Solana Builders — Ore: A New International Money

Key Insights

• ORE is a Bitcoin-like peer-to-peer electronic currency distributed via proof of work mining, but implemented as a program atop Solana
• Ore v2 makes several significant changes from the simpler v1:
  • First, the introduction of a new, less gameable mining algorithm DrillX, which also ensures simple phone and laptop miners will never be priced out from mining Ore
  • Second, the introduction of ORE staking to boost mining rewards (creating a demand sink incentivizing miners to hold rather than claim + sell)
• Inflation is the biggest perceived risk. Ore inflates at a linear rate of 1 ORE/min, with a capped supply at 21m. As a % of total supply, this inflation is very high at the onset, but historically, the greatest opportunity in crypto is found at the point of highest inflation (e.g., BTC, DOGE, SOL)
• High FDV may also turn into a marketing mechanism likely to drive discussion and debate – otherwise known as attention.
• Overall, this thesis presents Ore as a levered bet on Solana’s success — a Solana-native mineable money has a solid risk versus return profile at 15-20m CMC.

Introduction: Mining Ore at Solana Beach

“Every new thing creates two new questions and two new opportunities” — Jeff Bezos

New token distribution mechanisms are almost always underestimated, overlooked, or even ridiculed at the onset. 

Bitcoin was rat poison, ICOs were scams, IEOs were scams redux, liquidity mining was a ponzi scam, and NFTs were screenshot-able pictures of no consequence. And, might I add, memes were dumb and had no value. 

Ore leads the way for what will become the next novel distribution mechanism — proof of work (PoW) coins issued atop existing chains, primarily Solana. Introduced as “a new mineable token … using a novel proof-of-work algorithm to guarantee casual miners can never be starved out from earning rewards”, Ore aims to emulate the original state of Bitcoin — a currency anyone can mine, anywhere. 

On the back of that introduction and a high marginal inflation from the 1 ORE per minute issuance schedule, the Ore mining program rocketed to one of the top three most used programs on Solana, eventually reaching number one. That activity clogged up Solana, making many mark Ore as the project that broke Solana.

Regardless, speculators rejoiced, leading some dumb analysts to overlook near-term inflation and general anger towards Ore for congesting (or outright breaking) Solana. 

By mid-April, it was clear that:

• Ore’s mining algorithm was too gameable, leading to mass spam that congested Solana
• Miners lacked reason to do anything but claim and insta-dump ORE, causing the down-only price action seen above
• Change was needed for Ore to survive

Thus, the lead pseudonymous developer Hardhat Chad paused mining on April 16th. Price continued to trickle downwards, Solana congestion cleared up (partly due to the 1.18 upgrade, which was fast-tracked in response to ORE), and Ore slowly faded away from the public consciousness. 

New Paradigms at Stealth Phase: Ore v2 

“Show me the incentives, and I’ll show you the outcome” — Charlie Munger

While the market’s perception of Ore faded (and continues to fade) to nothing, the developer community continued to work on the reality that is Ore v2. This new approach aims to:

• Fix the gameability of Ore mining via a new mining algorithm
• Rework token incentives to give people incentive to stake the token

Drillx: Ore’s Novel Mining Algorithm

The first algorithm deployed by the Ore protocol was too gameable, incentivizing mass spam. The result? A few miners gained a systematic advantage, and full stack twapped free tokens to oblivion. Can’t blame them —  after all, it was free money! Kinda like mining low-difficulty Bitcoins off of school library computers for pizza money…

Ore v2’s first line of work was to radically change the approach to mining. The goal is to: keep mining accessible, lessen gameability, and disincentivize spam. Hardhat and the development team turned to Equix (the algorithm behind the widely used Tor protocol) for inspiration, remixing it to create DrillX. DrillX utilizes BLAKE3 hashing to implement dynamic mining difficulty, which should mitigate the gameability aspect seen in Ore v1. 

Beyond that, the technical buzzword to know is “memory hardness” — a trait that makes Ore mining much more CPU dominant than previous mining algorithms like SHA256, which is susceptible to chip specialization. 

Combining CPU dominance with an 11-decimal token means Ore will always be mineable via cheap hardware like a phone or a laptop. This holds true even if higher-grade CPUs or specialized chips enter the market. 

Protocol-Level Fuel on the Fire: Stake-Weighted Mining Rewards

v2 looks to build on proof of work level improvements by incentivizing miners to stake ORE tokens to maximize their rewards:

The big question: is the demand to accumulate ORE for the multiplier enough to offset sell pressure from high initial inflation? Better yet — will that sell pressure actually arise?

It’s possible to envision a future where miners won’t sell as much as people think — the dominant strategy when one owns the mines is to allow the valuation of what you mine to grow maximally. It’s the same logic that allowed Bitcoin to not die all those years ago

As an econ nerd might say: the subgame perfect equilibrium — the choice that makes the most sense for all players during the overall social — is for diehard miners to buy, pushing up the value of the token that they’re mining.

Note: The Upgradability Critique

Much of this thesis rests on a technical and market based comparison to bitcoin. However, many might respond that a v2 of a currency completely invalidates the narrative draw of similarities to Bitcoin. How can an upgradable project with a v2 compare to the “lindyness” of Bitcoin?

To that, I say: study the 184 billion Bitcoin bug of 2010. In addition, numerous opcodes have been added to the Bitcoin protocol, not by the God Hand of Satoshi, but by Bitcoin Core developers.

No protocol ships perfect from day 1.

The Case For Ore

“Never ever invest in the present…. visualize the situation months from now, and whatever that is, that’s where the price will be, not where it is today” — Stan Druckenmiller

Any trade, speculation, or investment comes down to simple upside versus downside risk:

Downside

The downside seems limited from here. Ore v1 saw the highest inflation the protocol will ever see at the same time that there was no fundamental reason to hold the token. That setup dumped the token -97% from ~$4,000 to ~$120.  It feels unlikely (but still possible) that ORE trades below those levels, given the incentive changes outlined above. As of writing, the token has rallied off the $100 lows to the $900 range. This implies a rough downside of -80% or so if the token trades back towards the lows. If the miners who spent months in the Ore community after it was forgotten reject the premise that Ore has value and elect to market sell 100% of tokens, it will almost certainly spell the end for Ore.

Upside

Putting speculation aside, Ore has a legitimate case to be competitive technically with Bitcoin:

• Fairer mining algorithm: Memory hardness allows for phone miners in near perpetuity
• Fairer launch time: Way more people in crypto in 2024 than there were in even 2014, by 2014 almost half of all BTC was already mined
• Mining spread out over longer duration of time: Half of ORE mined by late 2030s
• More divisible: Eleven decimal points versus eight for BTC
• More usable: Speed and low txn costs of Solana make Ore far more usable than BTC

The only reason Bitcoin didn’t zero out in the early days was because a large number of early participants believed the bitcoin network would be valuable in the long run. For Ore, in the upside case, these technical grounds form the basis for why Ore doesn’t zero out in its own early days. 

The early Bitcoiners may not have guessed the extent to which their thesis would play out (unless they were Hal). Still, they bet on the game theory of an increasing miner count, community, and ecosystem forming around Bitcoin. The bet here remains the same. The hashrate committed to Ore, the community support for Ore, and the surrounding ecosystem are all likely to expand from here. Where the market values that expansion is unknown. Crypto markets tend to overly extend on shiny new narratives.

Less important than a price prediction is an attentional prediction.  Given everything stated above, it feels high probability to bet on Ore scaling out of obscurity into popularity – or infamy – once mining resumes. 

Note: Other Asymmetric Use Cases

Ore mining will likely command a large number of CPU-based nodes as well as mining taking up a large amount of Solana’s blockspace. There are a number of speculative moonshot applications Ore could potentially tap into beyond its usage as cold hard cash:

CPU nodes

There is no ironclad rule dictating that the compute Ore attracts to mine the token must be limited to that purpose. It’s pure speculation at this stage, but theoretically, Ore could redirect that compute for any use case, such as providing full or partial security for the growing number of SVM L2s or other tokens issued via PoW. 

Solana Blockspace

At peak, Ore v1 was the number one most called program on Solana, taking up a material (but surprisingly efficient) percentage of Solana blockspace. Whether or not that status could be parlayed into something useful in Ore v2 (or a v3/v4…) is to be seen. If it’s even possible, perhaps Ore miners could turn around and sell access to the blockspace they command.

The value of such an agreement is unforecastable. At the very least, it would be riding an existing trend. The value of MEV on Solana has been up only since November.

The Ore Team

Ultimately, these use cases are pie in the sky. It’s unclear whether or not they’re feasible. To underwrite these — and really the project as a whole — is more a bet on the founding team than anything else. As the Grand Champion winners of the inaugural Renaissance hackathon, the team is strong. Moreover, winning the hackathon allows Ore to be considered for the Colosseum accelerator program, giving the team backing from many of the biggest names in the Solana ecosystem. 

The future will determine whether the team executes on the opportunities above or pivots into a vision beyond what I can see.

Canaries in the Ore Mines: Ore Thesis Risks 

“It’s all risky. The minute you got born it got risky” — Jim Rohn

No early-stage stage crypto thesis is without extensive risks. Here’s everything that came to mind:

Inflation

All the demand sinks listed above are all good and well but ultimately mean nothing if mined tokens are full stacked every minute of every day. It would take nearly incessant buy pressure to absorb those kinds of flows, which seems unlikely if miners aren’t holding any of their allocations. 

It would be hard to imagine Bitcoin succeeding if every single miner was like the Bitcoin Pizza guy 24/7. 

The first day of mining post-restart (the 15th day overall) will inflate token supply by 7%, the 100th overall day will only inflate supply by 1%. A year after mining restarts, marginal inflation on the day will be 0.26%.

Platform Risk

A number of both Ore-specific and Solana-specific changes have been implemented between now and Ore v1, which was said to be killing Solana with excessive congestion. Should those issues re-emerge post-Ore v2, it’s hard to imagine the ORE being an attractive investment.

Market Risks

There are several ways market dynamics could cause Ore to fail:

• Market refuses to value ORE as a store of value: Even if the technical argument for Ore’s superiority compared to Litecoin stands, the market isn’t obliged to value ORE anywhere close to LTC’s multi-billion dollar valuation
• Illiquidity: As of now, Ore pools are very illiquid and fragmented. With v2 ushering in a new token, this may change, but uncertainty here could scare off potential buyers
• Market Nuke: Crypto is a heavily correlated asset class. It’s heavily unlikely that ORE is one of the few exceptions that performs to the upside while the market trends to the downside 

Founder Risk

It’s crypto. While Hardhat seems to be technically astute and vetted via the Renaissance hackathon win, founders can always turn out to be different than they seem. That doesn’t seem to be the case here, but it’s always a risk in crypto.

Smart Contract Risk

Similarly, the Ore contracts could get hacked. It’s crypto, after all. They’ve taken an extensive amount of time in the audit process, whose results will be published post-writing but pre-v2 launch. That said, If nine-figurenine figure bridges and world-class market makers can get hacked, almost anything can get hacked. Just something to think about, as is the case for every on-chain protocol.

Conclusion

Asymmetry is everything. Ore — a largely forgotten asset with the potential to revolutionize mining in crypto — exudes asymmetry. 

See you in the mines — kel xyz

Disclaimer

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