Thinking about the first anniversary of the Genesis Block: What kind of applications does the Filecoin ecosystem need to take root?

Author: Calvin & Min of Taihe Capital

Wu said blockchain has obtained exclusive authorization to reprint and edit

Wu said: Filecoin was "fortunately" launched at the beginning of the bull market, and has also experienced huge fluctuations. It has now steadily entered the stage of ecological polishing and application landing. What kind of applications does Filecoin need to truly "take root"? This article provides a good overall thinking.

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As of this week, the first anniversary of the creation of the Filecoin mainnet block has arrived. The ecological development has taken shape, and more and more developers are building application platforms based on Filecoin. As of August 23, the Filecoin network has 2,865 active miners, providing 9.5EiB of effective computing power, and growing at a rate of nearly 50PiB per day, exceeding any cloud service provider.

But when we clear away all the noise and calm down to think: what kind of applications does Filecoin really need? Where will the ecosystem go in the future? These fundamental questions will come to mind.

For an ecosystem to develop, the underlying network must be built and supplemented first, and then applications can emerge in an endless stream. For a new ecosystem to develop, the underlying infrastructure and underlying network must be supplemented and improved first. The early dividends of network effect development are very high, and with the rise of applications in the later stage, the dividend period of infrastructure application is relatively sustainable.

Therefore, in the early stages of ecological development, we tend to pay more attention to projects that build underlying infrastructure and can form network effects. These projects are more suitable for the current development stage of the Filecoin ecosystem than application-based projects.

In fact, this law not only applies to the current Filecoin ecosystem, but also to other ecosystems within the blockchain, and even to the development history of the entire blockchain industry. At present, there is still a full valuation for large public chain projects. With network development as the forerunner, the development of the ETH ecosystem to the ecological application stage still goes back to supplement infrastructure (ETH2.0). The dividends of infrastructure in the early stage of network development are very high, and with the rise of later applications, this dividend period will be continued and amplified.

We have classified and divided the ecological projects within Filecoin:

Looking at the entire Filecoin ecosystem project, we can sort it out from two dimensions: vertical and horizontal. Now the Filecoin ecosystem needs a lot of related service layouts horizontally. Filecoin is now mainly mining machine manufacturers, mining machine upstream service industry, Filecoin asset management value-added, Filecoin Lending, Filecoin hosting; vertically, it is mainly distributed cloud storage service architecture, and the technical bottom layer of distributed cloud storage is definitely the IPFS network itself; the second layer is Filecoin, which is the IPFS incentive layer; the third layer is related to tools, which are some relatively friendly clients and storage technology services.

Combining this information, we have sorted out the three types of projects that the Filecoin ecosystem needs most at this stage:

(1) Filecoin’s endogenous DeFi serving mining machine manufacturers

(2) The combination of Filecoin and NFT may become the first application scenario of Filecoin and an important storage application

(3) Develop basic service applications for the Filecoin storage matching market

1. DeFi in the Filecoin Ecosystem

The best-developed Web3.0 application at present is decentralized finance Defi. It can even be said that through Defi, we can get a glimpse of the future form of Web3.0. However, there are two reasons that have been restricting the expansion of on-chain Defi applications:

(1) on-chain data storage and (2) on-chain transaction costs.

One of the possible use cases of Filecoin and DeFi in the short term is the distributed storage of a large amount of DeFi data. According to a survey published by cloud service provider Chainstack, centralized cloud services carry most of the Ethereum network, with 61.6% of Ethereum nodes running on the cloud. The report said that Amazon Web Services (AWS) alone indirectly operates nearly 25% of Ethereum nodes.

With the release of Filecoin, Ethereum on-chain storage can be transferred to Filecoin to complete some heavy tasks, such as massive transaction records and historical status information. Most importantly, DeFi applications can share access to this data. I think we will see complementary connotations between the Filecoin storage network and the Ethereum DeFi ecosystem.

Truffle, an Ethereum smart contract development tool, also announced on Twitter that it has reached a cooperation with Filecoin to help developers around the world create and deploy fully decentralized applications. Through this cooperation, Truffle will integrate the Filecoin network into its tool suite to help users deploy directly to Filecoin. Then, Truffle will add new features to Ganache so that users can easily simulate the Filecoin network during development and testing (Truffle is a development framework for the Ethereum Solidity programming language).

The Filecoin network is in great need of smart contracts and development tools at this stage. This is how the Ethereum ecosystem developed a few years ago, and it was very difficult to create things without these tools and libraries. So I suggest creating more tools and libraries to help other developers and users.

On the other hand, Filecoin's endogenous DeFi makes the future of the ecosystem full of greater imagination.

Taihe Capital's mining fund is also deeply involved in Filecoin mining. We understand all the challenges, difficulties and needs faced by miners. Because the Filecoin economic model delays the release of miners' income and requires pre-staking, this is a capital threshold for many miners, and the capital utilization rate of FIL will also be very low.

The current solution is to map FIL ​​to the Ethereum network through a bridge, and then pledge BTC or ETH through the Defi network on the Ethereum network. In this case, miners are actually crossing from the Filecoin ecosystem to the ETH ecosystem to use Defi, and excess pledge is required, and the whole process is relatively complicated.

There are some FIL Lending or mapping protocols based on the Ethereum chain on the market, such as HFIL and renFIL; as well as the DeFIL project based on the protocol on the Ethereum blockchain. In fact, they all rely on smart contracts based on the Ethereum technical architecture. There are indeed some innovative services in terms of loan interest rates, which can indeed supplement some FIL liquidity problems caused by over-collateralization.

However, in the Filecoin network, miners have many assets, such as pledged coins, computing power, data, machines, etc. If Defi endogenous to the Filecoin network can easily verify these assets, lending without pledge can be achieved, thereby lowering the participation threshold for some miners.

For example, the HashMix project, through its powerful on-chain database and algorithm design, can provide FIL loans with only miners as the owner of the pledged node. This project that uses on-chain information for FIL loans and has a floating interest rate is very suitable for the future FIL ecosystem endogenous Defi gameplay. (Strictly speaking, HashMix does not belong to Filecoin endogenous Defi.)

Not only that, endogenous Defi can also provide more playability for the Filecoin ecosystem. In addition to lending, there are also futures and insurance, as well as the transfer of income rights between computing power.

These will all prosper based on the rise of Filecoin's endogenous Defi network. We look forward to Filecoin launching smart contracts as soon as possible. Fortunately, Juan has stated on Github that the Filecoin-based virtual machine may be launched at the end of 2021.

2. No Filecoin, no NFT

Juan, the founder of IPFS, once said: "NFTs that are not stored on IPFS are not truly your NFTs." NFT is a radical new form of digital ownership that attempts to break away from the control of centralized companies, but the storage of NFTs has centralized components.

The reason why NFT is so popular is that NFT represents ownership. However, most NFT projects actually use traditional centralized storage methods. For example, the NFT you purchased is decentralized and exists on the blockchain. However, since it is expensive and difficult to store files on the chain, especially large files such as videos, they are usually stored off-chain, including Nifty Gateway, SuperRare, Rarible, Opensea, etc. This means that the NFT assets are not in your hands, and are even forced to be stored in the hands of storage service providers. In other words, the NFT project is fragile under the cloak of "ownership".

(1) You may lose access to your NFT assets;

(2) Your NFT token points to an off-chain storage location called an HTTP URL. Relying on HTTP’s location-based addressing method, your NFT is at risk and possible of being tampered with.

Therefore, NFT has a strong demand for on-chain data storage, and with the introduction of NFT concepts such as the "metaverse", the demand is becoming stronger. The IPFS official protocol laboratory has officially launched the NFT.Storage project, which can safely and reliably store NFTs on the entire chain. Users can store NFT content or metadata in IPFS and Filecoin for free. In addition to the advantages of decentralized data backup and tampering prevention, the most important thing is to solve the problem of true NFT data ownership, providing strong data supply chain support for decentralized data property rights verification.

However, in order to allow more NFT projects to store data on IPFS, there needs to be an endogenous NFT infrastructure project within the FIlecoin ecosystem, such as allowing users to mint NFTs directly on IPFS, destroy centrally stored NFTs with one click, and regenerate a completely consistent version on IPFS.

Therefore, in the early stages of an ecological development, a network effect must be formed first, which puts higher demands on the network's infrastructure. Therefore, more projects that do underlying infrastructure are needed to participate. We are also extremely optimistic about projects that can help save NFTs on IPFS.

3. Filecoin Storage Service Infrastructure

As can be seen from the above figure, in the FIL storage market, as of July 8, 932,047 real storage transactions have occurred, completing 24 Pib of effective storage (information source: https://filecoin.tools/). The effective computing power of the Filecoin network is 7.208Eib, and the proportion of effective data to total data storage is only 0.33%.

It can be seen that the proportion of real user data storage in the Filecoin network storage is very low. This is because the storage mechanism of the Filecoin network requires the storage party (user) to find the storage party (miner) to store data in a certain way. At present, this collection mechanism is still relatively complex to use in the network. Moreover, miners who store data stably and reliably still need screening and evaluation.

Currently, there are 569 users using the Filecoin network for storage. There are also more than 2,000 service nodes involved in mining. The increase in the number of participants in the network has put forward higher requirements for the ecological service providers in the network. Who can provide high-quality storage services? How to store a file quickly and conveniently? How to retrieve stored files quickly?

This requires the emergence of a transaction matching platform within the network (similar to Didi and Airbnb), so that users with storage needs can quickly find trustworthy storage providers (miners). On the other hand, a sound system must be established for the screening and selection of miners' orders.

In the current ecosystem, there are projects such as FileDrive, Filswan, and Slate, all of which provide basic distributed storage network services within the Filecoin ecosystem. However, among the three projects, only Filswan provides miner and storage matching services; the other two, FileDrive and Slate, are more inclined to IPFS content retrieval services. (Content retrieval services are indeed a very important part of the IPFS and Filecoin ecosystems, but the direction of the retrieval ecosystem is still unclear, and many projects are in the trial stage. This article will not discuss this for the time being, and this content will be explained in detail in another article in the future.)

One of FilSwan's current main business directions is to provide a matching and computing service platform for data order transactions within the Filecoin network. On the FilSwan platform, you can easily search and discover the global storage node status, publish orders, and storage providers can also match orders on the platform. However, there is currently no function for scoring miner nodes and providing matching suggestions. In general, it is still in the early stages of construction and there are many inefficiencies in use.

However, we learned from FilSwan officials that FilSwan will improve and optimize the matching system as soon as possible, and will also establish a complete evaluation system for sorting the most suitable storage miners. Not only that, Fileswan will also match services related to computing needs in the future, expanding from a storage matching platform to a computing power matching platform. In addition to storage resources, the Filecoin network also contains a large amount of computing resources. In addition to storage services, the computing power service market obviously has huge business opportunities, and this area has great potential.

IPFS distributed storage is obviously more fragmented, more dispersed, and has more uncertainties than centralized storage. In this case, the storage matching platform as an intermediate layer also needs to ensure that a large amount of commercial data can be stored safely, stably, and efficiently, which places very high demands on the storage matching platform.

It can be seen that in order to improve storage efficiency, reduce the risk of data loss, and realize commercially available storage systems in large-scale application scenarios, storage service infrastructure is indispensable and is also an important task before the official commercialization of IPFS storage services.

IV. Conclusion

As we are almost one year into the mainnet launch, we are fortunate to see a large number of ecological projects. There are filscan and filscout teams focusing on browsers and other related services, the Texile team focusing on online storage and forwarding services, the Livepeer team cooperating with the Filecoin ecosystem, and a large number of teams in various longhash and Tachyon incubators. They are constantly improving and completing the entire storage, computing, and financial ecosystem under the Filecoin protocol layer model.

However, we still have to reiterate our initial point of view. For an ecosystem to develop, it is necessary to first build a good underlying network and lay a solid foundation, and then welcome the explosive wave of applications under the network effect. Now the Filecoin ecosystem is still in the process of building a distributed web3 service network, and what is needed more is the underlying application that can solve basic functions.

[Disclosure] Conflict of interest: At the time of this report’s release, Ti Capital is already an investor in the HashMix project and the FilSwan project. (Header image from gettotext)