CryptoEconomic Impacts of Universal Multipliers in the Filecoin Economy
In this article, we discuss the implications of FIP Discussion 833, a proposal by several Filecoin community members to increase the Quality Adjusted (QA) multipliers assigned to different types of sectors that can be onboarded onto the Filecoin network.
Introduction
Filecoin is a decentralized data storage network that aims to create an algorithmic market for cloud storage. Storage Providers (SPs) mine blocks on the Filecoin blockchain and: (1) store verified client data (Fil+) and/or (2) commit capacity (CC) or Regular Deals (RD) 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, it rewards SPs who store Fil+ data with a 10x QA multiplier. At the same time, SPs who commit capacity to the network receive a 1x QA multiplier. 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.
FIP Discussion 833 looks to change the relative incentives provided to CC and Fil+ storage sectors.
Description of FIP Discussion 833 & Modeling Approach
FIP Discussion 833 proposes to increase the QA multiplier to 5x for CC sectors and 20x for Fil+ sectors. At a high level, this changes the relative incentives of onboarding different sector types onto the Filecoin network by modulating the QA values provided to each sector type.
To analyze the effects of this change on the Filecoin network, we examined three main factors:
- Network KPIs — Power, Supply, Fil-on-Fil Returns (FoFR)
- Fiat ROI
- Fil+ Considerations
Our approach is to simulate the effect of this change on the Filecoin economy using a digital twin of the Filecoin Economy, mechaFIL. To explore the design space further, we explore several variations of the original proposal, outlined in Table 1.
Our simulations model several effects that can potentially result if an eventual QA multiplier FIP is passed:
- All variants of the FIP 833 discussion considered in the table above decrease the difference in relative incentives between onboarding CC and FIL+ sectors. Consequently, SPs could decide that it is more attractive for them to onboard CC sectors, which decreases the rate at which Fil+ sectors are onboarded onto the network.
- Some variants of the 833 discussion could result in increased locking. The token exchange rate could be sensitive to this development, and we explore various counterfactuals of the token’s exchange rate sensitivity.
Results
As expected, the 5/5/20 option has the largest changes on the Network KPIs. This option creates the largest boost in Network QAP, the largest increase in Network Locked, and the largest change to consensus pledge and Fil-on-Fil returns. From a fiat returns perspective, the 5/5/20 option provides the greatest benefit to current Fil+ Storage Providers, although it also provides absolute increases to Fiat ROI for CC Storage Providers. However, the delta in Fiat ROI between CC and Fil+ SPs in the 5/5/20 option is increased from the status quo. While every SP business model has different costs due to its uniqueness, under the cost assumptions of the analysis, there is an increased incentive to onboard Fil+ data rather than CC data. We will discuss later the implications of this with respect to Fil+ abuse, a topic introduced in this article.
For the 2.5/2.5/10 and 5/5/10 options, we observe a more nuanced effect on Network KPIs. Specifically, while all sectors now receive QA multipliers, the effect that this has on what kind of sectors and how many sectors are onboarded drives the Network KPIs. If there is a decreased rate of sectors onboarded which are Fil+, this counteracts the increased QA multiplier and the overall Network QAP can be the same as the status quo, or even lower. This is further complicated by any potential increases in onboarding rate that could result after the FIP passing. The 5/5/10 option reduces the delta in Fiat ROI between CC and Fil+ SPs the most. The 2.5/2.5/10 option also has the same effect, but to a lesser degree.
An important implication of the multiplier updates is that it changes the relative incentives of onboarding CC vs Fil+ sectors, from a Fiat ROI perspective. Consequently, it also changes the relative incentives of abusing the Fil+ program, a topic discussed in detail in this article. The hypothetical scenario here is that if CC is made sufficiently attractive to certain variants of Fil+, the rational strategy for a participant may be to onboard CC sectors rather than actively setting up the necessary infrastructure and procedures necessary to abuse Fil+. To quantify this, we compute the increase in Fiat ROI for different business profiles associated with Fil+ vs. onboarding CC sectors. If the change in Fiat ROI is lower for a given multiplier schedule than the status quo, the incentive to onboard Fil+ has been decreased by that amount. The reverse is also true; if the change in Fiat ROI is higher for a given multiplier schedule than the status-quo, the incentive to onboard Fil+ has been increased by that amount.
Fig 1, below, shows this for the case where sensitivity to locking is set to 0.25, token base exchange rate is $4, and we assume a 20% reduction in Fil+ onboarding rate as a result of the FIP. The specific values are computed using a cost profile that was previously described. We invite the reader to explore the tradeoffs by experimenting with different cost profiles and so forth with this calculator.
Conclusions
The CE impacts of increasing multipliers can be summarized as follows:
- Network RBP and Minting are unaffected unless the increasing multipliers policy increases onboarding.
- The choice of multiplier determines many of the network KPIs. Smaller relative increases to status-quo mean that two competing forces, namely, the increase in multiplier vs the potential decrease in Fil+ onboarding due to increased incentive for CC, will determine the network KPIs.
- Closing the gap between CC and FIL+ reduces the relative incentive to onboard Fil+ sectors and the incentive to cheat.
A more detailed analysis of the topics covered in this post can be found here. The interactive calculator to explore the modeling further can be found here.
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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.
