Earlier this month, ETH Global and Filecon hosted the Storage Market Summit (SMS), where “Filecoin Protocol Resource and Risk Management” and “Network Economics” were discussed. We previously shared the “Collaborative Resource and Risk Management” section (click on the image below to view it) . Next, let’s take a look at “Filecoin Network Economics” together. A Deep Dive into Filecoin Economics The following is an excerpt from the “Filecoin Economic Deep Dive” presentation by ZX Zhang of Protocol Labs. The Filecoin network is a complex ecosystem with many different participants. These include Filecoin clients, miners, and developers, as well as FIL token holders and ecosystem partners. The modern storage environment leaves a lot to be desired. Reliable storage can be expensive, which results in more data being created than actually stored, and the data that is stored is highly concentrated, with the top five providers controlling nearly 77% of the cloud storage market. This makes it difficult for new entrants to gain a foothold in the ecosystem. Filecoin aims to build solutions to these problems, open up the storage economy, and provide a platform that makes it more feasible for independent participants to compete and innovate in the face of established competition. Its network achieves complete storage and retrieval economics and is the basis for a variety of differentiated services. Every participant in the Filecoin ecosystem should have a role to play and a stake in its success. Participants are incentivized to cooperate and compete in ways that maximize the utility of the network. These roles often overlap; for example, miners remain the primary contributors to development, and token holders’ investments in miners and developers are critical to the growth of the ecosystem. The underlying protocol of Filecoin pushes network participants toward behaviors that are beneficial to the network, such as constraining miners through a mechanism of rewarding and punishing storage miners. Anyone can become a storage miner, but miners cannot receive rewards until they reach the minimum storage capacity of the network. Built-in storage can prove the reliability and capacity of the network, and if these storage commitments can be easily broken, the network will lose its reputation. Therefore, miners who provide committed capacity to the network must pledge Filecoin's token FIL to ensure that miners can fulfill their promises as scheduled. In return for the risk they take, storage miners are eligible for block rewards, which are paid to storage miners in proportion to the amount of storage they provide to the network. Storage miners can also enter into collateral transactions with clients, who pay them FIL in exchange for storing specific data. The network also empowers clients through Filecoin Plus, a community-managed notarization program that allows approved clients to make special storage deals. These deals come with multipliers that make them more valuable to the storage miners who win them, giving clients leverage. In addition to storage economics, Filecoin implements all the building blocks required for retrieval services, providing the foundation for a global content delivery network. The Filecoin mainnet has been online for eight weeks and has seen tremendous growth in both the number of new miners and new applications, which are targeted at emerging business opportunities in Web2.0 and Web3.0. Filecoin Circulating Supply: Mechanisms and Schemes Modeling the circulating supply of Filecoin tokens is not an easy task: the actual supply is determined by many interdependent factors, and any model must make assumptions about these factors. While any serious modeling should be done in close consultation with the Filecoin economic whitepaper, the Filecoin specification, and Filecoin's Lotus implementation, we can briefly outline the main modeling considerations. First, it is important to highlight the difference between maximum token supply and circulating token supply. The maximum supply refers to all tokens that will ever exist, while the circulating supply refers to the tokens that are available for market trading at any given point in time. Filecoin has a fixed maximum supply of 2 billion FIL; however, many of these tokens have not yet been issued for circulation. In addition, unlike Bitcoin, these outstanding FIL are not subject to a fixed issuance schedule. Instead, their distribution speed is related to the overall utility of the Filecoin ecosystem. Unliquidated tokens released over time constitute the inflow of tokens into the circulating supply. There are two sources of unreleased tokens: tokens used to reward storage miners, and tokens owned by SAFT investors that vest on a variable schedule. 70% of the total Filecoin token supply (1.4 billion tokens) is allocated to reward miners. These tokens are divided into three categories: simple minting rewards (330M), baseline minting rewards (770M), and mining reserves (300M). Simple minting rewards are time-based and are released over a six-year half-life. Baseline minting rewards are performance-based and target the growth of the network's storage capacity. Block rewards miners receive also have vesting rights: while 25% of these rewards are immediately available to improve miners' cash flow, 75% will vest linearly over 180 days. The mining reserve is not scheduled for release; it is up to the community to decide how to best distribute these. There is also an outflow of tokens from the circulating supply. In Filecoin, this happens when tokens are locked up, such as when they are provided as collateral for a deal — Filecoin Plus deals offer miners ten times the block rewards, also requiring ten times the collateral. Outflows can also result from network transaction fees, which consume some tokens to compensate for computing and storage resources placed on-chain. Therefore, modeling circulating supply requires at least making assumptions about the growth of the Filecoin network; breaking down network capacity into committed capacity, regular storage transactions, and Filecoin Plus transactions; and daily network transaction fees. Depending on these assumptions, estimates of circulating supply can vary significantly! First, it is important to note that the economic mechanisms in the Filecoin ecosystem enable stakeholders to align themselves with long-term participation and investment in the network. The most important goal for the community is to make the network as useful as possible by increasing its use cases, improving its tools and infrastructure, and helping it scale. The Filecoin ecosystem is large and thriving, but how can more balance and harmony be achieved? Where can people help build the ecosystem? Filecoin is live, but the protocol is only at the base layer. To build new features and services on the protocol, a lot can happen. Generally, there are two broad categories of services that can be built on top of Filecoin. First, products that integrate with Web2. Second, products that interact with Web3 systems. Web2 can benefit from financial services that allow regular users to interact with cryptocurrencies. A smooth experience is important for most people interacting with Filecoin. Discovery platforms are also critical to any thriving economy. We must answer these questions: How are demand and supply met? How do we support the reputation of our supply side? There is still great opportunity for data services on top of the basic protocols.
For Web2 users, this also depends on good UX. For Web3 interactions, cross-chain integration with other smart contract systems is critical. With this integration, new products and services can be built. Especially when we start to think about how Filecoin can own and operate another network's data; these ideas are especially creative. Overall, the incredible developer tooling will prove especially game-changing by allowing more developers to use Filecoin. |
