Top benefits of tokenization for crypto mining companies
Recent years have been crazy for the cryptocurrency mining industry, and 2022 promises to be even more exciting. Last year, China introduced stringent regulations, forcing hundreds of Chinese private miners and large mining farms to relocate. Meanwhile, due to the coronavirus epidemic, miners worldwide were facing a shortage of mining chips. On the other hand, North American miners had a great year. With China out of the game and the U.S. and Canada not experiencing as much hardware shortage, the two countries quickly became mining capitals last year.
At the same time, the difficulty of mining cryptocurrencies is growing, and mining companies are looking for new solutions to make their business more profitable, like crypto mining immersion cooling. Still, updating equipment for a large mining company is a considerable expense, so mining farms are constantly looking for funding. This article will discuss the main issues mining companies face today and how tokenization can help them develop.
Problems mining companies face today
Mining enterprises are in a dual situation. On the one hand, they work in a promising and profitable area. On the other hand, to remain profitable, the mining business must constantly be expanding and implementing new technologies. For example, with the rising cost of electricity and the complexity of mining, companies need to cool crypto mining with water-cooled crypto mining equipment. The mining industry is very capital-intensive. If you want to mine crypto professionally and earn a significant income, you need to buy modern, powerful equipment and keep it up-to-date. This requires substantial capital investment.
One of the most popular ways to raise funding for crypto companies is to issue utility tokens. By definition, utility tokens are tokens that give holders the right to use some services or products of the issuer. But the problem is that the result of mining is the production of cryptocurrency, which can then be sold. Thus, a token issued by a mining company cannot be considered a utility token, as it entitles token holders to get a profit. Such tokens will likely be classified as securities in most jurisdictions. Thus, mining companies cannot issue a utility token during a classic IEO or ICO.
The alternative is attracting financing from banks. However, companies that apply to banks for loans (for example, to purchase cool crypto mining equipment) also face problems. Banks are in no hurry to issue loans to such companies or offer very high-interest rates. The reason is that cryptocurrency is associated with high volatility and a high level of risk, and banks believe that the cash flow of mining companies will be highly unpredictable. In addition, many banks lack a methodology for assessing the risks associated with digital assets.
Why is tokenization a profitable solution for your mining company?
Tokenization can be the optimal solution for many companies willing to expand and develop. Below, we will talk about the main advantages of tokenization for companies involved in mining any cryptocurrencies.
The simplified attraction of investments
As we wrote above, the two main methods of raising funds for mining companies are not available. The only option is an STO – security token offering, during which token holders are entitled to receive part of the income from the mining company’s activities. This method of raising investments meets all compliance standards in many jurisdictions. The STO allows you to raise funds from investors from all over the world, and the entire process from preparing for an STO to issuing tokens takes up to 3 months on average. For comparison, the average time for a large company to prepare for an IPO is about a year.
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Even though the field of crypto mining is becoming more and more mature, long-term investors are still afraid to invest large sums in this niche, as we wrote above. Tokenization allows investors to exit the project through the secondary market quickly. Thus, investors can sell their tokens to others at any time. This reduces the risk of losing funds for investors.
Related: What is cryptocurrency staking?
Security token offering is regulated in many countries, including the USA and the leading countries of the European Union. Regulators consider the security token as a security. This protects investors and ensures that token offerings are not suddenly stopped by the SEC or another relevant authority. The crypto sphere is becoming more and more regulated, so the future is clearly behind structured offers at the junction of blockchain and traditional finances. This is the type of investment that STOs are. However, a successful STO requires preparatory work, including legal advice and the selection of appropriate jurisdiction.
One of the first clients of Stobox was the mining company Mariana Mining. It offered the evolution of mining with crypto mining immersion cooling technology. It provides higher performance for miners, a longer lifespan, and better crypto mining cooling, which leads to more profits. The goal of its STO was to raise capital to buy equipment and launch operations in Latin America with low prices on electricity, water, and facility rent. Profit from mining is distributed among token holders at the end of each month. Holders of the mined cryptocurrency can then do whatever they want with it. Stobox helped Mariana Mining to issue security tokens. Our scope of work was consulting and launching a dashboard for the STO.
For many mining companies that need additional funding, launching an STO is the only option. Cryptocurrency mining on an industrial scale is a very capital-intensive industry. In addition, mining farms need to be constantly upgraded, introduce new approaches to reduce power consumption (like crypto mining immersion cooling), etc. If your cryptocurrency mining company wants to expand and improve operational processes, raising investments through the issuance of security tokens can be an excellent solution for you. Our experts offer a free initial consultation on tokenization. Contact us to find out more!