Original author: Messari - Mihai Grigore, Helen Huang
Compiled by: BlockTurbo
Getting Started with Filecoin
There is a big disadvantage to relying on centralized data storage: it is difficult to systematically verify the integrity of the stored data. As it stands, the Filecoin network is a peer-to-peer version of Amazon S3. It is built on top of the InterPlanetary File System (IPFS), which serves as the distributed data storage and sharing layer of the Filecoin network. Filecoin periodically verifies data storage and uses storage transactions that are dynamically priced based on supply and demand, rather than a fixed pricing structure.
A storage deal is like a contract with a service level agreement (SLA) - users pay storage providers to store data for a specified period. To keep data secure, Filecoin uses a crypto-economic incentive model that periodically verifies storage using zero-knowledge proofs. To incentivize storage providers to participate in deals, Filecoin rewards them with the network's native token, FIL. Storage providers are also fined if data cannot be retrieved or storage fails.
To retrieve data, Filecoin users pay retrieval providers to obtain data. Unlike storage transactions, which involve on-chain transactions, retrieval transactions use payment channels to settle payments off-chain, which speeds up retrieval.
Key Indicators Performance Analysis
The Filecoin blockchain is used by both the demand side (i.e. storage users) and the supply side (i.e. storage providers) of the network. Both storage users and storage providers generate revenue for the protocol.
income
Filecoin’s revenue framework is similar to Ethereum’s in that the gas system is based on EIP-1559. This gas system consists of burned network fees to compensate for the resources used.
Agreement income
According to Messari’s revenue analysis, Filecoin’s protocol revenue represents the sum of:
Base fees - required for any storage transaction or proof; base fees are determined by message congestion. Batch fees - used to increase storage capacity. Overestimation fees - fees required to optimize gas usage. Penalty fees - charged for storage provider failures.
Protocol revenue fell 31% to 1.2 million FIL in Q4'22. This represents a 44% increase from nearly 900,000 FILs in Q4’21 compared to the same period last year. It is worth noting that Q4'22 brought two significant changes in the composition of accruals:
Base fees fell 60% despite a 10% increase in active storage transactions (according to the Filecoin Key Metrics Overview chart). Penalties increased 100% and reached an all-time high due to an increase in storage providers being offline for more days.
Filecoin protocol revenue continues to be relatively low in Q4'22 compared to before the HyperDrive network upgrade in July 2021. By aggregating proof of storage, HyperDrive increases storage availability by 10-25x. While the HyperDrive upgrade benefits network participants — by reducing congestion and freeing up block space — it also results in lower overall transaction fees. As a result, the HyperDrive upgrade has led to lower protocol revenue over the past four quarters.
The only part of Filecoin fees that is not burned by the protocol is the "tips" collected by block miners to speed up transactions on the supply side of the network. Therefore, this "tip" counts as supply side revenue. Filecoin's supply side revenue includes token rewards paid to storage providers (accounting for more than 99.97% of Q4'22 supply side revenue), while "tips" only account for a small part.
Supply-side income
Supply-side revenue consists of block rewards paid by the network to supply-side participants. The minting mechanism for new FIL tokens relies on:
Exponential Decay Model (30% of Tokens): Block rewards are initially highest to incentivize participation and decrease exponentially over time. Baseline Model (70% of Tokens): Block rewards increase as storage capacity increases.
The purpose of combining these two models is to avoid the decline in participation after the block reward is distributed in the early stages of the network (see exponential decay) and to continuously reward the additional value created for the network by increasing storage capacity (see baseline model).
Supply-side revenue fell 1.2% to 20.2M FIL in Q4’22, impacted by an overall reduction in reward issuance. While the baseline growth target was achieved in Q4’22, minting was overall reduced due to the exponential decay mentioned above. It is worth noting that while the growth rate of built-in storage capacity has declined quarter-over-quarter since Q4’21 (according to the Filecoin Key Metrics Overview table), so has supply-side revenue.
Dosage
The amount of data stored in active transactions between storage users and storage providers measures the demand for Filecoin services. Demand for Filecoin storage comes from storage transactions specific to Web2 and Web3.
Storage Transactions
Near-zero storage fees may further encourage increased data storage through transactions. By the end of Q4’22, over 231 PiB were stored on the Filecoin network through active transactions—a 10% increase from the previous quarter. This positive growth trend has continued since Q4’21, as Filecoin’s active transactions increased 850% year-over-year.
Breaking down active storage transactions by industry use case reveals the industries leveraging Filecoin the most:
Life Sciences (23%) Web3/Crypto (19%) Information Technology (18%)
To incentivize the use of real data for these storage transactions and prevent network reward gaming, the Filecoin Plus (Fil+) program was introduced. Fil+ provides more rewards for participating in verified transactions by increasing the likelihood that storage providers will win block rewards. This results in storage providers undercutting competing providers. As a result, in Q4’22, storage will cost almost nothing.
There has been a shift from regular transactions (unverified data transactions) to a predominance of Fil+ transactions (verified data transactions) since Q4 2021. This shift corresponds to a continued upward trend in Fil+ transactions, which accounted for 99.5% of all new transactions in Q4 22. The flipping of Fil+ transactions over regular transactions, combined with the increase in new transactions, indicates that the Fil+ incentive mechanism and onboarding program are successfully driving storage utilization.
client
According to Messari’s recent guide to decentralized storage networks, Filecoin primarily provides cold storage solutions for enterprises and developers. Its competitive pricing and ease of access make it an attractive option for Web2 customers seeking a cost-effective alternative to store large amounts of archival data.
By the end of Q4 22, there were 1,320 customers using datasets on Filecoin, of which 271 customers were using large datasets (e.g., datasets with a storage size of more than 1,000 TiB), a 96% increase from 138 customers in Q3 22. Filecoin’s customers range from the City of New York and the USC Shoah Foundation to Web3 platforms like OpenSea. Other notable use cases for loading data onto the Filecoin network include:
UC Berkeley partners with Seal Storage to store physics research GenRAIT uses Estuary to store critical genomic data on Filecoin Starling Labs research center stores sensitive digital records of human history China's fastest-growing digital content host Eweison uses Filecoin for data preservation
Utilization and Capacity
Despite the overall market downturn, Filecoin’s committed storage capacity has grown over the past five quarters to 16.7 EiB. This growth is partially attributed to the addition of storage providers. The number of Filecoin storage providers surged by about 300% to 3,030 — corresponding to the peak in network capacity. However, after reaching an all-time high in Q2’22 and plateauing in Q3’22, storage capacity declined in Q4’22.
Meanwhile, storage utilization relative to total available storage capacity has been rising steadily over the past few quarters to 3% in 4Q22, compared to just 0.2% in 4Q21. That is, usage has grown 18 times faster than capacity over the past year, albeit from a low starting base.
Because the Fil+ program is able to acquire new users and introduce valuable data sets, it can serve as the basis for developing profitable use cases around data in the future. In essence, Filecoin's strategy seems to be to acquire data at near-zero cost in order to profit from data retrieval or data computation in the future.
While the launch of the Fil+ program facilitates supply onboarding and demand generation, there is a concerted effort to incubate new businesses and use cases to build on Filecoin.
Search
IPFS gateway requests can act as a proxy for Filecoin retrievals, as most of Filecoin’s developer storage tools make data retrieval accessible to the entire IPFS network.
The number of retrieval requests increased 36% in Q4'22 compared to Q3'22. Year-over-year, retrieval requests increased 188%. This positive trend is a reasonable proxy for capturing the increased usage of popular storage developer tools that rely on IPFS for storage and retrieval, such as NFT.storage and Web3.storage. As the retrieval market continues to grow, new metrics will become available to track outside of IPFS gateways.
Ecosystem Overview
The Filecoin ecosystem has been actively developing a funnel of developers and builders through activities such as hackathons, accelerators, grants, mentorship, and growth support. The funnel is designed to help early-stage projects and teams grow to a point where they can receive funding and investment. Funding is provided by Protocol Labs or affiliated entities.
There are over 600 known projects currently being developed on the Filecoin, IPFS, and Protocol Labs network ecosystems, up from nearly 500 in Q3’22. These projects leverage IPFS, Filecoin, the libp2p protocol, or services built on top of these protocols. A large portion of the growth came from accelerators, which increased from 82 in Q3’22 to 194 in Q4’22. Additionally, projects like NFT.Storage and Web3.Storage enable other projects to leverage Filecoin/IPFS.
The ecosystem is being used for a multitude of different use cases: data infrastructure, media streaming, the metaverse, and gaming. Most applications and protocols leveraging Filecoin provide services focused on data services:
Ocean Protocol: Developer tools and platform for data marketplaces Lighthouse: Permanent data storage service with a one-time payment pricing model Slate: Search engine for processing and sharing personal data Berty: Secure messaging and social media application Dether: Cash in/out and diversified financial transactions
Another broad category is media and entertainment; examples include:
MoNA: A 3D art gallery in the metaverse NFTwitch: An NFT minting platform for Twitch content Huddle01: Decentralized video conferencing Curio: An NFT marketplace for entertainment brands to profit from intellectual property OPGames: Minting NFTs from games
By introducing the Filecoin Virtual Machine (FVM), Filecoin aims to allow external integration of smart contract applications. The ability to build native applications on the Filecoin network and integrate with them externally expands the scope of its potential network activities and application ecosystem.
Qualitative Analysis Product Updates
Saturn
Saturn is a fully decentralized Filecoin content retrieval and delivery network (CDN) designed to accelerate web content delivery. Saturn also seeks to increase Filecoin's appeal to Web3 developers by reducing the cost of running a Filecoin node and speeding up decentralized data retrieval. Saturn's long-term goal is to capture a large portion of applications that retrieve information, thereby achieving the coveted "Web3 killer app."
V17 Shark Upgrade
Filecoin's v17 Shark upgrade in November 2022 includes improvements to its smart contract programmability for Fil+ transactions. This upgrade has been ongoing since March 2022 and introduces programmable storage capabilities. The goal is to improve integration between on-chain smart contracts and off-chain data providers. However, due to increased gas consumption for on-chain verification, transaction initiation is expected to become more expensive.
Enterprise-level partnerships
CME adds Filecoin to price index
CME began publishing FIL reference rates and price benchmarks in October 2022. While this development does not directly translate into the creation of tradable FIL-backed futures contracts, the inclusion of FIL tokens may increase Filecoin's visibility in traditional financial markets. This may further lead to better funding opportunities and partnerships for Filecoin, as well as enhance the roadmap and potential collaborations.
Protocol Labs Partnership with Ernst & Young and Seagate
Protocol Labs, the creator of Filecoin, has formed a partnership with Ernst & Young and Seagate to support enterprise-level decentralized data storage solutions. If the partnership is successful and can attract institutions to decentralized data storage, Filecoin may play an important role in the storage and security of enterprise-level data.
Key Events
ETHBogota & ETHIndia
Filecoin and IPFS sponsored the Ethereum-based hackathon ETHBogota in October 2022 and ETHIndia in early December 2022. Filecoin and IPFS jointly provided $20,000, while ETHIndia provided a total prize pool of over $350,000. Filecoin and IPFS contributed $20,000 from ETHBogota's $500,000+ prize pool.
Sustainable Blockchain Summit
Filecoin Green, a fork of Filecoin focused on promoting data transparency in the energy sector, attended the Sustainable Blockchain Summit in October 2022. Several energy experts from Filecoin delivered keynote speeches, including:
A building block for a regenerative economy: Unlocking carbon market interoperability
IN Lisbon
Filecoin hosted FIL in Lisbon in November 2022, bringing together over 65 speakers including developers, storage providers, ecosystem participants, and users. The conference hosted working groups, hackathons, learning opportunities such as IPFS Camp, side events, social events, and more. One of the many highlights of the conference included presentations that highlighted the value of data security and transparency, including:
From the CIA to Amazon: How MuckRock makes data transparent Opening the door to the library of democracy Unreliable evidence: Starling Labs documents the war in Ukraine
FEVM Hackathon
The hackathon, which took place in December 2022, aimed to leverage Filecoin’s infrastructure to address highly specific and unique data needs, such as:
Koios: Codeless Data DAO Platform ZKsig NFTs: Access Control to the Marketplace DataMarket: Data Purchasing and Checkout Functionality Roadmap
2022 Review
In 2022, Filecoin rolled out a series of updates to increase the network's storage capacity. The increased capacity makes data easier to retrieve, enabling more real-world use cases for its core product. While not yet live on the mainnet, the 2022 update lays the foundation for smart contracts to interact with Filecoin's data capabilities.
Outlook 2023
To bridge progress from 2022 to 2023, Filecoin continues to improve the minimum viable product (MVP) of its data computation product. The first step to integrating FVM into filecoin in Q1'23 is to integrate EVM compatibility. Other improvements will include L2 functionality, layered consensus, and sealing as a service. Through the FVM-incentivized buildernet and testnet, Filecoin hopes to establish new and strengthen existing partnerships to better promote product growth within the data infrastructure community.
Summarize
Q4 2022 marked an uptick in Filecoin usage as active storage transactions grew 10% quarter-over-quarter. While storage capacity is down 5% from its all-time high, storage utilization is growing 18 times faster than storage capacity year-over-year. While decentralized storage is still in its early stages, the Filecoin ecosystem is thriving with over 600 projects currently building on Filecoin.
A successful launch of the Filecoin VM could enable the next generation of applications beyond storage. Prominent examples include permanent storage (similar to Arweave), undercollateralized lending to storage providers, and decentralized computing.
If Filecoin continues to meet demand, it has the opportunity to become the dominant provider of decentralized storage and cloud services for Web3 and traditional applications. Filecoin must continue to prove its reliability as a storage provider and potentially become an enabler for a variety of data-intensive services.