The GLIF Pools Protocol and the Infinity Pool are sophisticated smart contract systems that come with many variables, dynamic sub-systems, and controls. In order to bring a Protocol and staking pool to market efficiently and without creating large amounts of complexity too early, the V1 GLIF Pools and the V1 Infinity Pool are designed to be as simple as possible in their first form. Their simplicity enables faster and safer audits, a lower learning curve (and associated barrier to entry), and overall, a smaller surface area of potential security threats or hard to find bugs. The cost, however, is that some parts of the Protocol and Infinity Pool leave room for better models that provide greater capital efficiency.
This blog post talks about the first version of GLIF Pools and the Infinity Pool, and lays out the roadmap to getting to more sophisticated, efficient, and decentralized models.
Progressive Decentralization
Ultimately, “DeFi” protocols should be controlled by their communities. Sustainable DeFi is different from TradFi in this sense — the technology can scale to democratize decision making among stakeholders. That being said, decentralization comes with costs — it’s difficult to make necessary changes quickly, should any need to be made. The Protocol also doesn’t have sufficient data for the community to be able to make objective decisions about certain variables and control structures. Lastly, it becomes difficult to protect the security of a decentralized Protocol at low levels of TVL because well funded organizations or individuals can attempt a financial hijacking of the Protocol’s governance.
For these reasons, the Protocol is initially launched in a centralized manner — where solely the GLIF core team has limited control over certain Protocol parameters, upgrade paths, and security mechanisms. These centralized controls and safety mechanisms exist for the safety of both stakers and Storage Providers.
The plan is to release control over the protocol, and to decentralize its governance as soon as its stable and is safe to do so. Safely decentralizing a DeFi protocol takes time, effort, and money to get right. Despite the limited centralized safeguards, GLIF Pools and the Infinity Pool are still the most decentralized option in the Filecoin DeFi landscape for both token holders and Storage Providers. If you are a FIL holder or a Storage Provider, and are not ok with the GLIF team having limited control over the systems, you should hold-off on getting involved for the time being.
Incremental Rollout
Both the underlying GLIF Pools protocol and Infinity Pool are undergoing an incremental rollout plan.
GLIF Pools incremental rollout
The goal of the Protocol is to enable hundreds of different pool models on top of it. However, doing so creates a lot of technical and economic complexity that needs time and money to develop safely. With that in mind, GLIF Pools launched with only one pool — The Infinity Pool — to reduce the number of variables to consider.
Multipool support is expected to land in Q4 of 2023.
Infinity Pool incremental rollout
The Infinity Pool is designed to deploy a conservative amount of FIL to a diverse group of Storage Providers. In order to attract a diverse group of SPs get in the pool, the pool limits the borrowing capacity of any single Storage Provider in the system.
The cost of deploying FIL using an incremental system described above is that the pool will take longer to operate efficiently than it would if it simply allowed a few SPs to borrow a large portion of the pool’s assets. The pool’s utilization rate can help a staker determine how “efficiently” the pool is being run.
Infinity Pool Simple Vs Sophisticated Fee Mechanism
Early post-launch feedback from the GLIF Community indicated that the Infinity Pool’s fee models were overly complex — it was presenting a bottleneck for Storage Providers because fees were too hard to predict. FIL holders also enjoy the benefits of predictable fees too.
On top of complex fee models, the greater Filecoin macro-economy is paying a historically small amount of block rewards to Storage Providers for mining (read more about Filecoin’s baseline minting model). Due to the reduced block rewards, Storage Providers simply cannot afford to pay much higher rates or else they begin to lose money. The Infinity Pool is meant to help the greater Filecoin economy reach sustainable capital efficiency, so it will not charge fees that Storage Providers can’t pay, especially when Filecoin’s block rewards are unusually low.
With this information in mind, the Infinity Pool implements a simple-to-start and Storage Provider friendly fee model that is initially fixed at 18% per year. This fee model is easy to understand and is affordable for Storage Providers.
The V2 fee model will account for fluctuations in the underlying Filecoin economy’s block rewards. If the network’s block rewards continue to drop, the fees Storage Providers have to pay will decrease. On the contrary, when the network begins to pay more rewards again, the fees paid by Storage Providers will rise.
Infinity Pool Simple vs Sophisticated Exit Mechanism
The Filecoin network requires Filecoin Storage Providers to lock up FIL as pledge collateral in order to mine rewards — usually for 18 months. As a result, the underlying FIL becomes illiquid for long durations, which makes processing exits a tricky challenge.
As is the theme with this post — the first Infinity Pool exit mechanism will be simple and work for a large number of use cases, yet suboptimal in terms of its inefficiency. The mechanism allows stakers to redeem FIL from their iFIL at the current iFIL price, so long as the pool has the liquidity to process the exit. The pool holds 10% of it assets as a reserve for exits.
If the pool begins to use the reserves, SPs cannot borrow funds from the pool until the reserves are rebuilt again.
Optimal models
The V2 exit mechanism will likely involve a form of duration vaults — where long-term stakers can earn more fees, and generate daily liquidity for short-term stakers. This will take some time to develop properly.
Additionally, once the GLIF Pools Protocol has multiple pools in production, there are interesting opportunities to create unified exit liquidity. These models will be explored and written about in more depth over the coming months.
Conclusion
The GLIF Pools Protocol and Infinity Pool are ready for their V1 primetime. Instead of aiming for V2 models right away, the V1 models have allowed the team to launch the Protocol and pool in a reasonable time frame, without spending the project’s entire budget on security audits.
