Filecoin: Investigating the Cryptoeconomics of the Filecoin Network
The Filecoin ecosystem is a fair framework that benefits miners, storage providers, and clients all at the same time, offering a strong incentive to participate.
The advanced crypto-economic model used by the Filecoin network uses a hybrid exponential minting process that relies on both an exponential decay model and a network baseline model. In addition, the Filecoin network offers a complex, transparent, and fair coin allocation model.
It distributes different sections of the overall Filecoin (FIL) supply to fuel various aspects of the system, ensuring the project’s long- and short-term viability.
- Filecoin’s Incentive-Based Network
- Network Baseline and the Exponential Decay Model
- Summarizing Filecoin’s Coin Allocation Metrics
- Filecoin’s Incentives Enable a Growth Model
Filecoin’s Incentive-Based Network
FIL, Filecoin’s native cryptocurrency, is essential to the platform’s network economy. The ecosystem’s incentive structure is structured around a mining system that benefits network miners, decentralized storage providers, and clients alike:
- Storage miners receive coins by providing storage
- Retrieval miners receive coins by serving data
- Clients pay to store and retrieve data
The Filecoin project built its crypto-economics to support a fair, robust, democratic, and flexible network that delivers more benefit for its users as it grows, in order to preserve a long-term, sustainable structure. This vision will be realized by a hybrid exponential minting method (which combines the exponential decay and network baseline models) and a fair coin allocation system.
Network Baseline and the Exponential Decay Model
An exponential decay model, of which halving is the most prominent, is used by many blockchain companies to manufacture their currency.
Block rewards are highest in the early stages of a project when using this system (when miner participation is typically the lowest). In the early days of the network, miners produced more coins per unit, but the quantity of coins per unit has steadily decreased over time.
Following the analysis of a number of blockchain-based crypto-economics models, it became evident that a basic exponential model would encourage early short-term network participation.
A simple exponential model, on the other hand, would have a negative long-term impact on the Filecoin economy by incentivizing decentralized storage miners to leave the network after collecting the large volume of tokenized rewards from the project’s inception period — even if it meant losing critical client data.
An early departure of miners might have harmed the network in two ways: clients could have lost data and had less access to long-term storage, and miners could have lacked incentives to keep the network up to date.
Filecoin introduced the concept of network baseline into its system to make repeated storage onboarding and long-term storage easier.
Block rewards increase as the network’s total decentralized storage power grows, rather than minting coins based on the amount of time that has passed while maintaining the core premise of an exponential decay model. As a result, mining payments are more closely aligned with the usefulness of mining and the overall value the network gives to its clients at any given stage of the project.
Filecoin created a hybrid exponential minting technique to achieve the best of both worlds, allocating FIL in the following way:
- 30% of decentralized storage mining allocation to simple minting (for simple exponential decay)
- 70% for baseline minting
The model’s two sections are complementary to one another. Simple minting allocation substantially compensates new miners in the network and acts as a buffer against systemic economic shocks. As a result, when more network value is created, the basic minting allocation generates more coins.
The network baseline minting is set to start at 1 Exbibyte and grow at a pace of 200 percent per year. 1 Exbibyte is equal to approximately 1,152,921,504 gigabytes, or around 0.01 percent of the planet’s current storage capacity. The annual growth rate of cloud storage in the world is 40%.
Summarizing Filecoin’s Coin Allocation Metrics
The following is Filecoin’s overall coin allocation:
- Storage Mining: 55%
- Mining Reserve: 15%
- Protocol Labs (PL): 10%
- 2017 Filecoin ICO: 7.5%
- Filecoin Foundation: 5%
- PL Team Members and Contributors: 4.5%
- Ecosystem Development: 2.5%
The maximum number of Filecoins that will ever exist is 2,000,000,000 coins, which is known as FIL BASE. As previously stated, miners would receive 70% of all FIL coins:
- 55% or 1,100,000,000 (78.6% of mining rewards) of FIL_BASE is allocated to decentralized storage mining
- 15% or 300,000,000 coins (21.4% of mining rewards) is allocated to the Filecoin mining reserve
The three primary coin allocation categories are as follows:
- Storage Mining Allocation — 55%: Mostly used to fund dependable and advantageous decentralized storage, operate network code, and maintain the blockchain using block rewards. Early storage mining rewards are likewise covered by this allocation. The early miners are storage miners, who are in charge of the protocol’s core functionality and value.
- Mining Reserve Allocation — 15%:This is critical for the Filecoin network’s long-term viability, as well as the viability of all types of miners who contribute to it. To that purpose, the system sets aside 15% of FIL BASE for retrieval miners, repair miners, and yet-to-be-determined future miner kinds. Many of these coins will be distributed by the community through Filecoin improvement proposals (FIPs) and other mechanisms as the network grows and evolves.
- Additional Allocation — 30%: Protocol Labs received 15% of FIL BASE (with 4.5 percent going to the PL team and contributors) and 10% went to fundraising (7.5 percent in the Initial Coin Offering and 2.5 percent for ecosystem development). Protocol Labs is a major open-source blockchain research and development project focused on Filecoin. Last but not least, the Filecoin Foundation received the remaining 5%.
In the form of network transaction fees, more FIL will be used to pay on-chain processing and bandwidth. FIL will also be used to pay penalties for decentralized storage and consensus failures, assisting in the establishment of the long-term deflationary pressure required to sustain the cryptocurrency’s value.
Filecoin’s Incentives Enable a Growth Model
The crypto-economics of Filecoin blends an exponential decay model and a network baseline model into a hybrid system that ensures the project’s long-term existence. This design (along with Filecoin’s unique coin allocation algorithm) ensures long-term and short-term network development while also exerting counter-pressure to prevent FIL supply disruptions.
Filecoin’s native coin (FIL) was listed on a number of industry-leading exchanges, including Gemini, Binance, Houbi, and Kraken, following the launch of the Filecoin mainnet on October 15, 2020.
The evolution of Filecoin will be divided into various stages, each with its own set of aims and revenue production potential. The network’s utility, as well as transparency, balance, and decentralization, will grow as it matures, and the better it will serve the entire Filecoin ecosystem.
The decentralized storage journey has only just begun for Filecoin, which was created to change the world’s cloud computing storage capacities.