This analysis is for informational purposes only, and should not be used for investment decisions. As always, do your own research.
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More Than Storage
Filecoin is a network that orchestrates distributed cloud services. Currently, their main offering is storage, but they are taking steps to evolve into data retrieval, and compute. Essentially looking to take over AWS and the cloud industry as a whole.
IPFS is the underlying system to store and retrieve distributed data. An analogy is me guiding you to find a book. I may tell you a location to go look for the book: “third shelve, the first row and 5th book”. Or, I may tell you a description of the book, title, author, ISBN, cover art, and you can ask around and find the nearest copy available. The current internet storage relies on the former, while IPFS uses the latter.
The main benefit of IPFS is data retrieval times and costs, if there are multiple copies of data, retrieving the copy which is closest to you is faster, and cheaper.
Filecoin’s native token $FIL is the key unlock for driving economic growth and adoption, and it seems to have been working so far. Since launch, it has grown to 11 EiB’s of capacity, with 1400 PiB being used, growing from 200 PiB a year ago, and 28 PiB two years ago.
It’s crystal clear, over the past years, Filecoin has proven to become a sustainable data storage solution, growing usage by ~10x for two years straight.
Early Days
Juan Benet is the sole founder of Protocol Labs. After graduating from BS and MS in Computer Science from Stanford, Juan decided to pursue his passion for distributed systems and founded Protocol Labs in 2014, an organization for research, development and deployment of network protocols, to improve the internet.
After YC in 2014, Protocol Labs raised a seed round in 2016 from led by BlueYard, USV, and angels like Naval and Fred Ehrsam.
Then in 2017, Filecoin had one of the largest ICOs, raising 205M + a 52M presale with participation of Sequoia, a16z, and a double down from USV.
The ICO was done using their proprietary platform CoinList, which was acquired by AngelList, and the price per token was pegged at $1.
$FIL Tokenomics
The economics of Filecoin are usually controversial for their high inflation rates, but they make sense.
$FIL, the native token, is used to incentivize storage provision and orchestrate the different actors in the network. Storage providers (aka miners) mine $FIL by providing storage services, or committing capacity. Miners are subject to slashing if their storage does not pass the reliability check.
The main utility of $FIL is to pay for storage services, and more recently, to serve as a gas token for the FVM blockchain.
The maximum supply of $FIL is 2B
Up to 770M are minted based on the network’s performance, only if the network reaches a Yottabyte of capacity before 2040, which is 100,000x the current capacity
330M are released on a 6 year half life for mining rewards
300M are held in the mining reserve to incentivize future types of mining
Mining rewards are given 25% upfront, and the rest is vested linearly over 180 days
The remaining FIL are vested to the PL team over 6 years, and for seed/ICO investors for 3 years, so most of the investors have their tokens unlocked so far.
Filecoin foundation: 100M
Protocol Labs: 300M
Seed/ICO Investors: 300M
Tokens used for transaction gas are burned: ~40M have been burned so far.
The key components of the tokenomics are
770M tokens are not released if the network is not successful by 2040, and dominates the storage market, this requires key cooperation between otherwise competitive stakeholders
Tokens are vested, specially for miners, the foundation, PL and investors
Filecoin can be staked, so as a holder you can borrow your FIL to miners (aka storage providers), which will use your FIL to stake, and you’ll receive a portion of their rewards. It’s more a borrowing than staking.
Traction
Usage
In Oct 2020, Filecoin Mainnet launched, with 1 EiB in capacity on the first month.
It has grown to ~11 EiB’s of capacity, with 1400 PiB (~12%) being used in 23Q3, growing from 200 PiB a year ago, and 28 PiB two years back. Compare this with the 133 TiB's of Arweave (closest competitor) is hosting (1000x less data), or the 4k TIB's of Sia (100x less).
Right now, ~2k clients use Filecoin, and 422 of them have uploaded large datasets (1k TiB+). Filecoin’s largest clients are research institutions like the CERN or Internet Archive, and crypto companies like Opensea, Solana and ChainSafe, but as retreival services are rolled out, it’s been able to bring in traditional B2B clients. To be clear, using Filecoin for storage is way more cheap than your traditional AWS S3 bucketsia.
Revenue
We will consider two things as revenue:
Protocol / Demand side revenue: Filecoin burns the protocol revenue paid by clients and providers for using the network (40M tokens so far).
Supply side revenue: The revenue that miners (aka storage providers) earn for providing and putting to use their storage capacity. This are the same as miner rewards.
In dollar terms, 23Q3 Protocol revenue is 0.8M, down from 1.8M a year ago. This decline is due to the initiative to reduce storage costs by 40%. Explaining the wide discrepancy between revenue growth and actual used storage.
Supply revenue is 14.8M, down from 20.4M a year ago. It’s been decreasing due to the nature of the exponential decay issuance of rewards.
Valuation
As of Oct 2023, $FIL is worth 3.79, up 3.79x from the ICO at $1, but shy from the $183 ATH in 2021.
The circulating supply is 460M, givin Filecoin a circulating market cap of 1.7B, and a fully diluted market cap of 7.5B. Compare this to Arweaves' 300M market cap (and 1000x less usage), or Sia's 170M.
Using Q3 figures, yearly revenue is ~62M, at a 10x multiple, valuation goes to 620M, but taking into account the 600% YoY usage growth, a fair valuation would be more akin of 620M*% YoY growth = 3.7B. A bit more than double the current valuation.
The Masterplan
Filecoin has a Masterplan in mind:
Build the largest decentralized storage network
Onboard and safeguard humanities data
Bring retrieval and compute capabilities to the data
To give a notion of how they’re doing:
In 2020, mainnet launched, and now there’s 10 EiB+ of storage capacity on the network, helping to accomplish step 1
In Q3 2023, 1400 PiB’s of storage where used, accomplishing a good chunk of step 2, but there’s a lot to go
For step 3, In Dec 2022, Saturn, a marketplace where anyone can provide Filecoin network data retrieval, and get paid in $FIL for doing so
In March 2023, the FVM launched. The FVM brings in smart contracts and programmability over the blockchain state
Kyle Samani from Multicoin recently pointed out the great unlock by the FVM: The atomic unit of Filecoin, data, can now become a financial primitive through smart contracts on the FVM. This means that certain datasets, or storage capacity in itself might be used as a financial primitive. Markets will be able to assign a fair market value to them, with all transactions using $FIL as the gas token.
We will see a huge influx of capital bridge over, and projects deploy on the FVM, mostly using data's financial primitive. One big step in this direction is the soon implementation of Uniswap v3 on the FVM. We will see what unfolds for Filecoin.
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