Loka: A Trustless Non Custodial Bitcoin Mining Platform Built on IC

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Loka is a platform that enables retail investors to acquire BTC at better than market prices through co-investing with Bitcoin miners. The arrangement is based on a trustless non-custodial escrow solution, which eliminates any exposure to centralized party risk.

TL;DR:

  • Loka is a protocol designed to disrupt the fragmented Bitcoin mining market by leveraging IC superpower, specifically: ckBTC, HTTPS outcalls, the ability to host a full Bitcoin node on-chain, and the interoperability with other chains using the upcoming ckERC-20.
  • Loka creates a two-sided marketplace. On the supply side Bitcoin miners provide future hashrate. On the demand side retail investors looking for more cost efficient access to bitcoin provide liquidity.
  • As investor you can acquire Bitcoin lower than market price from the mining reward. Your investment is fully collateralized on-chain, which means no rugpulls or drama.
  • As BTC miner, you can get upfront liquidity with 0% interest rate to scale up your mining operation. You can finally have access to capital like those big public mining companies.

Overview

Bitcoin miners, as an essential part of the Bitcoin network, are incentivized to contribute computing power to the network. The incentives add up. At current rates, about $10 billion is paid in block rewards annually. The Bitcoin mining business has transformed into a multibillion-dollar industry.

The profitability of a Bitcoin mining business depends on various factors, including network difficulty, hardware price, operation, energy cost, and the price of BTC itself against fiat currency.

In an optimal setup environment, miners can achieve a return on investment (ROI) in two to three years, which equates to an annual percentage rate (APR) of over 30% on their capital.

But for most people, the Bitcoin mining business has a high barrier to entry due to the significant capital expenditure (CAPEX) needed to get started. The extensive knowledge required to operate and maintain Bitcoin mining hardware is also a barrier to entry for most.

Additionally, access to cheap electricity is crucial. If you reside in the US or EU, the energy price is approximately 2x of the mining reward, making it impossible for individuals to mine Bitcoin at home.

On the other hand, Bitcoin miners need fresh capital to expand their operations by purchasing more hardware, but they are reluctant to sell their BTC holdings and miss out on potential gains in the next bull run.

Loka as Solution

Loka is a two-sided marketplace platform that connects Bitcoin miners and individual investors in a trustless and non-custodial approach, where:

  • Individual investors can invest in Bitcoin miners with access to cheap energy by purchasing hash rate rental contracts for a certain period of time. In return investors get Bitcoin at a lower price than buying from the market.
  • Bitcoin miners gain early return on their investment with a margin to scale up their hash rate capacity by purchasing more hardware and hedging the risk of price volatility, while still getting the upside of fees in BTC for their operation.

LOKAckBTC

Each mining contract is collateralized on-chain non-custodial at a 1:1 value with BTC, removing any centralized party risk. If miners failed to deliver the hash rate that produces Bitcoin rewards, the collateral is released to contract buyers.

Unlocking Bitcoin Liquidity in ckBTC

Each mining contract is tokenized as non-fungible token (NFT) that can be immediately traded on the secondary market for instant liquidity.

Tokenizing the contract helps investors by allowing liquidity options, and also creates a dynamic market for the services Loka provides including:

  • Investors can use the mining contracts as collateral to borrow money.
  • Self-repaying loan: Investors can borrow against BTC to purchase a mining contract that generates Bitcoin to repay the loan automatically.
  • Option marketplace: Buy and sell put option premiums to protect against BTC price drops or earn additional rewards when the price increases during the active contract period.

ICP Superpower

Loka is delivering the mining reward to investors and making sure that miners earn their mining fees using ckBTC. Because of the almost zero transaction fees involved, the set-up democratizes access to bitcoin mining and helps diversify the number and geographic location of bitcoin mining operations.

HTTP outcalls enable the Loka protocol to communicate with mining pools to get the hashrate data directly on-chain. The ability to host full Bitcoin node on IC enable us to eventually build our fully decentralized, community-owned Bitcoin mining pool, fully on-chain.

GTM Strategy

Supply Side

As a two-sided platform, the first step in the GTM strategy is onboarding Bitcoin miners, who help with the supply-side. This is crucial even before our full launch. We’ve identified and validated two low-hanging fruit problems from our design sprint earlier this month; particularly for miners in Indonesia, Malaysia, and India:

  1. Smaller miners are unable to withdraw their mining rewards daily due to the minimum threshold in mining pools.
  2. Converting rewards to local currency is a cumbersome process with relatively high fees.

To solve these problems, we’re launching the alpha miner dashboard – available soon on https://miner.lokamining.com.

The dashboard will allow miners to send their hashrate to our platform and withdraw daily rewards in ckBTC, USDT-Arbitrum, or directly convert to local currency (IDR) without any fees. We plan to integrate INR & MYR in our next iteration.

Addressing these smaller problems is a vital step in building a robust community of early adopters among Bitcoin miners, paving the way for the full launch of our platform.

Demand side

One of the goals of Loka is to make Bitcoin mining more accessible. We also want to build Bitcoin products and services that are authentic and consistent with the Bitcoin ethos, mainly that whatever we create is permissionless and censorship-resistant.

We also view this open business model as advantageous for connecting with more Loka users worldwide. Once fully launched, anyone will be able to easily “sell” mining contracts as our front-end operators using our API on existing platforms that support crypto assets and NFTs.

This mechanism also enable us to piggy back the network effect of large communities, including DEX/CEXs with significant user base.

Project Status and Future Plans

  • We’re a proud dev grants recipients from Dfinity and just finished our final milestones
  • MVP and beta version on https://lokamining.com
  • Launched alpha version for miners’ dashboard, testing to our miners community
  • Will be launching by Q1 2024 along with ckERC20 release (we need the stablecoins)
  • Significant tractions on waitlist both on miners & retail investors side
  • Signed partnership with front-end operators; community with 10k+ active users & CEX with 5M+ registered users.
  • Graduated from BTC Startup Lab on summer cohort 2023
  • About to fundraise at the pre-seed stage. We’ve already got some VC interest and funding term sheets, and we’ve been accepted to their accelerator program.

Everything else about Loka

Practically any up-to-date information is available in this About Page

Our X account hasn’t very active yet, but please give us a follow >> https://x.com/lokamining

We’re still tinkering on our whitepaper, but the early draft is available here: Loka Protocol Whitepaper v.02 [DRAFT] - Google Docs (comments are welcome)

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This is a great idea. Very interesting. Best of luck with your project.

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Very cool…can’t wait to see more BTC apps on the IC

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I am very interested in this project, but I have some questions. The mining machine is a real object. If the mining machine is subjected to force majeure and stops mining, what commitment does the platform have to investors?

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Miners (or their insurers) need to post collateral in Bitcoin 1:1 to the contract value.

Protocol will check if miners produce hashrate according to the contract every 24 hours.

  • If yes, then protocol will release 1/(days contract period) of collateral (+fees) to miners and deliver mining reward to investors.
  • If no, then protocol will release 1/days contract period) of collateral (+buffer) to investors.

This is the essence of “trustless non-custodial escrow” of the platform. The (more) technical details on this, please refer to the whitepaper.

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@talkinandy

How does the mining operator onboarding process to the platform work? Is it automated/permissionless or is it manually done?

Is the LOM token from the whitepaper an SNS token? If not, what/who is the controller of the Loka canisters?

Why does there need to be a LET token to pay for electricity? Why can’t the contract NFT just require electricity payment from investors? Having to buy LET and send it to the NFT to play for electricity seems like an unnecessary extra step, unless I am missing something.

Is this using the BTC node from the IC BTC integration canister or are you planning on creating another one specifically for Loka?

Does the platform pay the developers/owner outside of them holding LOM tokens?

What does this mean? What do you mean by front-end operators?

Have you considered using Lightning Network for payments instead of ckBTC? Have you explored something like UMA?

Congratulations on the platform, this looks like one of the most impressive projects I have seen on IC.

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@JaMarco

Thanks for the reply!

Did you refer to the old docs or the Beta MVP on website?

Please refer to the newest whitepaper draft at the end of first post – tokenomics is stil being discussed internally with the help of experts on this matter.

The underlying reason of the energy token is that energy cost can be a significant percentage of the mining reward itself, and we had a bunch of investors insights that wants to get their full reward in BTC and paying their energy cost upfront to maximize their capital gain.

But yes you’re right, LET is an unnecessary additional step so we will use stablecoin instead since the cost will be paid in $. Also, The Trove (mining contract) will automatically convert necessary amount of BTC mining reward to pay the energy cost if there’s no “reserve” in the “trove battery” which then paid every day to miners.

Will be using existing canister for the first version, but I think eventually we will host our own full node when we create our own mining pool (still long way though)

The objective is full decentralization without any central entity, but we still working on the structure.

We are inspired by Liquity model – democratizing front-end operators on demand side to achieve full decentralization and censorship resistance.

The idea here is that FE ops can be anyone, and also can add additional layer like on-ramp payment, autoswap from their own currency/token, and manage the legal side if they need to comply to certain jurisdiction.

Not yet, but we aim to have interoperability with any possible network, one of the reasons why we’re building on ICP. Thanks for the info on UMA – will dig on that.

Thank you!

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Missed this question;
Miners onboarding will be permissionless. They will need to create “Stash” or essentially a mining contract offers and as soon as this Stash is collateralized and receiving Hashrates, then anyone can “mint” mining contract (Trove) from it.

It wil be our focus to build the interface in the upcoming weeks.

The process flow itself is described briefly in the whitepaper.

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Is there venture capital funding involved?

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Yes. We’re just about to start fundraising and already got term sheet & commitment from some investor+VC.

It’s a startup company on it’s own and will need capital for the runway before it’s fully self sustained from the fees generated by the protocol.

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Very good to hear that an IC-based project is able to get funding and has envisioned a sustainable business model.

Off topic a bit, but what other projects do you know of besides Bioniq and your own that are using ICP as essentially a Bitcoin sidechain? Any other promising projects that could raise and have a sustainable business model?

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Thanks!

I don’t have the exact answers for sure, but I believe from our cohorts in BTC Startup Lab, some of them are currently building on IC – and I think the BTC<>ICP ecosystem is and will be growing fast.

Also, Bob (from Bioniq) and I are both building an ecosystem centered around this area. The mining contract from Loka protocol (Trove) itself as a tokenized reward bearing asset, is composable and should work with other new protocols on IC, that will enable different use cases like:

  • Borrow $ using Trove as collateral
  • Self repaying loan – put ckBTC as collateral, borrow $, buy Trove, use mining reward to pay principal
  • BTC backed stablecoin with autodecreasing LTV from the mining reward
  • $ insured value of mining contract using option as insurance against price drop
  • etc.

(we have some teams already start working on those)

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Will loka have a governance token, how to get involved (retail)

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There will be reward token system when you contribute in the platform after we launched; as ckBTC LP on mining pool, as miners contributing hashrates, or buying the mining contract.

The reward token may be converted to native token after TGE after we gain enough traction. We really want to focus on the utility of this platform.

Also cross-posting our new post on the decision to fast-track building mining pool first:

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This sounds super interesting! Looking forward to hearing and seeing more!

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Will ckBTC have a 1:1 BTC value ?

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Yes ckBTC is always 1:1 with BTC, please refer to

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letsgoo , so powerful if you need some help ill be happy to learn some
im full-stack developer

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This sounds super interesting! Looking forward to hearing and seeing more!