Force Research | How much FIL should be pledged to achieve profitability?

This article was originally written by Tony from IPFS Force Zone

I have seen an analysis of the panic market on a certain channel before. The view is: if the official freeze period is set to 20 days and the linear release period is 180 days, 32G computing power needs to be pledged 40 Fils. In this way, 1T computing power needs to be pledged 1028 Fils. Referring to the current secondary market Fil6, the estimated Fil unit price is 100 yuan. Does that mean 1T computing power needs to be pledged 128,000 yuan later? Or does it mean that the initial investment of about 2,000 yuan (the price of 1T computing power) requires 128,000 yuan to be pledged? In this regard, the author has a different view, and this article is written to prove the view.

This article will conduct an in-depth analysis based on the concepts in last week’s Force Research series article “Must-Read Practical Information Before the Space Race” . Please read it in conjunction with last week’s research report for easier understanding.

Combined with the network baseline provisioning part that was also considered last time, this article will solve:

• If the total network computing power reaches 1EB in 3 months (90 days), what will be the early mortgage cost?

• Is refill required?

• When can we achieve profitability?

• What will the annual return be and how can it be maximized?

This time, we need to substitute the baseline supply and the assumption of the growth of the total network computing power to find the computing power mortgage cost and income of a single T. The conclusion is:

The following is the analysis process. In order to improve the demonstration process, many calculation steps are omitted. First, we start to calculate the daily release of investors, foundations and development teams.

1. Daily release of tokens by investors, foundations and open teams

From the official token white paper:

• Filecoin's token is FIL, with a total of 2 billion. There are 35 million remaining from investors, but how to release them has not yet been disclosed.

• Miner rewards: 1.4 billion (70%, obtained through mining)

• Development team: 300 million (15%, linear release over 6 years)

• Investors: 165 million (official latest updated data), the release period varies according to the discount; they are: 6 months (0%), 1 year (7.5%), 2 years (15%), 3 years (20%)

• Foundation: 100 million (5%, linear release over 6 years)

(Figure 1) Daily release of the development team, foundation, and investors, source: IPFS Force Zone, 2020-08-10

The development team and the foundation both have a 6-year linear release. The specific release details are unknown for the time being. It is tentatively scheduled to be released on average every day, 136,9863 and 45,662 respectively. The investor disclosure data has been adjusted to 163.9 million, because the specific investor distribution is also unclear, and it is also scheduled to be released on average every day, 150,684. In short, we can roughly predict that the total daily release of investors, foundations and open teams will be 136,9863 + 45,662 + 150,684 = 333,300.

Then what we require next is the daily mining supply and the total computing power of the entire network. Before calculating the daily mining supply, we must take into account the stage baseline supply.

2. The assumption that the total network computing power will explode to 1EB in 90 days: Do we still need to inject capital and mortgage within 90 days?

1) The total network computing power growth plan is: the initial total network computing power is 100PB, and the daily computing power growth is 10PB

The initial network computing power is set to 100PB, and the daily growth rate is about 10PB. It will take about 90 days (3 months) to reach the baseline standard of 1EB network computing power. Then the daily computing power is 100+10×T (T is the number of days); at the same time, 100PB is verified as the initial value: compared with the previous test network 2.0 baseline standard of 1PB, and the main network is set to 1EB in the future, the difficulty is magnified by 1000 times, because the initial value is set to 100PB, the actual release difficulty is magnified by 10 times, and the intersection curve is nearly 90 days, which shows that the daily supply of the two is similar around 90 days, and normal decay transformation can be completed. Therefore, setting the initial value of 100PB and the daily growth of 10PB also meets the cumulative growth to 1EB in 90 days.

(Figure 2) The initial value is 100PB, the difficulty of release is magnified by 10 times and the intersection of the theoretical 70% release supply, Y=(0.0115T2+0.1559T+0.4281)×2880 and Y day=70%×443037*0.999685T, source: IPFS Force Zone, 2020-08-10

2) What is the baseline supply of the network if it does not reach 1EB?

The total network computing power has not reached the 1EB network baseline supply. Before that, we need to calculate how the network baseline supply is supplied when it does not reach 1EB? Because the official has not yet given a clear algorithm, we draw points and regress to predict a rough supply law based on the test network explosion situation in Hu Feitong's "Filecoin Economic Model-Design of Block Rewards".

Because the baseline of the test network 2.0 stage is set at 1PB, and the main network is temporarily set at 1EB, with a difficulty of 1024 times. After calculation, market size, and the fact that the test network may not be so enthusiastic about the growth of computing power, we have formulated the premise that the total network computing power reaches 1EB in 3 months (90 days), the initial total network computing power is 100PB, and the daily growth is 10PB. Based on this premise, under the network baseline of 1EB, the mining difficulty is about 10 times that of the test network 2.0 stage.

(Figure 3), Network baseline returns to growth, source: IPFS Force Zone, 2020-08-10

Combined with the above premise, the main network baseline supply is 10 times the difficulty of the test network 2.0 stage. The law of supply growth below the network baseline is subjected to linear regression, logarithmic regression, exponential regression, polynomial regression and power regression. It is concluded that polynomial regression is the most appropriate network baseline supply growth trend (mathematical law: the closer R² is to 1, the better the fit and the smaller the deviation), which is Y=0.0115T2+0.1559T+0.4281 (R² = 0.9753), where T is the number of days (horizontal axis) and Y is the number of single block explosions on that day.

That is, when the total network computing power is less than 1EB, the network baseline supply of a single block reward Y is approximately 0.0115T2+0.1559T+0.4281 (T is the number of days). The total supply for that day can be roughly calculated as Y×2880=(0.0115T2+0.1559T+0.4281)×2880 (2880 is the number of blockchains per day). This formula is also used to verify Figure 2.

3) How much is the total network mortgage for 90 days? How much is the mortgage for a single T?

Looking back at the previous article, we all know that the total Fil network pledge = actual circulating Fil × (computing power pledge ratio + storage pledge ratio) = actual circulating Fil × 35% = (simple supply part + network baseline supply part + total release of investors, foundations and open teams + 4.25 million space rewards) × 35%, then a single T computing power pledged Fil is approximately the total Fil network pledge/total computing power of the entire network.

Assuming the freeze period is 20 days and the linear release period is 180 days, combined with the algorithm for the simple supply part in the last article "What you must read before the space race", below the network baseline, the actual circulation of Fil in the network baseline supply part on day T is

Substitute the total Fil network pledge = actual circulating Fil × (computing power pledge ratio + storage pledge ratio) = actual circulating Fil × 35% = (simple supply part + network baseline supply part + total release of investors, foundations and open teams + 4.25 million space rewards) × 35% = 12075728.5932137 Fil (12.0757 million), then

4) How much is the mortgage cost on the first day?

Before that, we still need to release 4.25 million Fils in the circulating Fils plus the space race. This part is released linearly for 6 months, so 23,611 Fils are released every day. Investors, foundations and open teams release 333,333 Fils every day, and the mortgage rate is 35%. Combined with the above computing power growth, the total network computing power on the first day is planned to be 110PB, which is (4250000/180+333333.3333333333)×35%/110/1024=1.10911359690656 Fils. If the above computing power growth and daily release are established, about 1.109 Fils will need to be mortgaged per T on the first day.

Then some careful friends may ask, because the first day's pledged Fil is 1.109 Fil, and on the 90th day it reaches nearly 11.48613 Fil, do I need to add more? Next, let's calculate the income for the 90 days.

5) Total income of single T computing power in 90 days: 8.04809 Fil

The daily mining part includes the simple supply part and the network baseline part. According to the total daily release amount corresponding to the accumulation of the computing power of the day converted into mining income, combined with the above formula, the total mining income on the Tth day can be calculated as

Substituting T=90, the total income of a single T in 90 days is 8.04809 Fil (starting from the first day). Therefore, once the total network computing power of 1EB is met in 90 days, plus the 1.109 Fil pledged at the beginning, 2.359 Fil will be needed to make up for the 11.516 Fil that must be pledged.

3. Profits will be realized from the 90th to 180th day, and the final annual profit will be 167.98%

1) Once the total network computing power reaches above the 1EB network baseline supply, it will return to normal decay.

According to "Filecoin Economic Model - Design of Block Rewards": Once the network reaches the network baseline computing power standard, the stable decay mode is officially started, so the subsequent daily supply of mining can use normal decay rules, that is, the speed of mining Fil in the entire network every day is approximately equal to V day = 30% × 443037 * 0.999685n (mentioned in "Dry Goods You Must Read Before the Space Race").

Therefore, for the network baseline daily supply after 90 days (restoring stable decline), because the actual network situation is difficult to calculate, it is temporarily assumed that the baseline network is the same as the natural decline, then the simple supply part + the network baseline part is V day = 30% × 443037 * 0.999685n.

2) Daily growth of 10PB: Single T computing power revenue trend chart

So when will the return on investment and profit be realized? The author calculated the mortgage cost and income for 180 days, 270 days and one year (including a 20-day freeze period and a 180-day linear release period) based on a daily computing power growth of 10PB.

(Figure 4), Single T revenue trend chart, source: IPFS Force Zone, 2020-08-10

After combining the above comprehensive formula to calculate the results, we can see that:

• The initial investment in T-hashpower requires a pledge cost of about 1.1 Fil on the first day

• No profit has been realized during the 90-day period, and more deposits are needed, with a total of 3.4 Fil deposited.

• Profits will be realized from the 90-180 day stage, and the profit that can be withdrawn is about 19.1 Fil, which is equivalent to a Fil unit price of 100 yuan per coin. The cost of purchasing computing power is about 2,000 yuan, and the computing power cost is almost recovered.

• 270-day and 365-day profit calculations, equivalent to a Fil unit price of 100 yuan per piece, and the investment returns per T computing power are 94.19% and 167.98% respectively (based on 1T computing power cost + 3.4 Fil mortgage cost)

3) Single T-day growth of 10PB vs. 7.5PB: 7.5PB has 9.04% more revenue

At the same time, the author also proposed another assumption. In order to achieve the baseline standard growth of the network in the early stage, more network rewards may grow rapidly. After reaching 1EB (after 90 days), the network still maintains a daily growth rate of 10PB? In fact, the author thinks that as long as 7.5PB is maintained every day, the growth can be guaranteed to be 3EB by the end of the year, which just meets the 200% baseline standard growth indicator set by the official website in the second year, that is, 3EB. So what will happen if the daily growth is 7.5PB after another 90 days? What is the difference with the daily growth of 10PB?

(Figure 5) Daily 10PB and 7.5PB computing power growth per T computing power revenue trend chart, source: IPFS Force Zone, 2020-08-10

From the above data, we can see that:

• In the second and third quarters, the total income of a single T with a daily increase of 10PB and a daily increase of 7.5PB is similar, but the amount of mortgage in the latter is relatively larger, resulting in the former being able to extract more profit

• Starting from the fourth quarter, the revenue per T that increases by 7.5PB per day will gradually be higher than that of the revenue that increases by 10PB per day. This is mainly because the revenue per T is more evenly distributed.

• As the second year begins, assuming the third year is not taken into account, the total revenue of a single T that continues to increase by 7.5PB per day will be greater than the revenue of an increase of 10PB per day. The revenue of an increase of 7.5PB per day in the first year is 177.02%, 9.04% more than the latter, which is more beneficial to early participants.

So in general, under the premise that the initial network computing power is planned to be 100PB, the computing power growth is maintained at 10PB per day, the difficulty is 10 times that of the test network 2.0, the freezing period is planned to be 20 days, and the linear release period is 180 days. The first-day mining mortgage cost of a single T is approximately 1.1 Fil, and the total mortgage Fil required subsequently is about 3.4 Fil, with an annual return of approximately 167.98%.

If the total network computing power baseline of 1EB is reached after 90 days, theoretically speaking, slower growth is beneficial to miners and more conducive to sharing Fil rewards. However, in order to meet the official baseline standard of 200% growth rate in the next year, a compromise of 7.5PB growth per day is more appropriate. The annual reward increase rate is 177.02%, which is 9.04% more than the daily computing power growth of 10PB.

4. Subsequent speculation

It has been calculated above that after the total network computing power reaches 1EB, excessive daily computing power growth will cause a dispersion of income. So what impact will the initial value of the total network computing power have on mortgage and income? And what about the intervention of the destruction mechanism, market task mortgage, and Gas? We will talk about it later.

P.S. The model in this article is based on certain assumptions and may not meet the actual market situation. It is for user reference only.