Author: luca, blockbeats
On February 6, Filecoin ecosystem liquidity pledge platform Glif completed US$4.5 million in financing. This round of financing was participated by Multicoin Capital and others.
Arthur Hayes, co-founder and former CEO of BitMEX, previously expressed his bullishness on Filecoin during a keynote speech at Toen2049 in Singapore, because “in Europe, people are using SEAL to help reduce data costs, and SEAL gets FIL rewards by storing this data on the Filecoin network.”
Perhaps affected by this, the price of FIL tokens has continued to rise since the low point in October last year. As a DeFi protocol on Filecoin, the number of FIL loans and leases on Glif continues to increase. Currently, about 10 million FIL are loaned and 8 million FIL are leased.
In addition to the positive factors of the Filecoin ecosystem, Glif's "liquidity leasing" facility, centered on the yield-bearing liquidity staking token iFIL, lays the foundation for the upcoming points program, which will reward Glif users based on the accumulated value of iFIL tokens, and the points may hint at potential token airdrops. The funds will help Glif expand the "liquidity leasing" facility.
Glif: A solution for the Filecoin staking market
Glif is the basic DeFi primitive of Filecoin and the first liquidity leasing protocol of cryptocurrency. Its liquidity leasing facility is built using the Filecoin Virtual Machine (FVM). Therefore, before interpreting Glif, let’s take a brief look at the filecoin and FVM behind it.
Built on FVM
Filecoin is a decentralized data storage protocol, and its biggest competitor is Arweave. Kyle Samani, founding partner of MultiCoin, sees Filecoin as a superset of Arweave, with more optionality and configurability due to its parameterization capabilities, allowing developers to customize storage parameters such as the number of replicas, unlike Arweave's single parameter. He believes that Filecoin and Arweave may coexist for a long time, but Filecoin offers greater flexibility and potential use cases due to its higher configurability.
One difference worth noting is that unlike Arweave, which relies on protocol design to solve storage data redundancy, Filecoin resorts to economic incentives, namely FIL token staking.
Whenever miners provide storage space for clients, they need to pledge FIL as a token. This pledge amount is to seal the storage block and keep the sealed storage block in the miner's device. This structure ensures that miners will store data for clients during the transaction period they agree to, and will receive incentives in return. Incentives are distributed through PoSt (Proof of Space-time), and miners are rewarded by proving that they have stored the correct customer data.
But only about 1% of miners’ rewards (or operating income) are actually liquid, causing miners to have to borrow fiat currency or borrow FIL tokens from third parties to pay operating income, upgrade hardware, pay maintenance fees, or attract/renew transactions. And because these are loan products, storage providers must go through KYC and a rigorous audit process before they can borrow FIL.
Related reading: "Interpreting the Economics of Filecoin Staking: Staking will fill the gap between supply and demand of FIL in the ecosystem"
On this basis, Filecoin launched an EVM-compatible virtual machine on March 14 last year, which allows any developer to deploy smart contracts on the network. FVM introduces programmable payments for storage, retrieval, bandwidth, and computing, making Filecoin programmable. For the specific working principle of FVM, please refer to "In-depth Interpretation of Filecoin Virtual Machine: Working Principle, Unlocked Use Cases, and Its Importance"
Simply put, FVM allows the construction of a trustless market, a market for FIL borrowers (miners) and lenders (which can be FIL holders). FVM brings FIL lending to the chain, retail FIL holders pledge their FIL, miners borrow FIL from the fund pool, and FIL lending is essentially getting cash in advance through the accumulation of future rewards for miners, making FIL mining more capital efficient.
The solution is Glif.
Glif's Technical Architecture
The main difference between Glif and other CeFi/DeFi lending protocols is that SPs maintain control over their miner actors. The protocol achieves this through the "Agent Architecture".
Agent is a smart contract that sits between the SP and the infinite pool. By abstracting the SP’s ownership of its borrowing pool, Agent can alleviate the “lock-in” suffered by other DeFi or CeFi staking, lending, and leasing solutions.
Image source: Glif documentation
SPs own and operate their Agent smart contracts and use them to interact with the pool. Each SP in the system deploys, owns and controls its own Agent, which is operated through the GLIF CLI.
The GLIF CLI maps human-readable names to account addresses. Whenever you pass an "address" parameter or flag to a command, you can use the human-readable version of the name. For example, if you have an account called "testing-account", you can send a transaction via "from testing-account". In addition, the GLIF CLI embeds a wallet for writing transactions to Filecoin, which is based on go-ethereum's encrypted keystore. A single "wallet" can hold multiple independent "accounts", each of which has a human-readable name.
The Agent smart contract can be in one of the good, monitoring, or default states. Currently, the Glif team manually moves the Agent from the "good" state to the "monitoring" or "default" state to avoid possible dangerous automation errors. Once stable and secure enough, the process will be decentralized and automated.
On the other hand, in order to borrow, the Agent needs equity. The more Filecoin miner roles are committed to the Agent, the more equity it accumulates. Agents accumulate borrowing capacity by staking miner roles, and SPs can remove Miners from their Agents at any time as long as the remaining equity on their Agents is enough to pledge the outstanding borrowed funds from the pool.
When an Agent wants to take an action such as borrowing funds from a pool, it must first request a credential from the ADO. The ADO is an off-chain data aggregator that allows pools to securely receive any real-time and/or historical data about SPs at a very low cost. Each pool can receive its own unique data from the ADO, allowing for maximum flexibility. The ADO issues a signed credential to the Agent containing a snapshot of the latest data about the associated Agent and all of its associated miners. The Agent then takes this credential to the pool it wants to borrow from, and the pool uses the credential to decide whether to approve the action.
Image source: Glif documentation
Glif Pools, a permissionless marketplace
The “pool” mentioned in the previous section is simply a customized capital market deployed on the Filecoin network.
Today, the primary function of the Filecoin network is file storage, with SPs (SPs) pledging FIL as collateral on behalf of their clients. In order to provide storage, SPs must provide two forms of capital: hardware and financial capital (in the form of FIL).
SPs come in many shapes, sizes, jurisdictions, and skill levels, and FIL holders have different economic situations, time horizons, and risk preferences. And because theft protection on the Filecoin network requires a regulatory-style arrangement between FIL holders and SPs to guarantee that the SPs don’t take the funds. This relationship between FIL holders and SPs creates additional capital inefficiencies on the network because SPs are effectively “locked” to one capital provider at a time.
To solve the core capital efficiency problem in the Filecoin ecosystem, Glif uses FVM to create a permissionless market, Glif Pools, between people who own FIL and SPs who own hardware.
Glif Pools is a unique DeFi protocol that makes it safe, simple, and efficient to deploy any number of pools. Each pool should be different enough from each other to attract a wider range of capital and SPs. A single SP should be able to borrow from every pool simultaneously without being locked into any single pool. FIL holders should have the ability to deposit FIL in any pool that fits their risk, return, and time horizon configuration.
Infinity Pool
The first pool of the protocol is the Infinity Pool.
The Infinite Pool is a decentralized lending pool for Filecoin lending, with standard rules for every SP on the network, and its primary mission is to ensure the safety of pledgers. The Infinite Pool does not set an expiration date for the FIL it deploys to the SPs in the system, and all SPs on the network are treated equally by the Infinite Pool, and as long as they pass the risk standard check, they can borrow from the pool. As a result, perpetual staking provides the most productivity and efficiency for the entire network. SPs do not need to worry about whether there is enough FIL to renew and extend their sectors, which keeps the network energy online and growing at a faster rate.
Infinity Pool protects pledgers by enforcing two strict rules on borrowers: SPs must not fail to repay any funds for three consecutive weeks, and SPs must not have a faulty sector accident (resulting in reduced computing power) for three consecutive days. If either of these two rules is violated, the SP will be liquidated. GLIF will recover as much FIL as possible and terminate the SP miner's sector. This is a destructive behavior for both the SP and the entire network, resulting in data loss from sector termination.
According to Glif’s official 18-month research simulation, the network recovery rate is approximately 60%, which means that (on average) the risk of loss of any FIL deployed to SPs is approximately 40%.
iFIL and Points
When SPs borrow FIL, they must pay the pool once a week, and these weekly payments are counted as the income of FIL Stakers, i.e. iFIL. Stakers earn rewards by holding iFIL liquidity staking tokens, however, the value of 1 iFIL is not fixed.
iFIL operates as a liquidity staking token: it earns rewards from SPs over time. SPs can lease FIL from the liquidity pool for staking based on the amount of collateral they lock in the protocol. After leasing, SPs must make weekly payments to the pool. These payments serve as rewards for liquidity providers. Due to the complexity of Filecoin's underlying cryptoeconomics, the mechanism used by Glif is similar to crypto "leasing".
Specifically, the amount of iFIL you will receive for each FIL deposited will gradually decrease, because over time, 1 iFIL can be exchanged for more FIL tokens, so minting 1 iFIL becomes more expensive. In addition, if the pool loses funds during operation, its base FIL will decrease, which means that the amount of FIL that can be exchanged for 1 iFIL token will decrease.
Image source: Glif documentation
In addition, according to people familiar with the matter, Glif is about to launch a "tentative" points program that will reward Glif users based on the accumulated value of their iFIL tokens.
Glif will reward points based on how much value users bring to the ecosystem, and more iFIL will equal more points. Affected by the points program, 1,600 depositors have locked 10 million tokens on Glif. It is reported that the program is expected to be launched later this quarter.
Team and financing background
Judging from the financing situation, Multicoin Capital has long been optimistic about the Filecoin ecosystem.
In the "Empire" podcast in April last year, MultiCoin clearly expressed its optimism about Filecoin. On February 6 this year, MultiCoin led the investment in Glif, a Filecoin ecosystem liquidity pledge platform, with $4.5 million.
The Glif team, led by Jon Schwartz and Peter Andersen, has been building foundational products in the Filecoin ecosystem since 2019. Prior to launching the liquidity rental protocol, they built the first web wallet for Filecoin’s mainnet, a multi-signature wallet for Filecoin’s SAFT token issuance (still used by Protocol Labs and the Filecoin Foundation to this day to manage payments), Filecoin’s de facto RPC service (handling over 85 million requests per day), and several other key applications and tools for the Filecoin network.
An interesting and underappreciated aspect of Glif is the protocol’s ability to deploy multiple interoperable capital markets with its own custom assets and rules. While there is only one market currently, this feature opens the door for Glif to work with LPs and SPs in customized ways and scale horizontally to accommodate new use cases as Filecoin matures.
For example, Glif could deploy custom pools specifically designed to lower the barrier to entry for new SPs to join the network, stablecoin-based pools that leverage SPs’ storage transaction flows as collateral for borrowing, and/or pools that deploy capital to SPs that are storing specific datasets or running specific computational programs.
Ultimately, we imagine a Filecoin economy where many custom pools exist to incentivize niche or specific use cases in data storage, retrieval, and ultimately computation. In this way, Glif’s architecture is completely unique and also able to scale with Filecoin and new use cases that emerge as FVM matures.
