32-page Filecoin economic report: Here are the highlights you need to know

Since the start of the space race on August 25, the launch of the Filecoin mainnet has entered the countdown stage. Currently, all people participating in the Filecoin project are striving to get the space race rewards, and at the same time are eager for generous returns after the mainnet is launched.

Just today, Filecoin officially released a 32-page "Filecoin Economy" report, which details the principles and details of the token economic model design.

The report clearly states that Filecoin provides a "market based on blockchain that is expected to revolutionize the global storage economy." The Filecoin market provides a new and secure way for everyone to buy and sell storage. It hopes to directly connect storage users and providers through a decentralized and distributed storage commodity market with no access restrictions, creating the "best global storage market" and distinguishing itself from existing large cloud storage providers. Its economic model hopes to incentivize, constrain, support or punish different behaviors and activities through a set of mechanisms or rules.

At the same time, this 32-page "Filecoin Economy" report explains in detail the incentives and economic incentives provided by the Filecoin project itself, explaining how each fee, reward and penalty in the project is calculated and what long-term promotion effect it has on the project.

So let’s take a look at what is most worthy of our attention in this “economic report”?

The report points out that if the "Filecoin economy" is compared to the "island economy", it will be very easy to understand. Trade needs to be conducted through the island's currency, namely FIL. Island residents who want to participate in trade need this currency to carry out production activities, which requires mining hardware and mortgage tokens to achieve.

On the island, participants include: miners, users, storage users, developers, researchers, token holders , who will work together to turn hard disks, computing power, manpower, etc. into reliable and useful storage. This process is like the process of shipping containers full of data from the island to potential users, improving the production efficiency of the entire island and the attractiveness of storage.

The Filecoin Island Economy has such a purpose: to make individual behavior compatible with the network's goal incentives as much as possible, so that each participant can use rational behavior to benefit the entire network, thereby benefiting all participants. For example, the economic model allows miners to provide reliable storage services, and reliable storage services bring reliable reputation to the entire network.

From a macro perspective: the total amount of 2 billion FIL is still allocated to the Filecoin Foundation at 5%, 10% for financing, 15% for Protocol Labs, and 70% for miners. However, please note that 15% of FIL, or 21.4% of the miner rewards, will be used as mining reserves to incentivize retrieval miners and other types of miners in the future.

The specific usage will be jointly decided through the community Filecoin Improvement Proposal.

When the island economy is formed, if you want to trade with island producers, you need to obtain FIL, but the over-issuance of FIL will undoubtedly directly or indirectly damage the economy. Therefore, the official did not choose the traditional time-linear casting of FIL coins, but adopted the "block reward benchmark casting" method that is closely linked to network utility to estimate network utility. The biggest purpose of this method is to make the FIL coin issuance speed positively correlated with the growth rate of network utility, which is more in line with economic laws and more sustainable.

Filecoin officials believe that many cryptoeconomic models are simply exponential decay, which will be short-term behavior during the network startup period. However, as a storage project like Filecoin, if this model is used, it is very likely to prompt storage miners to over-invest in hardware in order to package storage for mining as quickly as possible. After consuming these early block rewards, it will be profitable to exit the network, but doing so will lead to user data loss and inability to complete long-term storage, and miners will have no motivation to improve the network, forming a vicious cycle. In addition, it is also possible that most network subsidies are paid entirely based on time rather than the actual storage provided to the network.

Filecoin chose the "block reward benchmark casting" approach to encourage consistency in storage implementation and long-term storage investment rather than just fast packaging. At the same time, this approach will increase block rewards as the total storage computing power of the network increases. This not only retains the structure of the original exponential decay model, but also improves it in the initial stage of network startup. Once the network reaches the baseline, the same block rewards as the linear decay model will be issued, but if the network does not reach the pre-established threshold, a portion of the block rewards will be delayed.

In summary, the Filecoin release model will consist of two approaches:

1. “Simple Casting” via Simple Exponential Decay

2. “Benchmark Casting” through Network Baselines

The “simple minting” approach incentivizes miners and provides counterforce and mining vulnerability when the network is impacted.

The “benchmark minting” method can obtain higher returns when the network unlocks greater potential, and the total reward in each period is the sum of the two rewards.

This report states that "simple casting" will be allocated 30% of the storage mining quota, and "benchmark casting" will be allocated 70% of the quota. Officials believe that the baseline will initially start from 1EIB (this number is less than 0.01% of the current global storage) and grow at a rate of 200% per year (higher than the 40% annual growth rate of world storage). When the storage provided by the network is about 1-10% of the global storage, the community can decide together to slow down the growth rate.

In addition to the setting of basic parameters, Filecoin officials also responded to the basic parameter settings, including: benchmark casting, initial mortgage, block reward lock, minimum sector life cycle, sector failure fee, sector failure detection fee, sector termination fee, and explained seven major questions.

The Filecoin economic report details the reward release mechanism, mortgage mechanism, and punishment mechanism.

Release Mechanism

The reward release mechanism is: the unlocking delay period is set at 20 days + the linear release period is set at 180 days after the delay period .

Staking Mechanism

In order to reduce the burden on miners to a minimum and meet various staking needs, Filecoin has three different staking mechanisms.

1. Initial pledge : Miners must provide Filecoin as an initial commitment for each sector.

The initial stake consists of two parts: storage stake and consensus stake. The storage stake must be small enough to allow miners to join the network while being able to handle early failures, fines, and fees. The consensus stake depends on the sector's weighted byte power (QAP) and the network's circulating supply.

Equivalent to 20 days of block rewards + a share equivalent to 30% of the FIL circulating supply.

2. Block rewards as collateral : Reduce the initial token staking requirements by locking up block rewards.

In order to ensure incentive compatibility as much as possible, Filecoin will punish miners who fail to complete the promised deadline. Therefore, the block reward unlocking plan is a necessary sub-linear release achieved by a short-term delay plus a fixed-term linear release. The initial parameters are the unlocking delay period set to 20 days + the linear release period set to 180 days after the delay period.

3. Storage transaction provider pledge : Establish an incentive mechanism between miners and users to make miners stand out in the market.

The protocol requires a minimum pledge to provide a minimum storage guarantee, and this part of the pledge will be penalized if the transaction order withdrawal is terminated.

Penalty mechanism:

Sector failure fee: Equivalent to 2.14 days of estimated block rewards.

Sector Failure Detection Fee: Equivalent to 5.00 days of estimated block reward.

Sector Termination Fee: An estimate of the number of days the sector has earned block rewards, up to a maximum of 90 days.

Network transaction fees: Dynamic fee structure based on network congestion.

There are some key points in this "Filecoin Economic Report" that deserve your attention and study:

1. The government encourages storage miners to commit capacity to the network when there is no storage demand.

This is the innovation of Filecoin. If only part of the capacity of a sector is transaction orders, the network will regard part of it as "committed capacity". Similarly, sectors without transaction orders are called committed easy sectors. As long as miners prove their supply and storage operation and maintenance capabilities, they can get orders when storage is needed, thereby obtaining additional transaction income.

2. Improve the efficiency of Filecoin usage by "verifying users" and enhance users' storage capabilities on the network.

Filecoin improves the efficiency of Filecoin usage by introducing the concept of verified users, who are authenticated by a distributed network of verifiers. After verification, users can publish a predetermined amount of verified user transaction data on the storage market, depending on the amount of data. Compared with sectors where no verified users have conducted transactions, sectors that verify user transactions will receive more storage computing power and thus more block rewards, providing additional motivation for storage miners to store user data.

3. The retrieval function will be included when the Filecoin mainnet goes online.

After the mainnet is launched, Filecoin will support Layer 2 applications to provide new retrieval markets and content delivery functions. Early use cases will focus on long-term storage, and users in storage can trade with various storage miners.

The network startup includes functions to perform the following operations:

Addressing data by content hash

Find miners with specific content

Negotiate data requests from one node to another

In the payment channel, users pay the retrieval miners for the retrieval of data

At the end of this Filecoin Economic Report, the official preview of the future features of the Filecoin network was announced to promote the storage attractiveness of the Filecoin network, including:

1. Maintenance miners : Currently, if miners terminate the storage of a sector, they need to pay a sector termination fee. But if another miner is storing data, there should be a role called a "maintenance miner" to retrieve the data and establish a new transaction, integrate the data into the new sector and ensure that the corresponding number of copies are stored.

2. Application miners : A large part of the value of storage services comes from applications, user experience improvements, and different usage scenarios developed on the service itself. Therefore, for future versions of Filecoin, it is very important to incentivize the development of high-quality applications that can improve market utility.

3. Filecoin lending: Token holders can lend their tokens to miners as third-party collateral, and cooperate with them to diversify market volatility risks and gain returns.

4. Fast-retrieval proof of replication: Future proof of replication will provide secure, fast and efficient retrieval services.

5. Scalable consensus: Improved consensus mechanism will increase throughput and security.

6. General Smart Contracts: Improvements to the Filecoin blockchain will enable the use of general smart contracts and on-chain state machines.

These improvements will significantly increase the productivity of the Filecoin economy. Increased productivity will boost demand and maximize long-term growth and prosperity, thereby increasing the utility of the network.

The official emphasized at the end of the "Filecoin Economic Report": Filecoin is a collaborative economy that continues to evolve over time. However, these future improvement conference proposals explain in detail how these proposals benefit the long-term interests of the Filecoin economy and each participant. As the network develops, it is crucial to create an economy that can operate independently and robustly without a lot of tools and subsidies.