Messari: Filecoin Status Report for the Second Quarter of 2023

Original source: Filecoin Network

The main points

• The Filecoin storage market continues to grow in the second quarter of 2023, with ** active transaction volume increasing by 64% quarter-on-quarter. **
• Storage utilization increased from approximately 4% in 1Q23 to nearly 8% in 2Q23 due to a 12% quarter-over-quarter decline in storage capacity.
• Q2 2023 fee** revenue growth of 91%** (up 67% in USD), driven by a 64% sequential increase in active storage transactions and a 60% increase in the number of large dataset customers.
• The Filecoin Virtual Machine (FVM) release introduces Ethereum-style smart contracts into Filecoin, which will facilitate new use cases in areas including liquidity staking, persistent storage, and distributed computing.

Filecoin basic information

There is a serious problem with relying on 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 (IPFS). IPFS is a distributed data storage and sharing layer for the Filecoin network. Filecoin regularly verifies data storage validity and dynamically prices storage transactions based on supply and demand, rather than a fixed pricing strategy.

A storage transaction proposal is like a contract with a service level agreement (SLA) - the user pays the storage provider to store data for a specified period. To ensure data security, Filecoin uses an encryption economics incentive model to periodically verify storage through zero-knowledge proofs. In order to motivate storage providers to participate in storage transactions, Filecoin will use the network's native token FIL as a reward. If the storage provider fails to provide reliable online time or takes malicious actions against the network, it will also be punished accordingly (slashed).

To retrieve data, Filecoin users pay retrieval providers to access the data. Unlike on-chain transactions where transaction proposals are stored, retrieving transaction proposals settles fees off-chain, making retrieval faster.

The Filecoin Virtual Machine, released in March 2023, introduces Ethereum-style smart contracts into Filecoin, which will facilitate new use cases in areas including liquid staking, persistent storage, and distributed computing.

Key indicators

Performance Analysis

The Filecoin blockchain is used by both the demand side of the network (such as users who need to store data) and the supply side (such as storage providers who can provide spare space), and they all generate revenue for the protocol.

income

Filecoin's revenue framework is similar to Ethereum's because its gas system is based on the EIP-1559 improvement proposal. This gas system consists of network fees that are consumed to compensate for system resource usage.

Agreement income

According to the Messari revenue analysis (, Filecoin protocol revenue includes the sum of the following four items:

• Base fees - depending on message congestion, any proof of storage is required.
• Batch fees (Batch fees) - used when storing proofs in batches.
• Overestimation fees - Used when optimizing gas.
• Penalty fees - fines when storage providers fail.

FIL Fee Agreement revenue increased 91% to FIL 2.5 million in 2Q13 (67% increase in USD to $11.5 million). Protocol revenue growth was consistent with a 64% increase in active storage transaction volume and a 60% increase in the number of customers joining large datasets.

While FIL base fees increased approximately 3x quarter-on-quarter, liquidated damages continued to decline, falling 17% quarter-on-quarter and 29% from their peak of $700,000 in Q4 2022. The reason for the high level of liquidated damages in the past may be due to the storage provider terminating the sector (the basic unit of storage) before the agreed storage transaction period. One possible explanation is that the FIL/USD++++++++ price dislocation affects the profitability of storage providers.

The only part of the FIL fee that is not consumed by the protocol is the "tip" fee charged by block miners. This mechanism is used to speed up transactions on the supply side of the network. Therefore, the "tip" fee can be considered as supply-side revenue.

Supply side income

Filecoin supply-side income includes:

• Block rewards distributed by the network to storage providers.
• Storage transaction proposal (deal) payment anchored by legal contract.
• "tips" fee for expedited transactions.

In the second quarter of 2023, block rewards constitute more than 99.9% of supply-side revenue, while "tips" only account for a small part. The new FIL token casting mechanism relies on the following two items:

• Exponential decay mode (30% total): To encourage participation, block rewards are highest early on. Decays exponentially over time.
• Baseline mode (70% total): Block rewards are allocated as storage capacity increases.

The combination of these two models helps to maintain participation after the early block reward distribution phase of the network (see exponential decay model), and also helps to continue to reward the additional value brought to the network by increasing network storage capacity (see baseline model).

Unlike demand-side revenue, supply-side revenue fell 7% in 2Q13 and currently stands at 17.6 million FIL (down 16% in USD). Such a decline is related to the reduction in the overall FIL reward issuance brought about by the exponential decay mode and the baseline casting mode. The decrease in FIL reward issuance is likely to continue in the coming quarters.

Usage Status

Active storage transactions between storage users and storage providers propose stored data that can measure Filecoin storage demand from Web2 and Web3 customers.

Storage transaction proposal (Deals)

Near-zero storage fees may further encourage users to store data processed by transaction proposals via Filecoin. In the second quarter of 2023, nearly 954 PiB of data was stored on the Filecoin network through active transactions, a quarter-on-quarter increase of 64%.

In the second quarter of 2023, daily transaction volume increased by 47%, mainly due to the Filecoin Plus (Fil+) plan to issue higher rewards to storage providers participating in verified deals. This new dynamic encourages the use of real data to build new storage transaction proposals and prevents abuse of network incentives. It also allows storage providers to compete with each other, reducing fees.

A breakdown of active storage transactions by industry use case shows that the industries using Filecoin the most are technology (41%) and natural resources (31%).

Serve

To further encourage usage, Filecoin offers two services - NFT.Storage and Web3.Storage. They provide an easy user interface for end users and act as aggregators, bundling and storing data from multiple users at storage providers.

The NFT.Storage storage service provides a simple user interface for storing NFT content and metadata on Filecoin. Instead, Web3.Storage simplifies the process of storing and retrieving Web3 data for Filecoin developers and end users. Both services offer free Filecoin storage to end users through participation in the Fil+ rewards program. Overall, both services will see significant growth in the second quarter of 2023 in terms of active transaction data. NFT.Storage increased by 12% month-on-month, and Web3.Storage increased by 19%.

User

According to Messari's guidelines for distributed storage networks, Filecoin aims to provide cold storage solutions (such as archiving and recovery) for enterprises and developers. Its competitive pricing and easy access make it an attractive option for Web2 customers looking for a cost-effective alternative to storing large volumes of archived data.

As of the end of the second quarter of 2023, a total of 1,750 customers have registered datasets on Filecoin. Of these customers, 338 have introduced large datasets (such as datasets with storage sizes greater than 1,000 TiB), a 60% increase from 211 in Q1 2023. These clients include the City of New York, the USC Shoah Foundation, and Web3 platforms such as OpenSea. Also bringing data into the Filecoin network are:

• UC Berkeley collaborates with Seal Storage on storage physics research.
• GenRAIT uses Estuary to store key genomic data on Filecoin.
• Research center Starling Labs stores sensitive digital records of human history.
• Ewesion (China's fastest growing website for photos, illustrations and vector files) uses Filecoin to store data.

This accelerating trend of usage growth is further reflected in Filecoin's overall utilization relative to its storage capacity.

Utilization and Capacity

After reaching a new high in the second quarter of 2022, Filecoin's average raw byte storage capacity decreased by 12% from the same period last year, and remained stable in the third quarter of 2022. Meanwhile, storage utilization relative to total available storage capacity rose from 4.1% in 1Q23 to 7.6% in 2Q23. This growth is a positive sign for Filecoin adoption.

Search

To meet storage retrieval needs, a content delivery network (CDN) for Filecoin and IPFS, also known as the Saturn project, is currently being developed. The Saturn project aims to serve the Filecoin retrieval market with fast and low-cost content delivery, and its node operators fulfill retrieval requests by earning FIL from a pool of approximately 30,000 FIL per month.

In terms of performance, the Saturn project aims to be on par with or even surpass IPFS Gateway. Its focus is on improving retrieval speed and performance. Most of the data is mirrored from IPFS.

In Q2 2023, Saturn search requests reached similar levels to Q1 2023, a 58% increase from Q4 2023. At the end of Q2 2023, there were 3,444 nodes, a 148% increase from 1,391 nodes at the end of Q1 2023. Node distribution is as follows: North America (40%), Europe (27%), Asia (24%) and other regions (9%). An overview of Saturn's performance will be presented in Messari's Q3 2023 State of Filecoin report.

FVM Utilization

The Filecoin Virtual Machine (FVM) brings Ethereum-style smart contracts to Filecoin, unlocking new ways to help storage providers obtain FIL collateral, supporting use cases including liquid staking, perpetual storage, and distributed computing.

As of June 30, 2023, more than 2,300 special contracts have been deployed on FVM, generating more than 250,000 transactions and consuming more than 7% of Filecoin's gas usage in the second quarter. Notably, according to DeFi Llama, Filecoin has already started accumulating TVL from liquidity staking on FVM (such as GLIF: and STFIL:) and DeFi applications. Based on a total contract balance of over 2 million FIL as of June 30, liquid staking accounted for 80%, DeFi applications 5%, and other services 15%. The upcoming quarterly report will detail gas usage, fees, and TVL after the launch of FVM .

As Filecoin continues to gain new users and valuable datasets, it may become the basis for developing monetizable FVM data use cases. Furthermore, because FVM is compatible with Ethereum, existing Ethereum-based applications can be introduced to the Filecoin network without major changes to the code.

Ecological overview

The Filecoin ecosystem has been actively attracting developers and builders, regularly participating in events such as hackathons, accelerators, sponsorship programs, mentorship programs, and growth support. These programs are designed to help early-stage projects and teams grow to the potential of receiving financial support from Protocol Labs or its affiliated entities. The ecosystem is committed to introducing diverse use cases: from data infrastructure, streaming media, metaverse to games.

As of July 2023, there are 391 known projects being developed on the Filecoin, IPFS, and Protocol Labs network ecosystems. In June 2023, there were 180 projects from accelerators, up from 150 in March 2023. Most projects utilize Filecoin's applications and protocols to provide data services:

• Ocean Protocol: Data marketplace developer tools and platforms.
• Lighthouse: Perpetual data storage service with one-time payment pricing mechanism.
• Slate: A search engine that processes and shares personal data.
• Berty: Secure messaging and social media app.
• Dether: cash deposit and withdrawal and diversified financial transaction mechanism.
• Tableland: Distributed cloud database.

Contracts focused on media and entertainment include:

• Mona: 3D art gallery in the Metaverse.
• NFTwitch: NFT minting platform for Twich content.
• Huddle 01: Distributed video conferencing.
• OPGames: Game-related NFT minting.
• FileMarket: Web3 store builder and marketplace.
• Xone: Metaverse solution connecting artists and fans.

The following use cases aim to leverage the Filecoin infrastructure to drive domain-specific data needs:

• Koios: No-code data DAO platform.
• ZKsig NFTs: market access control mechanism.
• DataMarket: data purchase and settlement function.

As developers build applications on the network and integrate externally, the launch of the FVM virtual machine will likely bring significant growth to the Filecoin ecosystem.

Qualitative analysis

release version

Filecoin Data Tool

In order to improve the user's data upload experience, Filecoin launched the Filecoin Data Tool (FDT) project. FDT aims to simplify Filecoin data storage and management, can handle large-scale uploads of customer data, and is committed to providing a practical cloud developer experience (DX) comparable to Web2 cloud.

Interplanetary Consensus (IPC)

Filecoin publicly deployed the Interplanetary Consensus (IPC) framework for scaling for the first time. IPC addresses the challenges of transaction volume and application heterogeneity by creating and executing hierarchical subnetworks of transactions, and also facilitates cross-subnetwork transactions.

Lassie

In May 2023, Filecoin released Lassie, a retrieval client that enables users to retrieve content-addressed data (using CIDs) from Filecoin or IPFS without running a single node. Developers can also use Lassie as a data retrieval library in their applications.

V19 and V20 Network Upgrade

The V19 network upgrade (Lightning) is the fulfillment of FIP-0060, which improves the block verification time and overall network performance. This upgrade solves the problems of chain quality degradation and synchronization stability reported by network users; the V20 network upgrade (Thunder) is the fulfillment of FIP-0061, which introduces the Lotus V1.2 2 patch release network upgrade. The activation of the epoch patch and the implementation of FIP-0052 will be done in subsequent network upgrades.

Ecology

With the launch of FVM, the Filecoin ecosystem will continue to expand. Notable integrations include Brave Wallet support for Filecoin FVM and IPFS backup NFTs, and Spheron’s Filecoin integration. Also, Axelar and Celer Network launched bridging support for Filecoin, making it interoperable with networks like Ethereum, BNB Smart Chain, and Polygon.

According to reports, as of now, FVM has deployed multiple applications in various fields such as infrastructure tools, storage and cloud services, education, science and public interest, media and entertainment, and Filecoin.

For a list of projects deployed on Filecoin's FVM, please visit this link.

Key events and plans

SEC (US Securities and Exchange Commission) considers Filecoin to be a security

In response to the SEC's classification of Filecoin as meeting the definition of a security, Protocol Labs issued a statement via 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 prizes to participants of the online hackathon. Filecoin also launched the FVM Dataverse Hackathon program to encourage developers to build applications on top of FVM.

Bug Bounty Program

Filecoin has updated its bug bounty program on Immunefi, increasing rewards for critical issues (up to $500,000). It also expanded the scope of the program to include programmable features.

route map

IPC: A full release of IPC is planned for Q3 2022, including development tools and documentation.

Axelar Integration: The Axelar team released details of its integration with the Filecoin Virtual Machine (FVM). Its purpose is to provide application developers in any connected blockchain ecosystem with FVM capabilities for storing, funding and validating data, and processing fees. This integration aims to use axelar-packaged assets as a typical representative of bridging assets in the Filecoin ecosystem, thereby improving the liquidity of FVM DEX and AMM. It will also use Axelar GMP to enable smart contracts on any chain to call Filecoin functions.

Long-term roadmap: The next long-term improvement plans include L2 layer capabilities, hierarchical consensus, and packaging as a service. Through the FVM virtual machine, Filecoin aims to establish new partnerships and strengthen existing partnerships, so as to better promote the growth of data infrastructure products in the community.

Summarize

Filecoin storage usage accelerated in the second quarter of 2023, with active storage transactions increasing by 64% quarter-on-quarter. While storage capacity fell 12% quarter-over-quarter, storage utilization rose from 4.1% in Q1 2023 to 7.6% in Q2 2023. Meanwhile, FIL fee revenue grew 91% (67% in USD terms) in 2Q23, driven by a 47% sequential increase in new storage transactions.

While distributed storage is still in its early stages of development, there is potential growth. The successful landing of the Filecoin virtual machine may allow the next generation of applications to function outside of storage. Some typical examples of these include perpetual storage (similar to Arweave), low-collateralized loans to storage providers, and distributed computing. If Filecoin continues to bring demand, it is expected to become an important provider of distributed storage and cloud services, providing services for Web3 and traditional applications.

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