Collective Mining (M1)

Mining Offering

Example 1: Mining Offering Flow

Scenario: Alice (Miner) wants to tokenize her mining operation, and Bob (Sponsor) wants to invest in mining.

1. Alice registers as a Miner:

• Deposits 10,000 CKB as collateral, and another 50 CKB as liquidation reserve

2. Alice creates a Mining Offering:

• Proposes to tokenize 1,000 CKB worth of mining contracts
• Sets price at 0.95 CKB per mCKB (5% discount for sponsors)

3. Bob accepts the offering:

• Pays 950 CKB (1,000 × 0.95) to Alice immediately
• 1,000 mCKB tokens are minted to Bob instantly; 10 mCKB tokens are minted to treasury as fee
• Alice’s debt increases by 1,010 CKB (1,000 + 10)
• Alice’s ICR = 10,000 / 1,010 = 990% (healthy)

4. Bob can now:

• Trade mCKB on secondary markets
• Hold for potential appreciation
• Redeem for CKB at any time (with fees for faster redemption)

Mining Recruiting

Example 2: Mining Recruiting Flow

Scenario: Charlie (Sponsor) wants to recruit miners, and David (Miner) needs funding.

1. Charlie proposes Mining Recruiting:

• Offers to fund 2,000 CKB
• Sets price at 0.98 CKB per mCKB

2. David accepts the recruiting:

• David already has 15,000 CKB collateral deposited
• Receives 1,960 CKB funding immediately (2,000 × 0.98)
• 2,000 mCKB tokens are minted to Charlie; 20 mCKB tokens are minted to treasury as fee
• David’s debt increases by 2,020 CKB (2,000 + 20)
• David’s ICR = 15,000 / 2,020 = 742.57% (healthy)

Redemption

Example 3: Redemption

Scenario: Bob wants to redeem his 1,000 mCKB for CKB.

1. Standard redemption (30 days, no fee):

• Bob submits redemption request for 1,000 mCKB
• Waits 30 days
• Receives 1,000 CKB (from either treasury or miners with lowest ICR)
• 1000 mCKB is burned and the same amount of debt is removed

2. Fast redemption (7 days, 1% fee):

• Bob needs funds quickly
• Bob submits redemption request for 1000 mCKB
• Waits 7 days
• Receives 990 CKB (1,000 - 10 fee) while treasury receives 10 CKB as redemption fee
• 1000 mCKB is burned and the same amount of debt is removed

3. Instant redemption (2% fee):

• Bob needs immediate liquidity
• Bob submits redemption request for 1000 mCKB
• No waiting time
• Receives 980 CKB immediately while treasury receives 20 CKB as redemption fee
• 1000 mCKB is burned and the same amount of debt is removed

Maintain ICR

Example 4: Maintaining Healthy ICR

Scenario: Alice’s ICR drops due to interest accrual;

• Initial state: 2,000 CKB collateral, 1,000 CKB debt → ICR = 200%
• Interest accrual: Alice’s debt grows daily at 10% APR
• After interest accrual: 2,000 CKB collateral, 1,080 CKB debt → ICR = 185%
• Action needed: If ICR approaches the Critical Collateral Ratio (CCR, 180%), Alice must:
  • Add more collateral, OR
  • Repay debt using CKB or mCKB

If Alice’s ICR falls below 180% (CCR), she will be put into recovery mode; daily soft liquidation of 5% debt will happen and extra 5% interest will be applied until ICR goes up above CCR; If Alice’s ICR falls below 150% (LCR), hard liquidation is triggered automatically;

Liquidation

Example 5: Liquidation Process

Scenario: Eve (Miner) faces liquidation due to accumulated interest and failing to maintain her ICR.

Initial state:

• Collateral: 5,000 CKB
• Debt: 1,000 CKB
• ICR = 5,000 / 1,000 = 500% (healthy)

Step 1: Interest accrual over time

• Debt accumulates interest: 1,000 → 1,500 CKB
• ICR = 5,000 / 1,500 = 333% (still healthy, but declining)

Step 2: Entering Recovery Mode (ICR < CCR)

• Debt continues to grow: 1,500 → 2,800 CKB
• ICR = 5,000 / 2,800 = 178% (falls below CCR 180%)
• Recovery Mode activated:
  • Actions that would lower ICR are blocked
  • Daily soft liquidation begins by 5%
  • Additional recovery mode interest of 5% is applied

Step 3: Soft Liquidation (Daily)

• Each day, 5% of debt is liquidated: 2,800 × 5% = 140 CKB debt
• Collateral used: 140 × MCR (e.g., 150%) = 210 CKB
• After liquidation:
  • Debt: 2,800 - 140 = 2,660 CKB
  • Collateral: 5,000 - 210 = 4,790 CKB
  • ICR = 4,790 / 2,660 = 180% (slightly improved)
  • Treasury receives 210 CKB as collateral and 140 CKB as debt
• This process repeats daily until ICR > CCR OR until hard liquidation occurs

Step 4: Hard Liquidation (ICR < MCR) If soft liquidation fails to restore health and ICR continues to drop:

• Final state: ICR falls below MCR (e.g., 150%)
• Hard liquidation triggered:
  • All remaining collateral transferred to Treasury
  • Liquidation reserve (50 CKB) transferred to Treasury
  • All remaining debt cleared
  • Eve’s position closed: collateral = 0, debt = 0
  • Treasury receives all the remaining collateral and debt

Key takeaways:

• Miners must actively monitor and maintain ICR above CCR
• Recovery mode provides a grace period with daily soft liquidation
• Hard liquidation is a last resort that fully closes the position
• Treasury absorbs liquidated positions to maintain protocol solvency