Author: Filecoin Network
The main points
The Filecoin storage market continued to grow in the second quarter of 2023, with active transaction volume increasing by 64% quarter-on-quarter.
As storage capacity decreased by 12% quarter-on-quarter, storage utilization increased from approximately 4% in the first quarter of 2023 to nearly 8% in the second quarter of 2023.
Fee revenue increased 91% (67% in U.S. dollars) in the second quarter of 2023, driven by a 64% sequential increase in active storage transaction volume and a 60% increase in the number of large data set customers.
The Filecoin Virtual Machine (FVM) release will introduce Ethereum-style smart contracts to Filecoin, which will promote new use cases in areas including liquidity staking, sustainable storage, and distributed computing.
Filecoin basic information
There is a serious problem with relying on centralized data storage: it is difficult to systematically verify the integrity of the stored data. Today, the Filecoin storage network is a peer-to-peer version of Amazon S3, which is built on the InterPlanetary File System (IPFS). IPFS is the distributed data storage and sharing layer of the Filecoin network. Filecoin regularly verifies the validity of data storage and prices storage transactions based on supply and demand dynamics rather than a fixed pricing strategy.
A storage transaction proposal is like a contract with a service level agreement (SLA) - users pay storage providers to store data for a specified period. To ensure data security, Filecoin uses a cryptoeconomic incentive model to periodically verify storage through zero-knowledge proofs (https://filecoin.io/blog/posts/zero-knowledge-and-the-filecoin-network/). To incentivize storage providers to participate in storage transactions, Filecoin will use the network's native token FIL as a reward. If the storage provider fails to provide reliable online time or takes malicious actions against the network, it will also be punished accordingly (slashed).
To retrieve data, Filecoin users pay fees to retrieval providers to obtain data. Unlike storage transaction proposals, which are on-chain transactions, retrieval transaction proposals settle fees off-chain, thereby speeding up retrieval.
The Filecoin virtual machine, released in March 2023, will introduce Ethereum-style smart contracts into Filecoin, which will promote new use cases in areas including liquidity staking, perpetual storage, and distributed computing.
Key indicators
Performance Analysis
The Filecoin blockchain is used by both the demand side of the network (such as users who need to store data) and the supply side (such as storage providers who can provide excess space), both of which generate revenue for the protocol.
income
Filecoin's revenue framework is similar to Ethereum's, as its gas system is based on the EIP-1559 improvement proposal (https://filecoin.io/blog/posts/eip-1559-in-filecoin/). This gas system consists of network fees, which are consumed to compensate for the use of system resources.
Agreement income
According to Messari revenue analysis (https://messari.io/article/demystifying-filecoin-s-revenue), Filecoin protocol revenue includes the sum of the following four items:
Base fees — depending on message congestion, any storage proofs required.
Batch fees — used when packaging storage proofs in batches.
Overestimation fees — used to optimize gas.
Penalty fees – Penalties imposed when a storage provider fails.
FIL fee protocol revenue increased 91% to 2.5 million FIL (67% to $11.5 million in USD) in Q2 2013. Protocol revenue growth was consistent with a 64% increase in active storage transactions and a 60% increase in the number of customers joining large datasets.
While FIL base fees have increased by about 3 times quarter-on-quarter, liquidated damages have continued to decline, down 17% quarter-on-quarter and down 29% from the peak of $700,000 in the fourth quarter of 2022. The reason for the high level of liquidated damages in the past may be that storage providers terminated sectors (the basic unit of storage) before the agreed storage transaction period. One possible explanation is that the FIL/USD price misalignment has affected the profitability of storage providers.
The only part of FIL fees that is not consumed by the protocol is the "tip" fee collected by block miners. This mechanism is used to speed up transactions on the supply side of the network. Therefore, the "tip" fee can be regarded as supply-side income.
Supply-side revenue
Filecoin supply-side revenue includes:
Block rewards distributed by the network to storage providers.
Payment is made through a storage deal anchored by a legal contract.
Fees for "tips" used to speed up transactions.
In the second quarter of 2023, block rewards constitute more than 99.9% of supply-side revenue, while "tips" account for only a small part. The new FIL token minting mechanism (https://spec.filecoin.io/systems/filecoin_token/minting_model/#:~:text=Baseline%20minting%20allocation%20mints%20more,of%20minting%20filecoin%20too%20quickly.) relies on the following two items:
Exponential decay mode (30% of total): To encourage participation, the block reward is highest in the early stage. Over time, it decays exponentially.
Baseline mode (70% of total): block rewards are distributed as storage capacity increases.
The combination of these two models helps maintain participation after the early block reward distribution period of the network ends (see exponential decay model), and also helps to continuously reward the additional value brought to the network by the increase in network storage capacity (see baseline model).
Unlike demand-side revenue, supply-side revenue fell by 7% in the second quarter of 2013 and is currently 17.6 million FIL (down 16% in USD terms). This decline is related to the reduction in overall FIL reward issuance brought about by the exponential decay model and the baseline minting model. The reduction in FIL reward issuance may continue in the next few quarters.
Usage
Data stored by active storage deal proposals between storage users and storage providers measures the demand for Filecoin storage from Web2 and Web3 clients.
Storage Deals
Nearly zero storage fees (https://messari.io/article/demystifying-filecoin-s-revenue) may further encourage users to process data through Filecoin storage transactions. In the second quarter of 2023, nearly 954PiB of data was stored on the Filecoin network through active transactions, a month-on-month increase of 64%.
In the second quarter of 2023, daily transaction volume increased by 47%, mainly due to the Filecoin Plus (Fil+: https://docs.filecoin.io/store/filecoin-plus/) plan to issue higher rewards to storage providers who participate in verified deals. This new dynamic encourages the use of real data to establish new storage deal proposals and prevents abuse of the network incentive mechanism. It also allows storage providers to compete with each other, thereby reducing fees.
A breakdown of active storage transactions by industry use case shows that the industries using Filecoin the most are technology (41%) and natural resources (31%).
Serve
To further encourage usage, Filecoin provides two services - NFT.Storage (https://nft.storage/) and Web3.Storage (https://web3.storage/). They provide a simple user interface for end users and act as an aggregator, bundling and storing data from multiple users at storage providers.
The NFT.Storage (https://nft.storage/) storage service provides a simple user interface for storing NFT content and metadata on Filecoin. In contrast, Web3.Storage (https://web3.storage/) simplifies the process of storing and retrieving Web3 data for Filecoin developers and end users. Both services offer free Filecoin storage to end users by participating in the Fil+ rewards program. Overall, looking at active transaction data, both services experienced significant growth in the second quarter of 2023. NFT.Storage increased by 12% month-on-month, and Web3.Storage increased by 19%.
user
According to Messari's guide to distributed storage networks (https://messari.io/report/the-essential-guide-to-decentralized-storage-networks), Filecoin aims to provide cold storage solutions (such as archiving and recovery) for enterprises and developers. Its competitive pricing and easy access make it an attractive option for Web2 customers seeking cost-effective alternatives for large amounts of archival data storage.
As of the end of the second quarter of 2023, a total of 1,750 customers (https://app.periscopedata.com/shared/d33c4430-465c-40ba-956f-76e43880eba9?) have registered datasets on Filecoin. Of these customers, 338 have introduced large datasets (e.g., datasets with a storage size of more than 1,000 TiB), an increase of 60% from 211 in the first quarter of 2023. These customers include New York City (https://opendata.cityofnewyork.us/), USC Shoah Foundation (https://sfi.usc.edu/), and Web3 platforms such as OpenSea. Others that have introduced data into the Filecoin network include:
UC Berkeley collaborates with Seal Storage to conduct storage physics research (https://www.newswire.ca/news-releases/uc-berkeley-engages-seal-storage-web3-technology-to-advance-innovative-neutrino-physics-research-883282087.html).
GenRAIT leverages Estuary to store critical genomic data on Filecoin (https://filecoinfoundation.medium.com/case-study-genrait-leverages-filecoin-network-for-greater-visibility-access-and-storage-of-1d56897a2d73).
The Starling Lab, a research center, stores sensitive digital records of human history (https://medium.com/@FFDWeb/announcing-the-starling-lab-4f1ce0204f07).
Ewesion (China’s fastest growing photo, illustration, and vector file website) uses Filecoin to store data (https://filecoinfoundation.medium.com/storage-company-ewesion-leverages-filecoin-network-for-data-preservation-e36cecc84e0e).
This accelerating trend in usage growth is further reflected in Filecoin’s overall utilization relative to its storage capacity.
Utilization and Capacity
After reaching a new high in the second quarter of 2022, Filecoin's average raw byte storage capacity fell 12% year-on-year and remained stable in the third quarter of 2022. At the same time, storage utilization relative to total available storage capacity increased from 4.1% in the first quarter of 2023 to 7.6% in the second quarter of 2023. This growth is a positive signal for Filecoin adoption.
Search
To meet storage retrieval needs, a content delivery network (CDN) for Filecoin and IPFS, also known as the Saturn project (https://docs.filecoin.io/basics/how-retrieval-works/saturn/), is currently being developed. The Saturn project aims to serve the Filecoin retrieval market through fast and low-cost content delivery, and its node operators earn FIL from a pool of approximately 30,000 FIL per month to meet retrieval requests.
In terms of performance, the goal of the Saturn project is to match or even surpass the IPFS Gateway (https://docs.ipfs.tech/concepts/ipfs-gateway/#gateway-request-lifecycle), with a focus on improving retrieval speed and performance, with most data mirrored from IPFS.
In Q2 2023, Saturn retrieval requests reached similar levels as Q1 2023, up 58% from Q4 2023. As of the end of Q2 2023, there were 3,444 nodes (https://orchestrator.strn.pl/), up 148% from 1,391 nodes at the end of Q1 2023. The node distribution (https://ipinfo.io/tools/map/b7021fa6-9ed1-4cb0-a20b-dd1c24a4ba7b) is as follows: North America (40%), Europe (27%), Asia (24%), and other regions (9%). An overview of Saturn performance (https://dashboard.saturn.tech/stats) will be presented in Messari's Q3 2023 Filecoin Status Report.
FVM Utilization
The Filecoin Virtual Machine (FVM) brings Ethereum-style smart contracts to Filecoin, unlocking new ways to help storage providers obtain FIL collateral, supporting use cases including liquidity staking, perpetual storage, and distributed computing.
As of June 30, 2023, more than 2,300 unique contracts have been deployed on FVM (https://dashboard.starboard.ventures/fvm#total-unique-contracts-deployment), generating more than 250,000 transactions (https://dashboard.starboard.ventures/fvm#contract-interactions), consuming more than 7% of Filecoin's gas usage in the second quarter (https://dashboard.starboard.ventures/transactions-usage#gas-usage).
It is worth noting that according to DeFi Llama, Filecoin has begun to accumulate TVL from liquidity staking on FVM (such as GLIF: https://www.glif.io/ and STFIL: https://www.stfil.io/) and DeFi applications. Based on the total contract balance of more than 2 million FIL as of June 30, liquidity staking accounts for 80%, DeFi applications account for 5%, and other services account for 15%. The upcoming quarterly report will provide detailed information on gas usage, fees, and TVL after the launch of FVM.
As Filecoin continues to gain new users and valuable datasets, it may become the basis for developing use cases that can monetize FVM data. In addition, since FVM is compatible with Ethereum, existing Ethereum-based applications can be introduced to the Filecoin network without major changes to the code.
Ecosystem Overview
The Filecoin ecosystem (https://ecosystem.filecoin.io/?results=115) has been actively attracting developers and builders, and it regularly participates in activities such as hackathons, accelerators, sponsorship programs, mentor programs, and growth support. These programs are designed to help early-stage projects and teams grow so that they can expect to receive funding from Protocol Labs or its affiliated entities. The ecosystem is committed to introducing diverse use cases: from data infrastructure, streaming, metaverse to games.
As of July 2023, there are 391 known projects being developed on the Filecoin, IPFS, and Protocol Labs network ecosystem (https://www.plnetwork.io/) systems. In June 2023, there were 180 projects from the accelerator, up from 150 in March 2023. Most projects use Filecoin's applications and protocols to provide data services:
Ocean Protocol: Data marketplace developer tools and platform.
Lighthouse: A perpetual data storage service with one-time payment pricing.
Slate (https://slate.host/): A search engine that processes and shares personal data.
Berty: A secure messaging and social media app.
Dether (https://dether.io/): Cash deposit and withdrawal and diversified financial transaction mechanism.
Tableland (https://tableland.xyz/): Distributed cloud database.
Contracts focused on media and entertainment include:
Mona: A 3D art gallery in the Metaverse.
NFTwitch (https://www.twitch.tv/): NFT minting platform for Twitch content.
Huddle01: Distributed video conferencing.
OPGames (https://www.opgames.org/): Game-related NFT minting.
FileMarket (https://filemarket.xyz/): Web3 store builder and marketplace.
Xone (https://www.auras-studios.com/): A metaverse solution that connects artists and fans.
The following use cases aim to leverage Filecoin infrastructure to drive data needs in specific areas:
Koios (https://ethglobal.com/showcase/koios-adm6x): Codeless data DAO platform.
ZKsig NFTs: Market access control mechanism.
DataMarket: data purchase and settlement functionality.
As developers build applications on the network and integrate them externally, the launch of FVM virtual machines will likely bring significant growth to the Filecoin ecosystem.
Qualitative analysis
release version
Filecoin Data Tools
To improve the user's data upload experience, Filecoin launched the Filecoin Data Tool (FDT: https://filecoin.io/blog/posts/introducing-filecoin-data-tools-fdt/) project. FDT aims to simplify Filecoin data storage and management, can handle large-scale uploads of customer data, and is committed to providing a practical cloud developer experience (DX) comparable to Web2 cloud.
Interstellar Consensus (IPC)
Filecoin has publicly deployed the Interstellar Consensus (IPC: https://ipc.space/) framework for scaling for the first time. IPC addresses challenges in transaction volume and application heterogeneity by creating and executing hierarchical subnets of transactions, and also facilitates cross-subnet transactions.
Lassie
In May 2023, Filecoin released Lassie (https://filecoin.io/blog/posts/introducing-lassie---a-retrieval-client-for-filecoin-and-ipfs/), a retrieval client that enables users to retrieve content-addressed data (using CID) from Filecoin or IPFS without running a single node. Developers can also use Lassie as a data retrieval library in their applications.
V19 and V20 network upgrades
The V19 network upgrade (Lightning) is the implementation of FIP-0060, which improves block verification time and overall network performance. This upgrade solves the chain quality degradation and synchronization stability problems reported by network users; the V20 network upgrade (Thunder) is the implementation of FIP-0061 (https://github.com/filecoin-project/FIPs/blob/master/FIPS/fip-0052.md), which introduces the patch release network upgrade of LotusV1.22 (https://messari.io/intel/event/ac9f09c9-9edd-41ab-87b8-0a2cf7574fa9?assetSlug=filecoin&from=asset). The implementation of the activation epoch patch (https://www.notion.so/nv19-nv20-expedited-plan-for-chain-quality-38175731c93a4290a8b953ce5d3b101e) and FIP-0052 (https://github.com/filecoin-project/FIPs/blob/master/FIPS/fip-0052.md) will be completed in subsequent network upgrades.
Ecology
With the launch of FVM, the Filecoin ecosystem will continue to expand. Notable integrations include Brave Wallet's support for Filecoin FVM and IPFS backup NFTs, and Spheron's Filecoin integration. In addition, Axelar and Celer Network launched bridge support for Filecoin, making it interoperable with networks such as Ethereum, BNB Smart Chain, and Polygon.
It is reported that as of now, FVM has deployed multiple applications in various fields such as infrastructure tools, storage and cloud services, education, science and public interests, media and entertainment, and Filecoin.
For a list of projects deployed on Filecoin’s FVM, please visit this link (https://filecoin.io/blog/posts/100-days-of-fvm/).
Key events and plans
SEC (U.S. Securities and Exchange Commission) believes that Filecoin is a security
In response to the SEC's classification of Filecoin as meeting the definition of securities, Protocol Labs issued a statement via Twitter (https://twitter.com/protocollabs/status/1659319891738914817?s=20) stating that Filecoin is a distributed file storage network, not a security.
Hack FS and FVM Dataverse Hackathon
Protocol Labs partnered with EthGlobal to host HackFS 23, offering $125,000 in prizes and prizes to participants in the online hackathon. Filecoin also launched the FVM Dataverse hackathon program to encourage developers to build applications on FVM.
Bug Bounty Program
Filecoin has updated its bug bounty program on Immunefi, increasing rewards for critical issues (up to $500,000). It has also expanded the scope of the program to include programmable features.
route map
IPC: The full version of IPC is planned to be released in the third quarter of 2022 (https://ipc.space/#roadmap), including development tools and documentation.
Axelar Integration: The Axelar team released details of its integration with the Filecoin Virtual Machine (FVM: https://messari.io/intel/event/fe4ff679-c281-4c54-a40a-f88611f3d593?assetSlug=filecoin&from=asset) (https://axelar.network/blog/filecoin-cross-chain-datadaos-axelar-and-fvm). The goal is to provide FVM functionality to application developers in any connected blockchain ecosystem for storing, funding and verifying data, and processing fees. This integration aims to use axelar wrapped assets as a representative representative of bridged assets in the Filecoin ecosystem, thereby improving the liquidity of FVM DEX and AMM. It will also utilize Axelar GMP (https://messari.io/intel/event/c7fd6ca0-3160-4ea7-9c7e-aafe0c505738?assetSlug=axelar&from=asset) to enable smart contracts on any chain to call Filecoin functions.
Long-term roadmap: The next long-term improvement plan includes L2 layer capabilities, hierarchical consensus (https://research.protocol.ai/blog/2022/scaling-blockchains-with-hierarchical-consensus/) and packaging as a service (https://github.com/filecoin-project/lotus/discussions/9079). Through the FVM virtual machine, Filecoin aims to establish new partnerships and strengthen existing partnerships to better promote the growth of data infrastructure products in the community.
Summarize
Filecoin storage usage accelerated in the second quarter of 2023, with active storage transactions increasing 64% month-on-month. Although storage capacity decreased by 12% month-on-month, storage utilization increased from 4.1% in the first quarter of 2023 to 7.6% in the second quarter of 2023. At the same time, FIL fee revenue increased by 91% in the second quarter of 2023 (67% in US dollars), driven by a 47% month-on-month increase in new storage transactions.
Although distributed storage is still in its early stages of development, there is potential growth momentum. The successful implementation of the Filecoin virtual machine may allow the next generation of applications to play a role beyond storage. Some typical examples include permanent storage (similar to Arweave), low collateral loans issued to storage providers, and distributed computing. If Filecoin continues to generate demand, it is expected to become an important provider of distributed storage and cloud services, providing services for Web3 and traditional applications.
If you would like to let us know what you liked about this report, what was missing, and any other thoughts, please fill out this short form (https://06jiny4c1wy.typeform.com/to/DsmsVsUp?typeform-source=www.google.com#research=state-of-filecoin-q2-2023). All feedback is subject to our Privacy Policy (https://messari.s3.amazonaws.com/privacy.html) and Terms of Service (https://messari.s3.amazonaws.com/termsofuse.html).
This report was commissioned by the Filecoin Foundation. All content is produced independently by the author and does not necessarily represent the opinions of Messari, Inc. or the institution that commissioned the report. The commissioning party does not influence editorial decisions or content. The author may hold crypto assets mentioned in this report. This report is for informational purposes only and is not investment advice. Before making any investment decision, you should conduct your own research and consult with independent financial, tax or legal advisors. The past performance of any asset is not indicative of its future performance. Please see our Terms of Service (https://messari.s3.amazonaws.com/termsofuse.html) for more information.
