Messari: Filecoin Q2 2023 Status Report
Original source: Filecoin Network
Main Points
The Filecoin storage market continued to grow in the second quarter of 2023, with a 64% increase in active transaction volume.
Due to a 12% decrease in storage capacity, storage utilization increased from approximately 4% in the first quarter of 2023 to nearly 8% in the second quarter of 2023.
Driven by a 64% increase in active storage transaction volume and a 60% increase in the number of large-scale dataset clients, fee revenue increased by 91% in the second quarter of 2023 (67% increase in USD terms).
The release of the Filecoin Virtual Machine (FVM) will introduce Ethereum-style smart contracts to Filecoin, promoting new use cases in areas such as liquidity staking, perpetual storage, and distributed computing.
Filecoin Basic Information
There is a serious problem with centralized data storage: it is difficult to systematically verify the integrity of stored data. Today, the Filecoin storage network is a peer-to-peer version of Amazon S3, built on top of the InterPlanetary File System (IPFS). IPFS serves as the distributed data storage and sharing layer for the Filecoin network. Filecoin periodically verifies the validity of stored data and prices storage transactions dynamically based on supply and demand, rather than fixed pricing strategies.
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 utilizes an incentive model based on cryptographic economics and regularly validates storage through zero-knowledge proofs. Filecoin rewards storage providers with its native token FIL as an incentive to participate in storage transactions. If a storage provider fails to provide reliable online time or engages in malicious behavior on the network, they may be subject to corresponding penalties (slashed).
To retrieve data, Filecoin users pay fees to retrieval providers to access the data. Unlike on-chain settlement of storage transaction proposals, retrieval transaction proposals settle fees off-chain, speeding up the retrieval process.
Filecoin Virtual Machine, released in March 2023, will introduce Ethereum-style smart contracts to Filecoin, which will facilitate new use cases in areas like liquidity staking, perpetual storage, and distributed computing.
Key Metrics
Performance Analysis
Filecoin blockchain is used by both the network demand side (such as users needing storage) and the supply side (such as storage providers with available space), both of which generate revenue for this protocol.
Revenue
Filecoin revenue framework is similar to Ethereum, as its gas system is based on the EIP-1559 improvement proposal. This gas system consists of network fees that are consumed to compensate for the use of system resources.
Protocol revenue
According to Messari revenue analysis, Filecoin protocol revenue consists of the following four components:
Base fees - Depends on message congestion, required for any storage proof.
Batch fees - Used when batching storage proofs.
Overestimation fees - used for optimizing gas.
Penalty fees - fines when storage provider fails.
FIL fee protocol revenue grew by 91% in the second quarter of 2013, reaching 2.5 million FIL (an increase of 67% in USD, reaching $11.5 million). The growth in protocol revenue is consistent with the 64% increase in active storage transactions and the 60% increase in the number of large data set customers.
Although FIL basic fees have increased by about 3 times on a quarterly basis, penalty fees have continued to decline, decreasing by 17% on a quarterly basis, a 29% decrease compared to the peak of $700,000 in the fourth quarter of 2022. The reason for the high level of penalty fees 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 misalignment of the FIL/USD price has affected the profitability of storage providers.
The only part of the FIL fees that is not consumed by the protocol is the "tip" fees charged by block miners. This mechanism is used to accelerate transactions on the supply side of the network. Therefore, "tip" fees can be considered as supply-side revenue.
Supply-Side Revenue
Filecoin supply-side revenue includes:
Block rewards distributed to storage providers by the network.
Payment for storage proposal deals anchored by legal contracts.
"Tips" fees for transaction acceleration.
In the second quarter of 2023, block rewards accounted for over 99.9% of the supply-side income, while "tips" only represented a small portion. The new FIL token minting mechanism relies on the following two factors: Baseline minting allocation.
Exponential decay mode (30% of total): Block rewards are highest in the early stages to encourage participation. They decay exponentially over time.
Baseline mode (70% of total): Block rewards are allocated based on the increase in storage capacity.
The combination of these two modes helps maintain participation after the end of the block reward distribution phase in the early stages of the network (see exponential decay mode), and continues to reward the additional value brought to the network by the increase in storage capacity (see baseline mode).
Unlike demand-side income, supply-side income decreased by 7% in the second quarter of 2013 and is currently 17.6 million FIL (a 16% decrease in USD valuation). This decrease is related to the overall decrease in FIL reward issuance caused by the exponential decay mode and baseline minting mode. The reduction in FIL reward issuance may continue in the coming quarters.
Usage
The data stored in active storage deal proposals reached between storage users and storage providers can measure Filecoin storage demand from both Web2 and Web3 clients.
Storage Deal Proposals
Near-zero storage costs may further encourage users to store data through Filecoin storage transactions. In the second quarter of 2023, nearly 954 PiB of data was stored on the Filecoin network through active transactions, a 64% increase compared to the previous quarter.
In the second quarter of 2023, daily transaction volume increased by 47%, mainly due to the Filecoin Plus (Fil+) program providing higher rewards to storage providers participating in verified deals. This new dynamic encourages the use of real data to create new storage transaction proposals and prevents abuse of the network's incentive mechanism. It also promotes competition among storage providers, thereby reducing costs.
According to industry use case breakdown of active storage transactions, the most utilized industries with Filecoin are Technology (41%) and Natural Resources (31%).
Services
To further encourage usage, Filecoin offers two services - NFT.Storage and Web3.Storage. They provide end users with simple user interfaces and act as aggregators, bundling and storing data from multiple users with storage providers in the future.
NFT.Storage provides a user-friendly interface for storing NFT content and metadata on Filecoin. On the other hand, Web3.Storage simplifies the process for Filecoin developers and end users to store and retrieve Web3 data. Through participation in the Fil+ Rewards program, both services can provide Filecoin storage for end users free of charge. Overall, based on active transaction data, both services have seen significant growth in the second quarter of 2023. NFT.Storage has grown by 12% and Web3.Storage has grown by 19%.
Users
According to Messari's guide on distributed storage networks, Filecoin aims to provide enterprise and developer solutions for cold storage, such as archiving and recovery. Its competitive pricing and easy accessibility make it an attractive alternative for Web2 customers seeking cost-effective bulk data storage options.
As of the end of the second quarter of 2023, a total of 1750 clients have registered datasets on Filecoin. Among these clients, 338 have introduced large datasets (such as datasets with storage sizes exceeding 1000 TiB), an increase of 60% compared to the first quarter of 2023, which had 211 clients. These clients include New York City, USC Shoah Foundation, and Web3 platforms such as OpenSea. Other entities that have introduced data to the Filecoin network include:
UC Berkeley collaborating with Seal Storage for storage physics research.
GenRAIT utilizing Estuary to store critical genomic data on Filecoin.
Research center Starling Lab stores sensitive digital records of human history.
Ewesion (China's fastest-growing photo, illustration, and vector file website) uses Filecoin to store data.
This accelerating trend in usage growth is further reflected in Filecoin's overall utilization rate relative to its storage capacity.
Utilization Rate and Capacity
After reaching a new high in the second quarter of 2022, Filecoin's average raw byte storage capacity decreased by 12% compared to the same period last year, stabilizing in the third quarter of 2022. At the same time, the storage utilization rate relative to the 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.
Retrieval
To meet storage and retrieval needs, a content delivery network (CDN) called the Saturn project is currently being developed for Filecoin and IPFS. The Saturn project aims to serve the Filecoin retrieval market with fast and low-cost content delivery services, where node operators earn FIL from a monthly fund pool of approximately 30,000 FIL to fulfill retrieval requests.
In terms of performance, the Saturn project's goal is to match or even surpass the IPFS Gateway, focusing on improving retrieval speed and performance. Most of the data is sourced from IPFS mirrors.
2023 Q2, Saturn retrieval requests reached a similar level as Q1 2023, growing by 58% compared to Q4 2023. As of the end of Q2 2023, there are a total of 3,444 nodes, a 148% increase from the end of Q1 2023. The node distribution is as follows: North America (40%), Europe (27%), Asia (24%), and other regions (9%). Saturn's performance overview will be discussed in Messari's Q3 2023 Filecoin status report.
FVM Usage
Filecoin Virtual Machine (FVM) brings Ethereum-style smart contracts to Filecoin, unlocking new methods to help storage providers obtain FIL collateral, supporting use cases including liquidity staking, perpetual storage, and distributed computing.
As of June 30, 2023, FVM has deployed over 2300 special contracts, resulting in over 250,000 transactions and consuming over 7% of Filecoin's gas usage in the second quarter, according to DeFi Llama. It is worth noting that Filecoin has started accumulating 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 over 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.
With the continuous acquisition of new users and valuable datasets, Filecoin may become the foundation for developing monetized FVM data use cases. Additionally, existing Ethereum-based applications can be introduced to the Filecoin network without significant code changes, as FVM is Ethereum-compatible.
Ecosystem Overview
Filecoin Ecosystem has been actively attracting developers and builders, regularly participating in activities such as hackathons, accelerators, sponsorship programs, mentorship programs, and growth support. These programs aim to help early-stage projects and teams grow and have the potential to receive funding support from Protocol Labs or its affiliated entities. The ecosystem is dedicated to introducing diverse use cases, ranging from data infrastructure, streaming media, metaverse, to gaming.
As of July 2023, there are 391 known projects being developed on the Filecoin, IPFS, and Protocol Labs network ecosystem. In June 2023, there were 180 projects from accelerators, surpassing the 150 projects in March 2023. Most projects utilize Filecoin's applications and protocols to provide data services:
Ocean Protocol: Developer tools and platform for data markets.
Lighthouse: Perpetual data storage service with one-time payment pricing mechanism.
Slate: Search engine for processing and sharing personal data.
Berty: Secure messaging and social media application.
Dether: Cash access and diversified financial transaction mechanism.
Tableland: Distributed cloud database.
Contract focuses on media and entertainment:
Mona: 3D art gallery in the metaverse.
NFTwitch: NFT minting platform for Twitch content.
Huddle 01: Distributed video conferencing.
OPGames: NFT minting for gaming.
FileMarket: Web3 store builder and marketplace.
Xone: Metaverse solution connecting artists and fans.
The following use cases aim to utilize Filecoin infrastructure to drive specific data requirements:
Koios: No-code data DAO platform.
ZKsig NFTs: Marketplace access control mechanism.
DataMarket: Data purchase and settlement features.
With developers building applications and integrating from the outside on the network, the launch of the FVM virtual machine may bring significant growth to the Filecoin ecosystem.
Qualitative Analysis
Release Version
Filecoin Data Tools
To enhance the user's data uploading experience, Filecoin has launched the Filecoin Data Tools (FDT) project. FDT aims to simplify Filecoin data storage and management, enabling the handling of large-scale customer data uploads, and is committed to providing practical cloud developer experience (DX) comparable to Web2 Cloud.
Inter-Planetary Consensus (IPC)
Filecoin has publicly deployed the Inter-Planetary Consensus (IPC) framework for scalability for the first time. IPC addresses the challenges in transaction volume and application heterogeneity by creating and executing layered subnets for transactions, while also facilitating cross-subnet transactions.
Lassie
May 2023, Filecoin released Lassie, a retrieval client that allows users to retrieve content addressing data (using CID) from Filecoin or IPFS without running individual nodes. Developers can also integrate Lassie as a data retrieval library in their applications.
V19 and V20 Network Upgrades
V19 Network Upgrade (Lightning) is the realization of FIP-0060 , which improves block verification time and overall network performance. This upgrade addresses the reported degradation of chain quality and synchronization stability issues reported by users; V20 Network Upgrade (Thunder) is the realization of FIP-0061, introducing patches from Lotus V1.2.2 in the network upgrade. Activation epoch patch and implementation of FIP-0052 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 of NFTs, as well as Spheron's integration with Filecoin. Additionally, Axelar and Celer Network have introduced bridge support for Filecoin, enabling interoperability with networks such as Ethereum, BNB Smart Chain, and Polygon.
According to reports, FVM has already deployed multiple applications in various fields, including infrastructure tools, storage and cloud services, education, science and public interest, media and entertainment, and Filecoin.
Please refer to this link for a list of projects deployed on Filecoin's FVM.
Key Events and Plans
The SEC (U.S. Securities and Exchange Commission) considers Filecoin to be a security
As a response to SEC's classification of Filecoin as a security, Protocol Labs released a statement on Twitter 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 rewards to participants of the online hackathon. Filecoin also launched the FVM Dataverse Hackathon program, encouraging developers to build applications on FVM.
Bug Bounty Program
Filecoin updated its bug bounty program on Immunefi, increasing rewards for critical issues (up to $500,000). The program has also been expanded to include programmable functionalities.
Roadmap
IPC: The complete version of IPC's roadmap will be released in the third quarter of 2022, including development tools and documentation.
Axelar Integration: The Axelar team has announced its integration with the Filecoin Virtual Machine (FVM). The purpose of this integration is to provide FVM functionality for application developers in any connected blockchain ecosystem, enabling them to store, fund, and verify data, as well as process fees. This integration aims to improve the liquidity of FVM DEX and AMM by using Axelar-wrapped assets as typical representatives of bridged assets in the Filecoin ecosystem. It will also utilize Axelar GMP to enable smart contracts on any chain to access Filecoin's functionality.
Long-term roadmap: The upcoming long-term improvement plans include L2 layer capabilities, hierarchical consensus, and encapsulation as a service. Through the FVM virtual machine, Filecoin aims to establish new partnerships and strengthen existing ones, thereby better promoting the product growth of data infrastructure in the community.
Summary
Filecoin storage usage accelerated in Q2 2023, with a 64% increase in active storage transactions. Although storage capacity decreased by 12% compared to the previous quarter, storage utilization went up from 4.1% in Q1 2023 to 7.6% in Q2 2023. Meanwhile, driven by a 47% growth in new storage transactions, FIL fee revenue increased by 91% in Q2 2023 (67% in USD terms).
Although distributed storage is still in its early stages of development, there is potential for future growth. The successful implementation of the Filecoin virtual machine could enable the next generation of applications to go beyond storage. Some typical examples include perpetual storage (similar to Arweave), low-collateral loans issued to storage providers, and distributed computing. If Filecoin continues to drive demand, it has the potential to become a significant provider of distributed storage and cloud services, serving both Web3 and traditional applications.
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