Understanding Filecoin Circulating Supply

This blog post aims to reveal how Filecoin tokens enter the circulating supply, provide more insights into how various stakeholders participate in its economy, and clarify how to understand and think about Filecoin token economics. In order to better understand this article, readers need to study the papers related to Filecoin economy and the detailed mechanism introduction in the Filecoin Spec document.

The growth of the Filecoin ecosystem is driven primarily by use cases, tools, and infrastructure for all Filecoin stakeholders. Since the launch of the Filecoin mainnet on October 15, 2020, it has surpassed several important milestones:

1. More than 700 miners with storage capacity exceeding 1EiB

2. An ecosystem of more than 90 projects - building applications, developer tools, and infrastructure on the network

3. More than 200 new projects joined the ecosystem through hackathons and accelerators

4. More than 5,400 developers have contributed to the project’s GitHub source code repository

5. Developed many application cases, including consumer storage applications, archive storage, DeFi, decentralized video, etc.

For a deeper understanding of the state of the Filecoin ecosystem, look back to Liftoff Week or updates to the network since October 2020.

Filecoin is a utility token designed to be used, which gives token holders the right to use the network. We can think of Filecoin as an island economy where participants come together to produce valuable storage goods and services and export them around the world.

On the network, one should expect to see storage providers with their own unique features, smart contract systems, lending services, sets of use cases, etc. These can all become their own unique businesses. The utility of the network is reflected in the attractiveness of those products and services produced by participants in the network.

The goal of the overall overarching economy of miners, developers, researchers, clients, and token holders is to efficiently produce attractive storage-related products and services that can be exported to the outside world.

The economy produces more valuable products more efficiently, which will lead to more demand for products and network tokens. The increased purchasing power of economic participants will enable them to improve and expand their operations, providing better and cheaper services to the world.

(Figure 1)

As a utility token that aligns participant incentives with the long-term goals and vision of the network, Filecoin minting is aligned with the overall provable utility of the network. This means that the majority of Filecoin supply will only be minted when the network achieves some extraordinary growth and utility goals.

Unlike most other blockchain networks, Filecoin innovatively adopts a dual minting model: simple and baseline:

Baseline minting: Up to 770,000,000 FIL (most storage mining allocations) are generated based on network performance. This creates a strong incentive for the network to cooperate to reach storage capacity goals, which will eventually store a large portion of humanity's most important information. These tokens will only be fully released when the Filecoin network reaches a YB (Yobyte, 1YB=1000ZB) storage capacity in 20 years. According to some analysts, the data currently stored in data centers is less than ZB capacity (although it is growing rapidly), so this goal is 1000 times larger than today's cloud storage estimates.

Simple minting: 330,000,000 FIL released over a 6 year half-life (time-based). A 6 year half-life means 97% of tokens will be released in about 30 years. This small but meaningful amount is minted regardless of agent actions to provide resistance to shock pressure.

Mining Reserve: 300,000,000 FIL as a reserve to incentivize future mining activities. It will be up to the community to decide how these tokens are issued and which stakeholders should be incentivized, but for now this portion of the total supply is reserved.

Therefore, effective token minting lies in the hands of the community and can be found anywhere between the two lines in Figure 2.

Figure 3 provides an indication of how much the network needs to grow to reach the value of maximum minting.

Figure 2: Maximum and minimum mining amounts for storage mining

Figure 3: Network storage baseline generated by the largest baseline at log scale

While the community may come together to update the network’s baseline, reaching that baseline requires competitive collaboration among all stakeholders: researchers, miners, developers, token holders, ecosystem partners, and storage customers.

More information can be found in the Filecoin Spce documentation.

Another core principle and mechanism that encourages long-term consensus (including avoiding stakeholder releases) encourages participants to move away from short-term speculation and encourages all stakeholders to work together to make the Filecoin network more useful in the long run.

This applies to every core stakeholder of Filecoin, including:

1. Mining rewards : All mining rewards are released in some form to encourage long-term network adjustments. For example, 75% of the block rewards earned by miners can be linearly vested within 180 days, while 25% can be obtained immediately to improve miners' cash flow and profitability. Of course, all earned rewards are subject to significant reductions over the life of the sector. Unreliable storage reduces the practicality of the network, so the block rewards earned by these sectors will be cut and burned.

2. SAFT Investors : Starting from the launch of the network, all SAFT holders will receive FIL with linear release terms of 6 months, 1 year, 2 years and 3 years. Most of the purchased SAFT tokens are released linearly over 3 years:

58% of SAFT tokens are released linearly over 3 years

5% of SAFT tokens are released linearly over 2 years

15% of SAFT tokens are released linearly within 1 year

22% of SAFT tokens are released linearly over 6 months

3. Filecoin Foundation : Starting from the launch of the network, the Filecoin Foundation’s 100,000,000 FIL will be released linearly within 6 years.

4. Protocol Labs : Starting from the launch of the network, Protocol Labs' 300,000,000 FIL can be put into use linearly within 6 years. When Protocol Labs encourages ecosystem development through funding with important partners, these people usually also have ownership for more than 6 years.

These long-term vesting schedules for token holders help ensure that participants remain present and behave in a long-term manner on the network.

Blockchain networks like Filecoin incentivize good behavior and punish bad behavior with rewards. The penalty (called a slashing) comes from the collateral that a participant must post, or the potential rewards that a participant could receive. Filecoin has many of these mechanisms to incentivize high-quality, reliable, long-term storage.

From providing storage capacity for the network to meeting the storage needs of customers, miners must lock FIL to achieve consistent security, storage reliability, and contract guarantees. FIL is locked as a pledge guarantee for providing storage to the network and is required as a transaction guarantee and payment to meet storage needs.

Naturally, the amount of FIL locked up as collateral and forfeited for misconduct is in the hands of the community:

At the network level, the amount of locked staked collateral depends on the storage capacity committed to the network and the network’s circulating supply at the time of the commitment.

On an individual level, collateral is determined by the expected block reward that a miner will receive, to ensure that collateral is not too prohibitive. As long as there is storage on Filecoin, there will be locked FIL at any point in time.

The amount of locked transaction collateral and payment tokens is the result of a joint effort by all participants to make storage and services on the Filecoin network more attractive.

Unreliable storage reduces the utility of the network, and the corresponding miners' collateral and all rewards earned during the life of the sector will be penalized. Therefore, the block rewards earned by these sectors will be slashed and consumed.

Filecoin is a global marketplace powered by blockchain technology. Since there is no reliable way to algorithmically distinguish between real and useful data and generated randomness, the Filecoin network innovatively and pragmatically introduces a layer of social trust on top of the technical layer, namely Filecoin Plus.

Filecoin Plus puts power in the hands of storage clients because miners store transactions from these clients, which are notarized by a network of notaries, and gain a 10x storage capacity advantage, and therefore 10x block rewards.

This mechanism will incentivize all participants to invest in business development, recruit useful data and use cases, and make the Filecoin network more valuable. When miners earn 10 times the block reward, they must also provide 10 times the collateral and 10 times the penalty to ensure incentives are aligned.

The entire community is discussing the operating mechanisms and processes of notaries, which is also a major step forward in community governance and decentralized cryptoeconomics.

As participants compete for on-chain resources, whenever there is any operation or utility on the network, FIL will be used to compensate for the computing and storage resources consumed by on-chain messages. Similar to the rate at which miners mint tokens, the rate at which tokens are consumed is also in the hands of the community.

As of today, Filecoin daily token consumption has climbed to 180,000 FIL/day, a sign of economic prosperity.

The economic mechanisms embedded in the Filecoin protocol ensure that network activities and stakeholders are fully aligned with the long-term health of the network. Variable minting mechanisms based on network growth, release mechanisms, token penalties, collateral requirements, etc., align the incentives and motivations of participants with the long-term success of the network. It takes the efforts of all ecosystem participants to make Web3 mainstream.

The incentives of the Filecoin protocol must balance the interests of all stakeholders, including storage clients, miners, developers, token holders, and ecosystem partners.

A thriving economy benefits everyone in the network and aligns the long-term incentives of all participants, and most importantly, the future of the Filecoin network is in the hands of the entire community .

——End——

References:

1. Filecoin Economic White Paper https://filecoin.io/2020-engineering-filecoins-economy-en.pdf

2. Filecoin Specification https://spec.filecoin.io/#

3. "Mainnet Liftoff" https://filecoin.io/blog/journey-to-liftoff

4. "Filecoin Lgnite" https://ignite.fil.events

5. "slate" https://slate.host