Following Flows V: Pool Cross-Pollination

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By: Parker Merritt

The pseudonymous nature of the Bitcoin blockchain concurrently gives real-time visibility into the complete ledger of transactions, whereas on the similar time posing a tough problem of mapping addresses to particular off-chain entities. At one finish of the spectrum, a single particular person can spin up lots of of pockets addresses at little or no value. On the opposite excessive, centralized exchanges could custody the funds of tens of 1000’s of customers below the management of a single omnibus account.

Regardless of the issue of matching customers to addresses, sure segments of the on-chain ecosystem provide extra specific indications of handle possession. Bitcoin miners, specifically, are comparatively simple to determine because of the heuristic of “0-hop” and “1-hop” addresses. On this week’s problem of State of the Community, we apply this heuristic to comply with the stream of funds between mining swimming pools and miners, uncovering hidden hyperlinks between entities in an effort to quantify the true diploma of mining decentralization.

As mentioned in earlier problems with our Following Flows sequence, the overwhelming majority of Bitcoin miners direct their hashrate to a service supplier referred to as a “mining pool,” permitting them to mitigate the short-term volatility of mining income by splitting rewards with different miners. These mining swimming pools are the direct recipients of latest BTC issuance, in addition to any charges related to the batch of transactions they append to the blockchain. As a result of their distinctive proximity to new BTC issuance, mining swimming pools are typically identifiable because the house owners of “0-hop” addresses.

Moreover, the vast majority of mining swimming pools will publicly stamp blocks they mine with a declare of possession, generally known as the “coinbase signature.” This on-chain metadata permits us to map 0-hop addresses to their corresponding mining pool, offering a dependable heuristic for monitoring the stream of income for a coalition of miners. Focus of hashrate right into a handful of highly effective swimming pools has been a longstanding concern within the Bitcoin neighborhood, and on-chain flows affirm an rising centralization of energy. The highest 2 swimming pools— Foundry and AntPool— obtained 53% of all mining rewards over the course of 2023.

Source: Coin Metrics ATLAS

Typically, the hyperlink between a cluster of 0-hop addresses and a mining pool is mutually unique, with every pool controlling an remoted set of payout addresses. Nevertheless, some swimming pools have an observable overlap in 0-hop addresses. For instance, inspecting the seven 0-hop accounts related to Binance Pool and, addresses 3L8…8TZ and bc1…9jv have obtained payouts from each swimming pools.

Source: Coin Metrics ATLAS

These intervals of overlap are transient, with simply 22 blocks directing payouts to Binance Pool-affiliated addresses in February & September 2023. Nonetheless, any quantity of shared flows lends credence to the theory that Binance Pool is just a white-label instantiation of software program, additional complicating efforts to straight measure pool centralization.

After taking custody of latest Bitcoin rewards (and extracting a small service payment), mining swimming pools distribute earnings from their 0-hop handle to their miner constituency. Miners are typically recognized by way of “1-hop” addresses, linked to mining pool addresses by at the least one influx. Traditionally, the “0-hop” and “1-hop” sample has been the first lens by which analysts have understood the connection between miners and mining swimming pools.

Nevertheless, there are a couple of concerns that should be taken into consideration earlier than making the blanket assumption that each one 1-hop addresses are managed by miners. Some miners withdraw earnings on to an change handle, presumably offering the optionality to liquidate BTC and canopy short-term working prices. Unsurprisingly, Binance, Kraken, and Coinbase are among the many prime benefactors of pool outflows, receiving simply shy of 21K BTC throughout the trio. There’s additionally clear regional alignment between U.S.-based swimming pools and U.S. exchanges, with Foundry making up 89% of the deposits to Coinbase, Kraken, and Gemini.

Seychelles-based MEXC—an change averaging at $1B in spot volumes day by day, or 10% of Binance’s complete—initially seems to be a surprisingly high-profile recipient of mining payouts, notably from AntPool. Different address-clustering sources tie most of the similar MEXC-linked addresses to, a Singapore-based custodian headed by F2Pool co-founder Discus Fish. The overlapping handle tags underscore the tough nature of mapping addresses to a single entity. Given the paradox of possession, we’ll name this group of addresses the “MEXC/Cobo cluster.”

Since January 2023, addresses within the “MEXC/Cobo cluster” have obtained roughly 63.6K BTC within the type of mining pool payouts. AntPool contributed a staggering 45.7K BTC to this sum—practically 47% of their complete mining influx.

Source: Coin Metrics ATLAS & Tagging API

The vast majority of the pool-to-exchange flows additionally include inputs from a number of swimming pools inside the similar transaction. Primarily based on the “common input heuristic” (the preferred methodology for clustering addresses), this transaction construction usually signifies a set of addresses is managed by the identical proprietor. On the very least, the shared inputs recommend a excessive diploma of coordination between swimming pools when transferring funds to exchanges. 

Since January 2023, there have been 1,200+ cases of pool-to-exchange flows with shared inputs from a number of swimming pools on a day by day cadence. Swimming pools contributing to the transactions embody AntPool, Binance Pool, F2Pool, Luxor,, Braiins, and Poolin. Notably, the vast majority of the cross-input transactions seem to incorporate inputs from MEXC/Cobo-affiliated addresses, indicating the entities play a hands-on function in consolidating mining pool outflows and, finally, forwarding funds to different exchanges like Binance and WOO X.

Source: Coin Metrics ATLAS & Tagging API

Trying on the remaining 1-hop handle set, there’s nonetheless a puzzling quantity of transfers from a number of mining swimming pools to a singular handle, 3BH…WGb. Final December, analysts at TheMinerMag noticed a suspicious consolidation of funds originating from a number of mining swimming pools. Along with receiving 36.3K BTC from the 2nd-largest pool AntPool, the 3BH…WGb handle has obtained substantial contributions from 7 of the opposite prime mining swimming pools: F2Pool, Binance Pool, F2Pool, Luxor,, Braiins, and Poolin. In mixture, 57.4K BTC flowed from swimming pools to this handle, making up round 18% of the one-hop stream complete (excluding exchanges) since January 2023.

Source: Coin Metrics ATLAS

The 3BH…WGb handle doesn’t share inputs with different swimming pools or exchanges, making its possession tough to pinpoint by way of heuristical clustering. Nonetheless, the consolidation of funds into this handle implies the existence of an entity backstopping a number of pool operations. 

Many of those swimming pools provide a Full Pay Per Share (FPPS) payout mannequin, permitting miners to obtain constant compensation for his or her hashrate, no matter whether or not the pool persistently mines blocks. Whereas handy for miners, FPPS introduces liquidity threat, as short-term variance in “pool luck” may end up in payouts quickly exceeding the quantity of incoming pool income. The collapse of Poolin in 2022 was largely attributed to a FPPS imbalance, with the illiquid pool finally suspending withdrawals and triggering an 80% exodus in pool hashrate.

Nonetheless, the mining pool panorama is fiercely aggressive, and swimming pools have had little selection however to embrace FPPS. In November 2022, Riot Platforms (RIOT) publicly broke off their relationship with Braiins, a pool pioneer providing Pay Per Final N Shares (PPLNS). This once-standard payout construction introduces a excessive degree of income volatility, forcing miners to abdomen short-term variance in pool luck. After a chronic interval of dangerous luck with Braiins, on-chain flows point out Riot switched to the extra predictable payout mannequin supplied by Foundry, the main FPPS pool. One yr later, Braiins Pool announced they might change to FPPS. 

For smaller swimming pools, absorbing the influence of extended intervals of dangerous luck requires integrating with a bigger, extra liquid associate. The 3BH…WGb handle seems to be this associate. By the way, the handle can also be a daily recipient of flows from the MEXC/Cobo handle cluster, suggesting a broad degree of coordination amongst these entities. The frequent thread between these companies is Loop, an “all-in-one assets transfer network,” created by Cobo.


Given the accounting challenges related to FPPS, it’s possible that mining swimming pools are leveraging Cobo’s Loop Community for liquidity and payout administration, leading to an rising focus of flows right into a choose variety of Loop-affiliated addresses. Whereas working with a Third-party to handle mining rewards ought to theoretically assist decrease short-term liquidity threat, it additionally forces miners to tackle further counterparty threat, inserting yet one more intermediary between miners and their rewards. Although decentralization advocates usually be aware miners can “easily switch pools,” pool participation on this association represents practically 50% of the Bitcoin hashrate, leaving miners few decisions for opting out completely.

On this evaluation, we have examined a number of cases of overlap between pool transactions, from shared 0-hop addresses to common-input pool payouts. Some cross-pool funds could be defined away as byproducts of a shared software program stack. Others present clear proof that mining swimming pools are coordinating extra intently than it seems on the floor.

Mining pool centralization stays a top-of-mind concern within the Bitcoin neighborhood. Even at face worth, the overwhelming majority of mining rewards being funneled to simply two swimming pools (Foundry & AntPool) elevates threat components like censorship and community disruption. Although the remaining allocation of hashrate is comparatively well-distributed amongst smaller swimming pools, on-chain hyperlinks between pool addresses warrant concern, pointing in the direction of a hidden consolidation of energy within the mining ecosystem. 

A particular because of Ian Descoteaux for his enter on this evaluation.

Over the previous week, Bitcoin’s market capitalization surged by 17%, reaching an all-time excessive of over $1.3T on Monday, March 4th 2024. Concurrently, the expansion of main stablecoins continued, with Tether (USDT) reaching an mixture provide of $100B for the primary time, and USDC reaching $25B in provide. Exercise rose throughout a number of different ERC-20s, buoyed by a powerful week for digital asset markets.

This week’s updates from the Coin Metrics workforce:

  • Reported Spot Quantity throughout exchanges hit $100B final Wednesday. Comply with Coin Metrics’ State of the Market publication which contextualizes the week’s crypto market actions with concise commentary, wealthy visuals, and well timed information.

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