FIL loan interest rate soars to 100%. Who created this business?

Text: Huang Xuejiao Operation: Gai Yao Editor: Hao Fangzhou

Produced by: Odaily Planet Daily (ID: o-daily)

While the cryptocurrency market is booming, players who entered the Filecoin mining market are worried. The problem is not that the price of the currency has not risen, but that "the computing power has not started to run, and there is not even a shadow of the currency."

Previously, there were rumors in the industry that "miners went on strike and computing power almost stagnated after Filecoin went online." It turned out to be true, but the reason was not the miners, but the lack of coins.

The premise of mining Filecoin is that 0.2 FIL must be pledged for each packaged sector, and it will not be unlocked until the sector's working period expires (that is, at least half a year later). After successfully mining a block, the block reward must be pledged. As a result, miners face the problem of insufficient pledged coins and "a good cook cannot cook without rice".

Insufficient pledged coins does not mean insufficient circulation of FIL, otherwise, we would have seen the grand occasion of FIL "shooting through the clouds" long ago. Insufficient pledged coins is more of a problem of "resource allocation". Early investors, secondary market investors, and other coin holders "hold but do not use" the coins, while miners who need to pledge tokens and endorse their own credit are unable to buy and hold coins. Therefore, the Filecoin currency loan market came into being.

At all the large and small meetings during Shanghai Wanxiang Week, miners/miners from far and wide kept coming in "eagerly seeking coins", often demanding tens of thousands and maintaining it for several months.

The circle of friends is also a channel

Under the huge gap, on Binance, the deposit rate of FIL has increased from 12% when it was first launched to 156%, a full 13 times increase. CoinList, which once personally raised funds for Filecoin, also issued a call for holders.

So, how much FIL pledge coins are missing? Can it be bridged through "market allocation"? Is it essentially an overabundance of mining machines, or is the Filecoin pledge mechanism unreasonable? Odaily Planet Daily interviewed several practitioners to discuss these issues with everyone.

Miners are having a hard time getting coins, exchanges are calling for loans, with interest rates up to 156%

At various occasions during Shanghai Blockchain Week, if you pay close attention, you can see Filecoin players. If you listen closely, you will often hear them talking about the topic of "collateralized coin emergency".

On October 30, Liu Bo (pseudonym), who had stayed in Shanghai for a few days, had to go back. As the head of a Filecoin mining company in Shenzhen, Liu Bo's mission in the north was to borrow coins.

In recent days, he has been running around at various themed gatherings, meeting with big investors, institutions and exchanges he knows, but still cannot fill the gap.

Although a little frustrated, Liu Bo also deeply realized that this is the crux of the entire industry. All players on the field are worried, but there is no point in being anxious.

Many people did not expect that Filecoin would be launched after three years of preparation. They thought it was "a boulder finally falling to the ground", but another boulder followed.

In order to effectively constrain miners responsible for data storage, Filecoin officials (Protocol Labs) have formulated strict economic mechanisms, including pre-mortgage and block reward mortgage (also known as post-mortgage).

Block reward pledge means that only 25% of the block reward obtained by miners can be unlocked at that time, and the remaining 75% will be unlocked linearly within 180 days. Pre-pledge means that miners need to pledge 0.2FIL/32GB sector before packaging the sector, and it cannot be unlocked during the sector working cycle.

What does this mean? Let's do some calculations.

According to data from the Filfox browser, as of 7:00 on November 9, the Filecoin network's computing power has reached 822.8PiB. Since its launch on October 15, the network's computing power has increased at an average rate of 9.6PiB/day. From this, it can be calculated that the pre-staking coins required daily are 65,000.

Many people in the circle of friends are forced to become mathematicians

Now let’s look at the supply. The tokens currently available for pre-staking are mainly composed of two parts: the block rewards generated by the existing computing power on the main network, and the reward tokens generated by the incentive test network “space race”.

Let's first look at the block rewards. According to the data from Filfox, the total output of the entire network in the past 24 hours is 166,480 coins, of which 25% (41,620 coins) can be unlocked the next day. The incentive test network allocates about 4.1 million reward coins to miners. According to the 180-day linear release, 22,700 coins can be unlocked every day. The sum of the two can reach 64,000 coins, which seems to be able to cover the expenditure of the mortgage coins.

But there are two very important points. First, are the 41,620 coins mined by miners willing to be used for long-term mortgage? According to Odaily Planet Daily, most miners have promised to bear the pre-staking expenses for users when selling their mining machines/computing power. Second, the 4.1 million reward coins are distributed to the top 100 miners, and the more powerful the miners are, the more they will get. So there must be miners who, for some reason, have not played their true level in the incentive test network and obtained reward coins that match their computing power scale. How should these miners fill the gap in pledged coins?

In this context, buying FIL or borrowing FIL become two options for miners/merchants.

The amount of funds occupied by buying FIL is undoubtedly huge, and long-term staking also faces huge risks of currency price decline, and it is possible to "gain nothing" on the fiat currency standard. Therefore, borrowing currency is not a bad option among many "bad options".

After the demand was clear, a group of FIL lending solution providers quickly gathered from both on-site and off-site. The on-site providers were mainly centralized exchanges, while off-site lending providers showed their unique capabilities.

According to Odaily Planet Daily, almost all exchanges with a certain amount of currency deposits have been targeted by miners.

FIL rich list sent by a miner

Let’s first look at the three major exchanges. Currently, the withdrawal of coins on OKEx has stagnated, and the amount of coins on Huobi and Binance is at the level of millions, but most of them are user tokens. Of course, once there is market demand, these exchanges can also quickly raise coins from users.

Regarding the FIL lending business, staff from Huobi's relevant business line said that currently customers can borrow through position-by-position leverage and full-position leverage (a portion can be withdrawn after lending), and those with larger volumes can directly connect with sales colleagues.

Odaily Planet Daily tried to conduct leveraged lending on Huobi. The advantage of Huobi is its low interest rate, which is only 35.77% annualized, but there are also times when "inventory is running out".

Huobi Isolated Margin Trading Product Page

The annualized interest rate on Binance is relatively high, reaching 73%. According to previous understanding, the pledge rate must be lower than 66% (pledge rate = loan value/mortgage value). If the user's level on the platform is low, there is also a borrowing limit (if the level is 0, the maximum borrowing amount is 200FIL).

Binance isolated margin page

Interestingly, if you have FIL, you can also lend it on Binance.

The "Binance Treasure" product page shows that since the launch of FIL (October 15), Binance has launched a total of 3 FIL fixed-term wealth management products, including 14-day fixed-term wealth management starting on October 19 and October 22, and 7-day fixed-term wealth management starting on October 27. As the FIL shortage problem cannot be solved and market demand continues to increase, the interest rates of these three FIL wealth management products have also soared, from the initial 12% to 88% and then to 156% on October 27, a full 13 times increase.

Binance Savings Regular Product Page

Attracted by high interest rates, the amount raised by Binance's wealth management products has increased from less than 3,000 FIL to 35,000 in the later period, and has raised more than 73,000 FIL to date.

Gate.io is a C2C transaction. The number of orders and annualized interest rates of lenders and borrowers vary, but the annualized interest rates of large orders are usually higher, with the lowest being around 50% and the highest being 109%-365%. Overall, the amount currently available for lending on Gate.io is relatively small, less than 15,000 FIL.

Gate.io lending page

Under the high interest rate, Odaily Planet Daily learned that a second-tier exchange even regards FIL lending as a key business for expansion. According to the person in charge of the business, the FIL loan interest rate on the platform can be as high as 100%, but even so, it is in short supply.

In addition to the active response from major exchanges, CoinList, a "semi-official" platform co-invested by Protocol Labs, also provided emergency support.

On October 20, an email about the "FIL Lending Program" sent by CoinList to users circulated in the community. According to the email, CoinList launched a FIL lending program with a minimum loan amount of 250FIL and a loan term of 3 months; after the loan expires, participating users will receive the principal and 40% annualized interest (tokens).

When it comes to FIL lending, CoinList's advantage is that it helped Filecoin conduct public offerings in 2017, accumulated many investors, and is a compliant platform, so the amount of coins that can be raised is expected to be considerable; for miners, its lending interest rate is low, which is also quite attractive.

In addition, Juan saw this problem at the beginning of the mainnet launch and said, "The team has cooperated with TBA to provide small loans to miners. This will not be used for profit and will be small. It will not help miners to fully bear the demand for collateral (oversold machines). Miners are only allowed to borrow for collateral, and there will be a daily limit on borrowing." However, the specific interest and amount of the loan have not been disclosed yet.

To solve the problem of currency shortage, 95% of the computing power alliance negotiated with Juan

Miners are worried about not having coins, but they cannot relax even after borrowing coins. Borrowing not only greatly occupies the cash flow of miners, but also always involves risks.

The loan products mentioned above all have an indicator called "pledge rate", which represents the ratio of loan value to pledge value. For example, the maximum pledge rate for borrowing FIL on Gate.io does not exceed 70%, which means that you can borrow FIL worth 70 USDT at most by pledging 100 USDT.

After that, if the price of FIL rises, that is, the value of the FIL you borrowed rises. If the price of FIL rises by 25%, the lender's loan value rises to 105USDT, which exceeds the collateral value, which means that the borrower and the platform cannot recover the principal and interest. To avoid such losses, borrowers often set a pledge rate cap (usually 85%). When the loan value ratio rises to this ratio, if the lender does not increase the collateral in time, the borrower will confiscate the collateral and clear the debt. This means that at this time, if the miner/miner fails to cover the position in time, it is assumed that the borrowed FIL is purchased at this higher price (the price when the pledge rate reaches 85%), and will bear the risk of FIL falling.

If this situation really happens, it will undoubtedly be a heavy blow to miners.

According to a miner, the current monthly net expenditure of the big miners he knows is 2 million yuan or more. Some miners have even lost tens of millions of yuan. The problem is that the money recovered from the sale of mining machines is not enough to cover the "mining machine cost, operation and maintenance cost, and mortgage token cost". In this context, miners are "under great pressure".

On November 3, Interstellar Continent, one of the major Filecoin miners, issued a product suspension announcement. It stated, "There is redundancy in market products. To further enhance the value of the project and achieve long-term development, it must slow down and expand its applications. For investors, the initial dividends have been missed. If they continue to invest, there will be no additional test rewards and no accumulated computing power support, which is too risky. In order to better cope with market changes and project development challenges, Interstellar Continent has temporarily stopped selling all products since October 30, 2020."

Indeed, without collateral coins, how can we increase computing power and attract new customers?

"This situation may last for half a year," said Will, founder of Interstellar Vision.

Half a year later will be a major milestone. By then, the incentive test network tokens, mining reward tokens, most of the staked tokens in the entire network, and some early investor tokens will be unlocked (completed) at this time, which will greatly supplement the endogenous closed loop of tokens required by miners.

So, who is to blame for the current situation where the computing power of most miners/workers is in a semi-powered state?

In this regard, the government and the miners have different opinions.

Let’s start with the miners/workers who are currently suffering. Many Filecoin miners support the mortgage mechanism, but many people also said that the official was indecisive in determining the mortgage parameters and did not give the miners a clear answer and enough preparation time.

In July this year, before the start of the incentive test network, Odaily Planet Daily interviewed the head of a large miner, who said, "He is not worried about the mortgage tokens, because no one has coins in the early days, so there is no need to mortgage early blocks; moreover, the tokens distributed by the incentive test network can also be used for pre-mortgage."

But when the mainnet was launched in October, the final result was that the final mortgage mechanism was not as good as expected. But this was indeed the information received by many miners at that time.

After the launch of the incentive test network (August 25), the undetermined pledge parameters also gave miners more or less "lucky mentality". I remember that when the incentive test network just started in early September, the network's pre-staking rate reached 0.6FIL/Sector, and the pledge period was not the current 180+ days, but 20 days.

At this time, a large miner predicted that "if the computing power increases by 10PB per day, 310,000 FIL will be needed for collateral per day. If the unit price of FIL is 20 US dollars, it will be more than 6 million US dollars. If it continues for 20 days, miners across the network will have to mortgage more than 100 million US dollars. Miners do not have so much money."

The miner then affirmed, “So I think the economic model will definitely be revised. Looking at the latest documents, the authorities are ready to allow post-mortgage block rewards to be added to pre-mortgage, which is a positive signal.”

Unexpectedly, the pre-pledge rate decreased, but the pledge period was extended.

These "temporary decisions" brought great uncertainty and caught miners off guard. This is why the major miner Spacetime Cloud publicly "blamed" Protocol Labs after the mainnet went online.

Miners are not simply asking for the cancellation or reduction of pre-staking for short-term interests. What they need is an open and friendly set of rules of the game.

The authorities do not seem to have noticed this. Juan, the founder of Protocol Labs, once called the mining machines that miners could not start due to token shortages “oversold machines”, which shows that the authorities do not intend to be responsible for what they believe to be the “commercial behavior of miners”.

After the mainnet was launched, miners of all sizes and dissidents in the community (typically, the forked project Filecash) continued to denounce it. A miner told Odaily Planet Daily that these large miners once organized a 95% computing power alliance to negotiate with Juan. But the result was still in vain.

"He welcomes discussions on technical issues, but when it comes to economic mechanisms, he will never give in." The miner shook his head helplessly.

Ecosystems work together to weather the storm

Different miners face different token shortage situations due to their different market strategies and strategies for participating in the incentive test network.

According to an analysis by a miner, whether a miner is short of coins depends on several aspects:

First, whether they participate in the space race, receive test coins, increase computing power, and compete for rankings, which will ultimately affect the test coins and reward coins they receive. If miners do not participate in the space race well, then they will have a much harder time at the starting line than those who do. There is also a situation where some manufacturers actively participate, but they do not know in advance that test coins will become real coins, so they debug equipment and fully try and fail first, and thus are fined a lot of computing power and tokens, which is quite a pity.

The second point is whether each company has sufficient respect and preparation for the pre-staking. Although the pre-staking parameters have not been finalized during the incentive testnet, miners are also aware of Filecoin's official strict style of economic mechanisms. Generally speaking, miners will calculate the required scale of pledged coins based on the scale of computing power they sell, and try to raise tokens through cooperation with investors and exchanges over the counter. If you are not fully prepared for the substantial reduction in pre-staking, you will be passive after the mainnet goes online.

Another point is to look at the market strategy of the miners. If they are mainly targeting retail investors, and users cannot increase computing power and withdraw coins normally after going online, they will be very upset, which will undoubtedly put great pressure on the miners; on the contrary, if the miners are facing institutional customers and large customers, they may be more capable of facing the extended payback period and the rhythm of "taking it slow". In addition, if the miner adopts a multi-level distribution mechanism when selling, then its profit may be relatively low. At this time, it is a double whammy for its cash flow to bear the burden of pledged coins.

Even though the wind is strong and the waves are rough, for the miners and more participants already on board, the only way to overcome the difficulties together is to face them head-on and support each other.

At this point when he couldn't even catch his breath, Will could clearly feel that subtle changes were taking place among the participants in the ecosystem.

“Before the mainnet was launched, each manufacturer was almost operating independently, and sometimes there were cases of smearing competitors in the industry. But after the mainnet was launched, everyone is in the same boat, with a heavier burden, and can empathize with the plight of other friendly companies. I hope everyone can solve the problem and get through the difficulties.”

In addition to lending, we have also seen some miners launch other "self-rescue" plans.

For example, Diancun Technology issued an announcement on the eve of the mainnet launch, stating that customers need to solve the pledge coin problem themselves.

“Diancun customers can use SR1 reward coins for staking, but due to the limit on the number of staking coins, we cannot advance all the staking coins for customers, and customers need to solve part of the staking coins themselves through borrowing or purchasing.

As the first manufacturer to publicly allow users to issue coins, Diancun said that the company also took into account that the market and customers might be dissatisfied, but this was indeed an approach that was based on the platform's situation and was transparent to customers.

Other manufacturers, such as 1475, cooperate with investors, one party provides FIL, and the other party provides mining machines and other resources. The mining income first guarantees that FIL investors will get their money back first, and then the profit is divided into 20% and 80% according to the contribution. Among them, 20% of the investor's profit is deducted from 1475's technical service fee. Aiden believes that for investors who are optimistic about Filecoin in the long term, "the annualized input-output ratio is still acceptable in general."

There are also mining pools like Pomegranate, which promote the "one machine, two mining" mechanism by supporting a new ecosystem (Filestar), digesting mining machines that cannot be immediately started on Filecoin and increasing miners' income.

The next six months will be tough, and miners will be squeezed into a predicament, each relying on quick wits to find a living space. The current situation of inequality between the government and miners, borrowers and lenders is not only the result of the imperfect reconciliation of technology and business, but also partly responsible for the slow setting of the Filecoin mechanism. What will happen when the lending rate is higher than the market equilibrium level? Odaily Planet Daily will keep paying attention and follow up on the report.

References:

"Filecoin miners, trapped in pledge", BB News;

"Filecoin miners need to solve the pledge coin problem themselves? It's not what you think", Diancun Technology.

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