In this article, we discuss Filecoin Plus (Fil+), an incentive mechanism within the Filecoin network that encourages the onboarding of client data onto the Filecoin Network.
Introduction to Filecoin, Fil+, and Incentives to Store Data
Filecoin is a decentralized data storage network that aims to store humanity’s most important information. Miners in Filecoin, termed Storage Providers (SPs) do two things, (1) store client data (Fil+) and/or (2) commit capacity (CC) to the network, and receive block rewards in compensation.
SP rewards depend on the utility they provide to Filecoin. Because Filecoin aims to store humanity’s most important data, Fil+ explicitly increases the incentives to store verified client data with a 10x block reward multiplier. That is, an SP that stores 1 PiB of Fil+ data receives 10x the block rewards of an SP that commits 1 PiB of CC to the network. To take advantage of this incentive, the Fil+ SP must store data from a verified client’s DataCap allocation and also pledge 10x the collateral for a given amount of storage capacity.
The 10x multiplier dilutes costs, making hardware costs per unit FIL earned lower. This design intends to make it rational to onboard data instead of committing capacity when client demand is readily available.
The incentive has been effective at growing data onboarded. The proportion of Fil+ data onboarding has grown from less than 1% of raw byte power one year ago to around 90% today (20th August 2023). Figure 1 shows this growth.
A Minimum Multiplier for Storage
To understand why a multiplier is needed, we examined the net income profile of an SP who stores client data, but without the Fil+ subsidy. In Filecoin, this is termed as a Regular Deal. Monte-Carlo simulations, with distributions modeling the various costs and revenues that a Regular Deal SP and CC SP incur, reveal that Regular Deal SPs are not competitive with CC. This observation gives us the insight that storing data on Filecoin is not rational without an explicit incentive.
To quantify this, we can compute the multiplier required, such that Fil+ SPs are as profitable as CC SPs. This is then the minimum multiplier value needed to incentivize client data onboarding.
Figure 3 shows the minimum multiplier as a function of token price. We observe that the minimum multiplier needed increases sharply as the token price decreases.
Another perspective for the minimum multiplier is to look at it from the perspective of deal revenue. In Fig 4, we show the minimum multiplier needed for a Fil+ SP to be as profitable as a CC SP, for a given amount of deal revenue.
In both perspectives, we observe that a relatively large multiplier is necessary for the economics of data storage to work.
When Fil+ works and when it doesn’t
The mechanics of the Fil+ program have led to some abuse. To shed light on this, we created six business profiles for different types of SPs who may participate in the Filecoin network. The six profiles we modeled were CC SPs, Fil+ SPs, Regular Deal SPs, and two variants of SPs who abuse the Fil+ program in different ways (V1-Exploit and V2-Exploit in Figure 4, below). These abuse vectors include not storing redundant copies or not supporting data retrievability. Finally, we also simulate an SP who abuses the Fil+ program but incurs a penalty (V3-Exploit in Figure 4, below).
We then built a model that estimates net income for each profile, accounting for block rewards, income from deals with clients, costs associated with maintaining nodes that allow an SP to participate in Filecoin, and the token exchange rate. Since costs and deal income can vary greatly based on factors such as geography, we induce a prior distribution over these costs, run a Monte Carlo simulation sampling from these distributions, and rank the various business profiles based on net income. Two takeaways from these simulations are:
- We find that for 80% of the simulated cost and income scenarios, adopting a strategy that takes advantage of Fil+ maximizes net income. Fig. 2 shows these results in more detail.
- Applying penalties for abusing the Fil+ program is effective at making Fil+ abuse a less rational choice.
We invite the reader to experiment with our model through this interactive calculator. The reader can apply their own cost and income models and distributional priors, and explore how that affects different SP strategies in Filecoin.
A Pathway for Improving Filecoin Plus
Every system must evolve to stay relevant and adapt to its environment and circumstances. The Fil+ program should viewed in this light. The previous section highlighted some mechanisms by which Fil+ can be taken advantage of. What are ways to address these issues?
One way is to assess penalties for notaries or SPs abusing the Fil+ program. The Monte-Carlo simulations show that assessing penalties to Fil+ abusers is effective in reranking rational strategy. However, the big question is, how can you determine whether an entity is abusing the Fil+ program in a fair, efficient, and unbiased manner?
One approach could be similar to the verification game used by Truebit and the solver challenger framework used in the optimistic rollups. The process could begin with a Challenger requesting that a specific entity (the Solver) verify a specific aspect of their operation (such as retrievability or bandwidth, etc.). The Solver must then respond to this challenge within a time frame. This process can be iterative and escalated based on the specific requests and responses. Mechanisms would need to be implemented such that Challengers do not effectively Denial of Service attack Solvers. Conversely, Solvers must be incentivized to respond promptly to Challenger requests, but not at the expense of their business operation.
In this work, we explored some details of the Fil+ program. While the Fil+ program is not perfect, it is still essential for Filecoin to fulfill its mission of storing humanity’s most important data. Therefore, we call upon the community to generate ideas on how to improve the Fil+ program.
This article was made for informational purposes only. CryptoEconLab does not provide legal, tax, financial or investment advice. No party should act in reliance upon, or with the expectation of, any such advice.