. There are detailed instructions for setting up miners and the ability to track the mining process.
• Ethermine is the largest Ethereum mining pool, with almost 1/4 of all miners of this cryptocurrency registered. Commission 1% + 0.001 ETH for payouts of less than 1 ETH, no commission is charged for payouts of more than 1 ETH.
• NanoPool is a reliable pool for Ethereum mining. Registration is not required. Commission 1%, no commission is charged for payment.
• Dwarfpool is a multi-currency pool with a reward system HBPPS (one of the varieties of PPS). Features: low commission (1%), optional registration. There is no payout fee.
• Suprnova is a multi-currency platform. Commission 0% + commission 0.001 ETH per payout. The applied reward system is PROP. To connect, an account is created, the mining program is downloaded, settings are made and the address for transferring cryptocurrency is indicated.
• CoinMineETH is a reliable pool for Ethereum mining with a simple interface and detailed statistics. The payout threshold is 0.1 ETH. Principle of payment of remuneration PPLNS. Registration is not required.

For a novice miner, MinerGate will be a convenient pool, since it is one of the most profitable crypto pools, which has convenient management of a cross-platform miner and the possibility of combined mining. It is compatible with all crypto miners.

Few services can boast such a level of development as MinerGate. In addition, this is the first pool to offer combined mining, when you can generate several coins at the same time, without reducing the hashrate.

A direct pattern: the more powerful the hardware, the more coins it will accumulate, and the earlier you start mining, the more successful it will be.

Investment pools: pros and cons

Let's look at the main advantages and disadvantages of investment pools as a method of investing.

The main advantage is the absence of various kinds of legislative restrictions that apply, for example, to mutual funds - a similar investment instrument. Investment pools are not controlled by anyone, which allows you to invest accumulated capital in any available, legal instruments and assets, buying and selling them at the desired time and in the desired quantity.

For example, this is relevant during periods of worsening financial crisis, when the stock market is falling, and the pool manager can sell all the securities in order to later buy them cheaper. While mutual fund managers are legally limited in this and are forced to hold securities in their portfolio that bring large losses.

But such freedom in the actions of the pool manager is also a disadvantage, since it increases investment risks for investors. By investing in a pool, an investor remains practically unprotected and risks losing his entire investment. He has to fully rely on the experience, skills and integrity of the manager, which he, in turn, can use for his own selfish interests. Do not forget that in the field of investments there are a huge number of fraudulent projects, the only goal of the creators of which is to collect as much money as possible and disappear with it.

There are certain mechanisms that allow you to partially protect investor funds from fraud on the part of the manager, but this will only be partial protection, not absolute.