Chain Reaction Host Tom Shaughnessy hosts Colin Evran (Ecosystem Lead at Protocol Labs) and ZX (Cryptoeconomics Lead At Protocol Labs) for a technical deep dive into the cryptoeconomics of Filecoin’s native token (FIL).

Episode Highlights


Chain Reaction Host
Tom Shaughnessy hosts Colin Evran (Ecosystem Lead at Protocol Labs) and ZX (Cryptoeconomics Lead At Protocol Labs) for a technical deep dive into the cryptoeconomics of Filecoin’s native token (FIL). 

The trio discusses the use cases for Filecoin, the minting mechanism (simple and baseline minting), storage pledges (initial pledge and consensus pledges), issuance, reward locks, token distribution, FIP changes, and more. 

We previously had Colin on to discuss Filecoin overall: https://www.delphidigital.io/podcasts/colin-evran-filecoin-ushers-in-a-new-generation-of-cloud-storage/

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Full Transcription:

Tom Shaughnessy:

Hey everyone. Welcome back to The Delphi podcast. I’m your host Tom Shaughnessy of the chain reaction segment. Today I have on Collin and ZX of Filecoin. Both are community members. Collin is an ecosystem lead and ZX leads a lot of the crypto economics there. We recently had Colin on for a great overview and dive into Filecoin. Today we’re going to focus specifically on the token econ. I find it fascinating and really interesting. Collin, ZX. How’s it going? Great.

Colin or ZX:

Thanks, Tom – great to be here.

Tom Shaughnessy:

It’s great to have you guys. So I guess, Colin, kind of a lob for you, because we kind of did this already, but what’s the quick elevator pitch on Filecoin for those that missed our last podcast?

Colin:

Sure. So Filecoin is the network for decentralized storage, you can think of Filecoin as a completely global open market, where anyone in the world from an individual like myself, in my apartment, to a really large data center can become a data storage provider, and compete with the large cloud storage companies. So that’s kind of a completely global network. And as a whole Filecoin has the reliability, the geographic distribution, the scale, the diversity of storage solutions, to compete in the growing cloud storage and CDN markets. And so similar to Airbnb, where it was previously impossible for an individual homeowner to compete with a large chain like Marriott, the platform allows small businesses data centers to plug in and complete compete as a global network. And, and, and really change the paradigm of what it takes to be a cloud storage provider in today’s world.

Tom Shaughnessy:

So awesome. I’ll point people in the show notes our last pod if people need to catch up but let’s dive right in guys at a high level, you know, really basic, what is the $FIL or Filecoin token used for right now within the network?

ZX:

Basically the FIL token is used for any interaction. So Filecoin is the utility token for the network. So any interaction with the network requires usage of the Filecoin token. So like, any transaction, we’re burning a small amount of Filecoin, and, and for providing storage to parts of the network, you need some token for, for pledging. And then when you consume storage on the network, you pay for the storage and Filecoin, there’s also other things that you can use Filecoin for within the protocol.

Tom Shaughnessy:

It’s awesome. Yeah, so it’s utility token there. And I guess the minting model is pretty interesting with Filecoin, right, like you have a unique kind of minting model where you reward storage providers, and you have two ways of doing that you have simple minting and then you have baseline minting. Can you kind of walk us through what each of those are and how you reward actual storage providers on the network?

Colin:

Yeah, so I’ll introduce the concept as you go into detail. So we really wanted to bake in some fundamental incentives into the protocol to reward the right behaviors, like Filecoin’s off to a great start, right. We launched about a month ago. Since then, we crossed the one exabyte hurdle of total storage on the network that’s grown 60% in the first month. But we’re very much in the first out of the first inning. And where we think Filecoin will evolve to is to be completely transformative for the cloud storage industry and for the decentralized internet. Right. But in order to do that, we need to construct a whole bunch of incentives into the protocol and into the code itself to incent the right behaviors. Now, when it comes to minting what, you know, the community has done is implement a system where only if the Filecoin network as a whole reaches certain targets that can be competitive with the large cloud storage providers, only then will you know, more tokens be minted and be accepted into, you know, as incentives for miners in the network. And if the network remains, you know, more modest and smaller than the circulating supply and the minting schedule would be a lot smaller. Right. So that’s kind of the principle of it all and ZX can dive into some of the details.

ZX:

Yeah, definitely. So like for the simple minting it’s almost like most traditional blockchain projects or similar to a Bitcoin family style exponential decay. That’s why we refer to simple minting, it’s simply just based on time elapse in the network. And then we just mint accordingly. There are a few problems with that, like most notably is when a network is the least mature at its very beginning. The minting tends to be the fastest and that’s where the participation in this section is the lowest. And the utility of the network is also the lowest as well in its in its network trajectory.

And also that creates some very short term incentives for people that already invested in hardware instead of investing in what is really useful to the network and to the mission of the network. And that’s why we see is all of this very high sitting throughput. That’s the short-term incentive that the simple minting itself will create. And there’s other principle where you want to match, as Colin mentioned, just now we want to sort of associate minting with the utility of the network. And this is where baseline comes into the picture, where the community defines sort of a baseline or a goal that the network tries to collectively achieve, and then we together towards that goal. And that will give us another notion of how much that network has progress in achieving its KPI. And through that we define notion of like a base notion called network time. And then we use that notion to mint accordingly. And in the end, we throw in a combination of both these because simple minting provides a benefit of like counterpressure to shocks. And like if let’s say, not as many miners show up, the remaining miner will still to be at a greater profit, and so and so forth, that creates some kind of antifragility to the network. At the same time, they are the majority of the reward is in baseline where the community as a whole works collectively to achieve a common goal.

Tom Shaughnessy:

That it’s so like at a at a very basic level. The one segment you have for minting has 30% of the rewards, and that’s simple minting and then the rest the 70% is in baseline. Right. So the 30% for simple minting, you know, just think simple 30% here, that is the same no matter how many storage providers are on the network?

ZX:

Correct.

Tom Shaughnessy:

And then the 70%, the baseline minting, what you’re saying is those rewards vary depending on how much storage is on the network. What is the baseline, though? Like an amount of storage? And how does that grow? Because I guess the key here is that you’re using that 70%, baseline minting to incentivize growth and network because people aren’t getting those rewards unless your baseline storage amount has reached. What is that baseline and how does that grow out?

ZX:

Um, yeah, so we start from like 2.5 exabytes. And then we’re going 100% annually every year. And that so the idea there is like, we start from a small, relatively small percentage of today’s world’s total data, and then we grow at a much faster rate, and how much how fast data is growing about today. And then the future community can come together and say, oh, that growth rate may be too fast, and we can slow it down, as filecoin, stores a greater percentage of the world’s data.

Colin:

Yeah, so basically, in at the end of year one, that baseline to get the full 70% is five exabytes. After that, in year two, it’ll be 10. After about year three, it’ll be 20. So you can see if, if you unlock the full amount, this becomes an absolute rocket ship and very competitive capacity wise with some of the large cloud storage providers. Now, today, we’re below that, that percentage, that threshold, right. So we’re not at two and a half, or five exabytes just yet, which means that all of those 70% tokens, a fractional amounts of those are withheld by the network. And so, you know, when the network catches up to those things, then it then it releases it. And so it also buys the network quite a bit of time, I think, to be able to have a whole bunch of other things catch up by kind of withholding those tokens until we see you know, the scale and usability that we require.

Tom Shaughnessy:

It’s pretty cool that you guys have the dual structure here, because the 30% of rewards, kind of ensures that that storage providers actually can earn something. But the 70% dynamic amount, kind of ensures that you’re not over rewarding if there’s not enough storage on the network. Colin, to your point there. Let’s say you’re not at that, that network level where let’s say you’re not at that base. And for any given year, you guys are holding back some of the rewards. Are those rewards paid later? Are they put into some kind of pool? What happens there?

ZX:

Yeah. So first of all, it’s not us holding anything. So like, it’s the protocol having inside its balance. And it’s also it’s not action of like anyone in some way, it’s the collective action of the community. And that is the beauty of it. Right? The community decides how fast how slow The minting will become. And, and when, let’s say some parts of the so the question was, so what happened to the early reward that was not paid? What do we do with that? Right? The algorithm is basically it was threaded, smoothed out and spread this rewards to the towards the future. And then as the network ramps up in its capacity, and more of that reward will be minted in the future.

Tom Shaughnessy:

That’s that’s pretty cool. And how does this work on the flip side here, let’s say you guys attract way too much storage way over that baseline. People are clearly getting the full 70% rewards for the baseline. They’re obviously getting 3% the simple minting Are these you know, is it just? Well, people turn off their storage? Because you’re beyond kind of the baseline? Or how does that work?

ZX:

No, necessarily that’s just like in the case of Bitcoin, right? Like, in some ways, only simple, you’re always above the baseline, baseline is zero. People are not going to stop because the baseline is zero. Because for individual storage operator, you’re thinking about what is the share of the block reward? Sure the pie is growing, but I also want to get a bigger share of the pie. So like, the goal of the incentive is, how do we create forces that everybody has the incentive to work together to make the network more successful?

Colin:

Yeah, so it has this dual incentive where miners have to both collaborate and compete, they have to collaborate in order to get as close to the baseline as possible, but they have to compete in order to get their fractional share of the pie and maximize their own return. So it’s got that dual structure.

Tom Shaughnessy:

That’s awesome. And how fast are these? The 70%? bucket? How fast are those rewards tick up or down? Like let’s say we’re like, you know, 10%, from the baseline storage capacity that network supposed to have in any given year. And let’s say, you know, somebody new comes online, and they fill that storage, and you’re now you’re at your baseline, how fast do the network rewards tick up? Is this in real time?

ZX:

Got it. So this is this happens in real time. And so they’re not gonna have to go into the detail of how this obviously works. So power gets added to the network every day and some power might get dropped every day, but they would incur a penalty, because that’s what the network doesn’t want to incentivize. So that happens all the time and every day. And also, it’s not that you can just add power, magically, all of a sudden, right, there’s a process of adding power. And that takes time. And, and as I mentioned, there’s this notion of a baseline, which is, which actually in the unit of space time, there is basically an integral function under the hood to actually smooth out these changes, without going too deep into the details. So people add power, and then like, and that will increase the total power on the network as an approximation of the network’s utility. And there’s a mapping to say, Okay, so how much progress have you achieved? And how much time has elapsed in the network? So that’s why we call it network time. And then from there, the network, runs and runs in operation to compute how much have we mentored at a particular given moment?

Tom Shaughnessy:

That’s, that’s pretty cool. Yeah, it’s great that it’s dynamic. And I guess just to round out this conversation, the rewards for storage providers, or other nodes on the network, how are rewards given to these people, and are they locked, I guess, for the various stakeholders?

Colin:

Yeah, so of course, a core principle in this whole design is that we only want participants that are here for the long term. With other networks, you know, it may make a lot of sense for folks to participate for three months, and then go away with filecoin, that that doesn’t make any sense. Think of the Airbnb analogy. As a as an operator, you need to provide great services in order to compete in the Airbnb marketplace over a long period of time. And if your apartment gets deprecated, you’re going to need to invest in improvements and great service, etc. Right? So you want to align everyone for the long term, the reward structure for miners, they basically get 25% of their block rewards vested after they earn it on a, you know, on a block by block basis. But 70% of that vest over six months, and hence, you know, we continue to incent these miners have like long term behavior and invest in the network for the long term.

ZX:

You mentioned stakeholders. I also want to highlight, sometimes we talk a lot about miner because I think for blockchain, that’s the very dominant group. But like filecoin is a marketplace. It’s a powerful economy in a boat by blockchain technology. So there are other stakeholder groups on the network. And the incentive design is to basically take everyone’s interest, both short term, medium term and long term into account. And how do we align that with the goal of the network. And I just want highlight there, I think we forgot to mention just now there were two stakeholder groups. So we have the number one stakeholder goup is actually storage clients. Right, because that’s what the network is trying to serve. We’re trying to create useful storage for the goods and services, such that people can use it. So storage client is our number one. And then we have miners. And then we have like, developers who are building solution building experiences on the network to make the network more attractive for storage clients. And they’re working with miners pretty closely. And then we have token holders who are facilitating transactions and liquidity to put capital into production and put it to work. And then we also have ecosystem partners that would foster the growth of the ecosystem. And like lots of this design, it’s actually having all these parties in mind and, you can we make everybody work together to achieve a common goal. And everybody would benefit from doing that.

Colin:

And so that long term orientation applies to many of those stakeholders. You know, the foundation their tokens vest over six years linearly. protocol labs, same thing. for investors, they have various vesting schedules for six months to three years. Although the majority of investor tokens are in the three year buckets, they take a very long term view, ecosystem partners, if they get a grant or something like that those vest over six years. And so all of these mechanisms don’t just apply to miners to orient them for the long term, all those different stakeholders.

Tom Shaughnessy:

That’s awesome, guys. So just to round out, I want to go on to this, the amount that you have to pledge to be a miner. But just to round out this discussion on rewards for the listeners and myself, you guys have just to just round, you guys have to reward methods. One is the simple minting so 30% goes to the network to support it. The 70% is dynamic, and it’s based on basically a storage capacity. And that aligns you know, obviously, the storage growth network long term is not over rewarding kind of now. And then the other thing is that those rewards are locked for several months to kind of incentivize good behavior, is that good summation?

ZX:

Yes. One out one more thing. So it’s not just a capacity, it’s, so we have two notions of like power and, and like maybe I have a filecoin Plus program where we actually put power in the hands of storage clients, and motivate the community to do business development to bring demand onto the network. And some part of that is being subsidized by the block reward as well.

Tom Shaughnessy:

Yeah, for sure. Guys, let’s go on to, I’m fascinated about the storage, kind of the miners and their dynamic here, right. So they have to pledge a certain amount of Filecoins token or FIL, to become a storage provider. Right? This is really interesting, kind of from a token econ perspective, because you have the you know, those providing capacity aligned with the network, because they have to, obviously, stake Filecoin. It’s kind of hard to figure out I think, from the outside like what exactly that pledges, right, because again, there’s two components of this, like, just like in their word, you have the initial storage pledge, and a consensus pledge. Um, how do you think through these at a high level? Like, what exactly how much are people actually pledging? What’s the total goal of how much how much should be staked by providers? I guess, a high level?

XZ:

Yeah, so um, so there are many constraints here. It’s not about pledge, but the fundamental goal is for consensus, security and storage safety. And, and how we think about how much you pledge is, it’s actually so it might be a new concept for folks. But if you think of it as the mindset of like, a host coming to Airbnb is a decentralized Airbnb. So they need to put down some deposit to make sure that you’re allowing it to perform, and then there’s something to penalize if you do something, rogue. And and then the next question is, how do we do this pricing and from my point of view, like pledge itself in Filecoin is not unreasonable in a sense that we are. So when a miner adds a sector to the network, there’s a minimum duration, and there’s a maximum duration, so you have to wait least for six months, and then the initial storage pledge is basically doing a projection of Okay, how much, given how fast the network is growing, which is your how much your share is decreasing. And given how fast the reward is changing, increasing or decreasing, what is the projected share of reward earning in the next 20 days. And then you put that into the initial storage pledge, and there is like a fraction of supply that we need to put in for your initial consensus pledge. And then then you add a sector for at least 180 days, which in theory, you will make back the initial pledge, because that because we did a projection for 20 a day, which is much shorter period of time. And in front of designer perspective, we try to make his pledge as low as possible, at the same time without sacrificing security or incentive. And and then that decision is then up to the miner to decide what kind of strategy profile would make sense for them, that may not be an optimal solution, because it’s an economy. So different people have different profiles, but there is some kind of solution that will work for miners. And, and then at the end of that six months, or, or a year and a half at if the promise is fulfilled to the network, miners get back that initial pledge, like so they only incurring a capital cost on the initial pledge per se.

Tom Shaughnessy:

Got it. So I guess just to summarize, the miners have to put up two different pledges. The first one is they put up kind of an estimate of the 20 days worth of block rewards that they’re going to get. And then the second pledge, they have to give kind of I guess, you guys are targeting 30% of the network stakes. So they kind of give their pro rata amount file point and they stake that as a portion?

ZX:

Yes, yes.

Tom Shaughnessy :

Got it. So net, you guys are targeting 30% of the circulating supply locked up on the consensus pledge, but in reality will probably be more than that as miners compete to put more on and also Then once you’re adding in, kind of the initial storage pledges fall to that

Colin or ZX:

So we need, there’s a few like, details there. So it’s a pro rata, by what pro rata is by the network baseline. So it’s like in the event that we hit the baseline, we are targeting 30% of the second supply lock in initial pledge, but that is not hot round. So everybody gets a small fraction of that. As they add storage to the network.

Tom Shaughnessy:

Got. Okay, cool. Cool. And I guess one of the interesting questions here is you guys just went live, right? So circulating supplies kind of thin. There is a bunch of supply coming in line over the next, you know, couple months years, is there enough Filecoin circulating today, for miners to pledge to reach that baseline that you guys have to ensure that they’re then getting the maximum amount of rewards based on your dynamic rewards?

ZX:

Yeah, so in terms of whether there’s supply available, I think, yes. And supply is also increasing over time. So there’s enough tokens for plegable miners to pledge to reach the baseline over time, like baseline is not going to reach in a day as well.

Tom Shaughnessy:

That’s cool. Yeah. Is there like, how is that dynamic playing out now? Like, is it is it pretty hard for storage miners to get the Filecoin they need? Or are most of these providers? Like, you know, are most of the storage providers actually people that you know, took part in Filecoin’s raise and they already have Filecoin? I wasn’t sure, like the dynamic of you know, hey, I have a lot of storage capacity, how do I go actually get the file, quote, I need to make these initial pledges.

ZX:

Um, yeah. So there are many ways for a participant to acquire Filecoin token for pledge, and we are the resources, we also saw that market popping up and also can acquire from different markets. I don’t exactly know what the exact breakdown because it’s, it’s a population, right? Like, it’s like any economy. But what we do observe is the way other chains’s onboarding capacity at a very fast rate. So it’s right now we see like the base fees, which is gas prices in filecoin, is pretty high. That means that people do have access to Filecoin, they’re adding 16 petabytes in a day to add storage onto the Filecoin network. So I wouldn’t think that would be a concern that people don’t have access to our coin as storage.

Colin:

Yeah, just add to that. Yeah. So just to add to that, so, you know, of course, you know, people are actively burning Filecoin to get their storage onto the network. So that’s an interesting fact that, you know, there’s more access to that. But um, you know, since we just launched about a month ago, a whole bunch of different kinds of solutions are coming to the marketplace to eliminate friction between capital providers and miners that have operational expertise, right. And so, you know, on day one, there was no real lending market, there was no real way for an investor to necessarily get their tokens directly in the hands of a miner, other than selling, you know, and then a minor buying. But now a whole bunch of these solutions are popping up, there’s wrapped Filecoin, that’s in experimentation, it’s going to be launched in a couple weeks, they’re a lending marketplace using Ethereum smart contracts where, you know, investors could, you know, lend some of their Filecoin to miners, there are other lending services, like Huobi’s, H-fill, Coinless, has a platform, you know, Ancorage others are starting to build platforms codifies building this network, this marketplace, Dharma Capital is actually you know, started lending Filecoin, etc. So, you know, as the network goes on, and more and more developers create, like, interesting solutions to eliminate frictions, and all of that will make it a lot easier to for miners to get access.

Tom Shaughnessy:

Yeah, that’s, that’s great to hear, guys. Yeah. I was always wondering whether or not there was enough supply to actually reach that baseline. But it sounds like there is and they’re kind of getting there. And I guess just from a, like a storage perspective, I guess two questions here. How long does it take for a miner to add all of their storage to the network? I read a lot about kind of ceiling speeds and things like that. How long does that take?

ZX:

Got it. So it really depends on the setup, right? As I said, like, it’s, it’s always a combination of strategy, there’s no one optimal solution is always a trade off, right? Like for monetary starting up, it may take them some time to get to a reasonable size depending on their initial capital investment. And it could be bounded by many things right like, and but if it Taobao miners in China right now that’s sitting throughput is not really a bottleneck for them. bottleneck could be like how much the chain can take in a day. Right? Like that’s where you see people burning Filecoin to post a transaction onto the network. And sometimes it could be access to capital, like pledge and so on. And there are just many factors and it’s not really like a one single limiting factor, that limits the minor population as a whole.

Colin:

And the other thing to think about is obviously you know, Ethereum went through a number of upgrades, you know, from when they launched many, many years ago, Filecoin’s already going through those upgrades, right, you can look at our fifth our Filecoin improvement proposals that are live today. There are some major proofs upgrades planned in 2021 and 2022, that are already designed that will increase the throughput, lower the cost to seal and mine increased retrieval speeds all of that, right. So it’s really hard to draw conclusions from a static implementation, you have to kind of project some of these improvements that are already been, you know, it coated up and waiting to be integrated.

Tom Shaughnessy:

Yeah that make sense. And I guess just playing devil’s advocate from like a cost perspective, if I’m a large storage provider, and let’s say I don’t have like a lot of latent storage, let’s I want to build out a data center and add a lot of capacity to the Filecoin network, I have to front those cap-x and nop-x costs, and then I have to buy, you know, Filecoin, obviously, as my stake are, is there any pushback in the community on kind of waiting for those rewards to be long time? I know that there was an FIP recently that made it so you know, some portion of there was a release a lot sooner? What was the dynamic there? Because it does make sense to get some reward sooner just to cover costs?

Colin:

Yeah, so um, there were there was, you know, we had actually planned that FIP, about a month before launch. So it was just kind of working its way through testing and then released. So although it was released shortly after launch, it already been planned a long time ago. And so yeah, it makes sense for some of those rewards to become vested. And we thought, you know, the community thought 25% was the right amount. But that said, it’s really important that we’re only attracting stakeholders and miners that are long term oriented, right. And so if you created a copy of Filecoin, and said, hey, there’s no collateral requirements, you get all your rewards vested immediately, it would incent tremendously different behavior, people just show up in mind for three days, then leave. And then as a client, which is really the most important stakeholder in this network, you won’t have the reliability of storage that you need to trust the network, right. And so it’s much, much more important for the community and the long term prospects of Filecoin having a transformative effect on the cloud storage industry and the world, if folks are long term oriented. And so that’s why a lot of those mechanisms are in place. And if a minor or any stakeholder, you know, doesn’t like that and wants to be able to get you know, all of their rewards, and then mine and leave, then, you know, it might not be the, Filecoin may not be the appropriate network for them to participate in. And that’s totally fine.

Tom Shaughnessy:

That’s interesting, guys. I like the I like how you guys are not only rewarding dynamically with two different models, but how the pledge is also quite dynamic as well. It’s pretty interesting. And just some higher level questions for you guys, just on the industry and the token itself. I mean, you guys started with a baseline. I think it’s not exabytes, right? It’s the EIB is that

Colin:

Abba bites. So it sounds like Yeah, yeah.

Tom Shaughnessy:

So if you guys start with, like, I think it’s around two or three of those year one, it grows by I think, 200% a year, that’s that baseline storage and ZX now you’re gonna correct me, it’s not just the storage. But, you know, it takes quite a while to get to the level where you guys are a large percentage of global storage, right? Like, it seems like it would take a decade or so to be 10 or 15% of global storage. Do you think that that’s too long? Or do you think that that’s aligns the network where you can now attract enough storage providers over a set amount of time?

ZX:

So yeah, so I think like, so I think there are a few threats here. I think one is not just about supply, but also about the demand too and what is the storage demand of Filecoin. And I think that’s something that the club community should collectively work towards, to. And the same time like, when sometimes when we say community design, if you think we are joking, or like purely think, we don’t have a plan. But it really is like, if there’s enough voices in the community that feel like this is we should be more ambitious is way too fast, way too, way too low. Feel free to follow fifth, and then we can discuss and we say well, the cost benefits, and maybe you can you can change Filecoin for the better. I think that’s kind of active participate, but he’s patient that we want to see in the network.

Tom Shaughnessy:

That’s awesome, guys. Yeah, I like to hear that. And I guess just other you know, random questions on the token. It’s not just used for pledges i.e. storage miners. It’s also used to pay costs to the network itself. What are the other use cases for the token beyond just pledging and beyond the reward scheme, we kind of discussed?

ZX:

Right, so so there’s also when a client wants to use the storage on Filecoin, they will, they will also they will may require a miner to put some additional collateral, or they have to pay for the storage in Filecoin. And so that’s storage demand. The demand for storage on Filecoin is another. It’s another main usage of Filecoin that we have not been seeing very strongly today, but it’s going to pick up as time goes on. And then I think do we do, we mentioned that just now, which is like all transactions on the Filecoin network involve some kind of burning to compensate for the computation and the resources of the network.

Tom Shaughnessy :

That’s awesome, guys. I really like that. And just on pricing. I know there’s a lot of websites online where we could compare Kyle Quinn’s pricing to AWS, how are you guys crushing AWS in cost like you guys are way cheaper to use. But you know, you’re brand new, Amazon has spent 10s of billions of dollars kind of optimizing cloud storage data centers, how are you beating the one price?

Colin:

Yeah, so I’ll kick things off here. So you know, I think there’s various different prices, and these things will fluctuate and probably go down over time. But, you know, I think I’ve seen some miners and the average miners kind of give a 20 a cost that is 20 times lower than Amazon Web Services or something like that for the storefront which is very impressive, right. And the reason for that is, you know, initially, you know, the block reward is subsidizing some of that storage. So for a miner to, you know, attract a client deal, they, they may not need that much money from that miner itself, because the block rewards is subsidizing it right? And then over time, you know, as the block reward goes down over 20 years, we have lots of time, the functionality, the reliability, the ecosystem of services will start to increase. And so folks will pay more and more for that over time. Right. Now, one mechanism that’s really important that we haven’t discussed yet, Tom, is, is this concept of Filecoin Plus or verified clients, right. And so that ensures that if, uh, you know, pick your favorite data provider, and let’s say it’s the Internet Archive, or something like that, if they go through a verification process by by the community and become a verified client, then they have a cap, you know, to put on, let’s say, 10 petabytes of storage onto the network. And if miners choose to store that data, which is verified to be valuable and real, and all that, they will get a 10 times block reward than some other miner that is just storing whatever, like, let’s say nothing, right. And so that creates this huge incentive for miners to do two things. One is store verified clients and real real data and make this network incredibly useful. And two is to go recruit as many valuable datasets to become verified, because there’ll be a shortage of those, and not all miners will able to store them, right. And so again, you know, just like the baseline rewards certain incentives, like growth and total capacity, this mechanism is super powerful and rewarding, hey, let’s store the world’s most valuable data sets and make sure that the storage is being used for the best use case possible.

Tom Shaughnessy:

That’s, that’s really cool. So how do you how do you know what makes a cut for a Filecoin plus dataset?

ZX:

I can go into more detail. But I want to just double down on the previous topic just a little bit more. So like, how much storage really cost is really a negotiation between like clients, and miners, just like Colen said, Filecoin plus create very strong incentive for miners to like, actually bring in demand into the network. And we saw miners offering free storage, with fast throughput in Europe, like thanks for this incentives. And I also want to point out that it’s not really just competing with AWS is also not really just competing on cost, right? Like, it’s, it’s about a new experience. It’s about like, a different array of products and services that will emerge on Filecoin. And we enable miners to become, like, providers of cloud storage that rival traditional services. And I think, and that, and software will get optimized every day, how to optimize every day. And then like people are making use of like either resources around the world, in like industry grades, data centers provide very reliable and useful storage, because otherwise the protocol incentive will not work in their favor. And then we can have other people in Hong Kong Twitter that serve that data to clients.

Colin:

And so think of it like Airbnb don’t always use Airbnb, because it’s cheaper than a hotel, right? There are different experiences different customizations that a hotel chain that has the same hotel room and 50 cities may not have and so for for Filecoin, it could be a tier 1, 2, 3 data center, it could have really high bandwidth or really, you know, cheap storage, it could be HIPAA compliance. It could be in the US, or it could be in Africa, or it could be in Asia. And so when you think of Filecoin is competing with the existing cloud storage fighters that are more or less uniform, it’s not just on cost, it’s on a whole bunch of different variables that can be used. Suppose right? So sorry to cut you off.

XZ:

Yeah. Good. That’s perfect. That’s perfect. And I think now we can dive into Filecoin Plus, which I think it’s super exciting. So, um, so the question is how does Filecoin Plus really figure out which clients who to or which clients to verify and so on. So I think without going too much into the details, the idea here is we have a network of notaries. Notaries are people with organization reputation, they are not exactly verifying data itself. They’re endorsing like use cases and clients who might be who they are. And there’s a set of like frameworks and processes to make sure that which the community decides what the positive should be in reflective of the principles of Filecoin Plus, which is like decentralization making Filecoin useful and being compliant among a series of things. And, and this network, notaries will go around and see the client, they will have some kind of allocation plan on how they plan to allocate this idea of a data cap to clients and client can apply to them, sometimes have miners, and, and once they get notarized, they now have this capacity to be deployed and experienced what using Filecoin network looks like. And I think that is a very strong, very, very strong incentive to make Filecoin useful.

Tom Shaughnessy:

Yeah, attracting useful data users. That’s That’s incredible. And I guess my one nitpick question is like that 10x reward multiplier. Is that does that come from simple? Or does that come from the baseline reward? And I guess that’s just the same bucket, right? Like other miners just get less.

ZX:

Right. So just now when we talk about like, the share of the reward that you’re getting as a storage operator, you basically get getting 10x in terms of that share.

Colin:

So it you know, it doesn’t change the total amount of rewards, simple plus baseline that gets generated for the network, but it does change your ship proportionate share of that, if you’re by a factor of tax. So how it gets allocated to miners? Is that is the variable there.

Tom Shaughnessy:

Okay, awesome. Guys, we cover a lot today we cover all the minting model storage miners pledges use case for the Filecoin token, some obscure questions. I wonder if there’s anything we missed here? I guess is there anything about the token you guys, maybe, you know, you guys been building for last couple years now that it’s live? Is there any interaction use case obscure thing about the token or the econ that you might not have thought about when you guys were building that’s now kind of apparent?

Colin:

I mean, the community is coming up with so many different use cases and so many different ideas, right? Like the the ecosystem development that we talked about on our last podcast is just surprises me every day. There are over 100 active organizations building over 250 new projects entering through hackathons and accelerators. We’re launching Tachyon is finishing up its cohort, Long Hash is launching, theirs in Asian in February, for their accelerator programs. And we’ve seen everything from large archival use cases to Web3 use cases to Dropbox style use cases, to video to DeFi to a whole bunch of different kinds of things in the realm. So developers are getting really creative. And we want to support those developers in any way possible to get even more creative. I think another thing that surprised me at least is how much Filecoin is actually being burned on a daily basis, because there’s so much demand to onboard storage onto the network. And so that obviously leads to really positive long-term effects for all token holders, all miners, all participants, and that surprised me, you know, on how much is being burned on a daily basis, as well. So that’s maybe another surprise so far.

Tom Shaughnessy:

Yeah, no, it’s awesome Colin. And a couple quick questions there. Before we close out what is how much exactly is burned? I missed that earlier.

Colin:

It really depends. So, um, you know, we can probably find some averages over the last 30 days, but it really fluctuates on a daily basis, depending on how much people want to onboard in any given time. We’ve seen some peak days where 100,000 Filecoin gets burned up for one day, but that that seems like outside the bounds of normal and so you know, it’s more of a Think of it like gas fees like a market.

Tom Shaughnessy:

Got it so just the fees to use the network are burned? It’s not, obviously not the pledge or the collateral or anything like that?

ZX:

Yeah, just the usage of the network. But if storage is not reliable, then the collateral could be burned as well.

Tom Shaughnessy:

Got it. Okay, that’s, that’s pretty interesting. And the last thing I wanted to hit on with you guys is your token allocation is kind of interesting because you guys have 55% of your tokens for mining rewards. 15% for reserves, that’s 70% going to the storage miners, and you guys started building Filecoin in 2017. Meanwhile, projects only in the last three or six months are now realizing that a majority of their tokens has to go to the community to incentivize good behavior. Meanwhile, you guys had a majority of this amount to help grow your network from years ago, how did you decide that because it seems pretty, you know, revolutionary to me, looking at it, considering you guys have this so long ago.

Colin:

Totally. And he gotta give credit to ZX, he really thought, you know, thought very deeply into what what’s going to make Filecoin successful for the future. And it’s really about aligning incentives to make sure that storage is plentiful, and well priced, and very reliable. And so, you know, that’s, that’s, you know, you got to give a lot of credit to one to kind of have the foresight to say, Hey, listen, miners are going to drive the fundamental, you know, infrastructure for this particular protocol. And so we need to incent them in the right ways. And I think it breaks down in a good way, while, 15% of the storage of the 55% of the allocation is for storage miners, not all of that was automatic, obviously you have to perform with all the baseline things that we talked about the 15% reserve, there’s going to be a whole bunch of different ways that we haven’t even thought of on how that can be used in the community, we’ll make proposals and then that’ll be unlocked later when those proposals have a huge impact on the network. Right? And so um, you know, it really makes sure that the infrastructure is placed to make sure that the network can be super dynamic in the future.

Tom Shaughnessy:

That’s awesome guys. Yeah, no, I think what you guys are doing is awesome. I find the token econ super interesting. I’m definitely going to prepare something I think there’s a lot there and just you know, the connect between the new circulating supply and how much is actually pledged and if that links up, there’s a lot to explore here. So guys, I really appreciate your time. Conan, ZX has been a great deep dive in second episode into your token econ.

Colin or ZX:

Awesome. Can’t wait for the next one, Tom. Really appreciate it.

Tom Shaughnessy:

Yep. Talk soon guys.

ZX:

Thank you.


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Disclosures: This podcast is strictly informational and educational and is not investment advice or a solicitation to buy or sell any tokens or securities or to make any financial decisions. Do not trade or invest in any project, tokens, or securities based upon this podcast episode. The host may personally own tokens that are mentioned on the podcast. Lets Talk Bitcoin is a distribution partner for the Chain Reaction Podcast, and our current show features paid sponsorships which may be featured at the start, middle, and/or the end of the episode. These sponsorships are for informational purposes only and are not a solicitation to use any product or service. Delphi’s transparency page can be viewed
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Nov 27, 2020 | 42 minutes | Chain Reaction

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