State of Filecoin Q1 2024

Key Insights

• Filecoin’s storage market grew in Q1'24, as active deals were up 9% QoQ. Utilization increased from 18% in Q4’23 to 23% in Q1’24, while storage capacity fell 14% QoQ.
• As of the end of Q1’24, over 2,000 clients have onboarded data on Filecoin, of which 508 onboarded large datasets (over 1,000 TiB in size), up 9% from 465 in Q4’23.
• One year after the launch of the Filecoin Virtual Machine (FVM) in Q1’23, the DeFi ecosystem continues to grow — with Pyth and Uniswap V3 (Oku.trade) launching in Q1’24 and deposits on GLIF up more than 2x QoQ.
• As of March 31, 2024, over 3,400 unique contracts were deployed on the FVM, up 26% QoQ from 2,700 at the end of Q4’23. Simultaneously, TVL on FVM surpassed $600 million in Q1’24, up almost 2x QoQ, driven largely by liquid staking activity.
• Besides growing its FVM ecosystem, Filecoin's focus is on increasing enterprise adoption in the near term, and on developing DePIN partnerships to leverage idle compute in the longer term.

Primer

Filecoin is building a marketplace for hardware — with the first service being storage. Filecoin is built on top of IPFS (the InterPlanetary File System). FIlecoin uses deals that price the storage based on a market of providers, instead of a fixed pricing structure. A storage deal is like a contract with a service level agreement (SLA) — users pay fees to storage providers to store data for a specified duration.

To keep data safe, Filecoin uses a cryptoeconomic incentive model to regularly verify the storage with zero-knowledge proofs. To incentivize storage providers to participate in deals, Filecoin rewards them with FIL, the network's native token. Storage providers are slashed in the event they either fail to provide reliable uptime or act maliciously against the network.

To retrieve data, Filecoin users pay a retrieval provider to fetch the data. Unlike storage deals, which involve transactions onchain, retrieval deals use payment channels to settle payments offchain, to enable faster retrieval. Besides storage and retrieval, Filecoin aims to offer an open market where compute power can be contracted to run over data, providing more efficient alternatives to traditional centralized systems.

Key protocol upgrades to enable compute-over-data services include smart contracts (the Filecoin Virtual Machine – FVM) and scaling (Interplanetary Consensus). The launch of the FVM in March 2023 brought Ethereum-style smart contracts to enable new use cases on Filecoin, including token leasing, perpetual storage, and data-intensive compute.

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Performance Analysis

The Filecoin network is used to store data decentrally by two parties:

• The demand side, i.e., storage users in need of data storage
• The supply side, i.e., storage providers with excess storage capacity.

Network

The amount of data stored in active deals between storage users and storage providers gauges the demand for Filecoin storage.

Deals

In Q1’24, Filecoin continued its adoption of decentralized storage through active deal growth. Nearly 1,900 PiB was stored on the Filecoin network through active deals in Q1'24, up 9% QoQ from 1,700 PiB in Q4’23 and up more than 3x YoY from 600 PiB in Q1’23.

Simultaneously, daily new deals continued to decrease by 11% QoQ to 3.3 PiB/day, after reaching an all-time high of 5 PiB/day in Q3’23. While new deals are still growing, this QoQ slowdown in daily new deals corresponds to an overall reduction in rewards to storage providers (as discussed later in the Rewards section). Moreover, the addition of new deals contributes to an increase in the utilization of the Filecoin network.

Utilization vs. Capacity

Filecoin’s storage utilization relative to the total available storage capacity increased to nearly 23% in Q1'24, up from 18% in Q4’23. While this increase is a positive sign in terms of Filecoin’s adoption through active storage deals, it requires the context of the network’s capacity.

In Q1’24, Filecoin experienced a 14% QoQ decline in average raw byte storage capacity to 8.1 EiB. The decline in storage capacity started approximately two years ago, after reaching its all-time high at nearly 17 EiB in Q2’22 and Q3’22.

The gradual decrease in average raw byte storage capacity was further reflected by the drop in the total number of storage providers, which declined to approximately 3,000 in Q1’24 after reaching an all-time high of over 4,100 in Q3’22.

Besides storage, Filecoin is increasingly utilized by decentralized protocols to access idle compute. For instance, the distributed compute platform io.net recentlyincorporated 1,500 GPUs from Filecoin storage providers in December 2023 to increase its GPU compute capacity.

Clients

As per Messari’s guide on decentralized storage networks, Filecoin is geared toward providing cold storage solutions (e.g., archival and recovery) for enterprises and developers. Low storage prices help attract traditional businesses seeking cost-effective alternatives for storing large amounts of archival data.

Examples of such client solutions include: Banyan — focused on bundling services for easier onboarding of enterprise clients; Seal — focused on storage onramps for large clients such asUC Berkeley,Starling Labs,the Atlas Experiment, andthe Casper Network; Steeldome — focused on data archival, backup, and recovery for enterprises. Other efforts beyond cold storage are driven by solutions from Lighthouse, RIBS, Retriev, and Flamenco, among others.

As of the end of Q1'24, 2,007 clients have onboarded datasets on Filecoin. Of those clients, 508 onboarded large datasets (i.e., datasets that exceed 1,000 TiB in storage size), up 9% from 465 in Q4’23. To encourage usage via active deals, several storage services are being offered, includingNFT.Storage, Web3.Storage,andSteeldome.

According to Filecoin’s client explorer, major clients range from The Starling Lab, to the NFT platform OpenSea, to Layer-1 network Solana. Further notable efforts that leverage the Filecoin network include:

• The Victor Chang Cardiac Research Institute safeguarding and sharing research data.
• Democracy’s Library storing datasets collected by the Internet Archive at the end of each American presidential administration.
• SETI Institute using Filecoin to store astronomical research data.
• UC Berkeley collaborating with Seal Storage for storing physics research.
• GenRAIT leveraging Estuary to store critical genomics data on Filecoin.
• Research center Starling Lab storing sensitive digital records of human history.
• Ewesion (China's fastest growing host of graphic files) using Filecoin for data preservation.
• DeSci Labs using decentralized data storage on Filecoin to enable research to be reproduced and independently verified by other researchers.
• Opscientia (OpSci) leveraging Filecoin to make it easier for scientists around the world to share data.
• Destor and Seal Storage collaborate on an AI data integrity improvement research project with Cyber SMART, an industry-university cooperative funded by the National Science Foundation and industry members.

An overview of featured clients leveraging the Filecoin network can be accessed here.

Retrievals

To serve storage retrieval needs, a content delivery network (CDN) for Filecoin and IPFS, called Project Saturn, was developed and is currently running in a closed beta. Saturn aims to serve retrieval in the Filecoin ecosystem through fast and low-cost content delivery. Saturn’s node operators are currently incentivized to fulfill retrieval requests by earning FIL, but they are expected to shift to demand-based incentives longer term.

Simultaneously, the Station app brings decentralized retrievals to desktops, while the SPARK and Voyager modules allow retrieval checks on the network. For context, Station uses idle compute resources and offers FIL rewards. As of March 2024, Station reached over 7,700 participants on its compute network.

Saturn's goal is to provide reliable content retrieval for both enterprise and crypto-native use cases. A recent example of customer deployment is Saturn’s retrieval support for the Solana NFT platform Metaplex.
With the pilot phase complete, Saturn is expected to move to an upgrade phase. Once in this phase, the existing CDN product will transition and re-launch as part of a more scalable, performant standalone retrieval protocol with its own incentive system throughout the next quarters.

FVM Traction

When the Filecoin Virtual Machine (FVM) launched in Q1’23, it brought Ethereum-style smart contracts to Filecoin. One year after its introduction, Uniswap V3 was launched on the FVM in Q1’24. Uniswap deployment on the FVM enabled developers to utilize ETH and USDC within the Filecoin ecosystem.

Binance recently announced that FIL deposits are open following their FVM integration. Previously, Sushi integrated with Filecoin and started to leverage interchain communication enabled by Axelar and Celer. Simultaneously, the leading Solana oracle, Pyth, launched on the FVM. Pyth price feeds are now available to smart contract developers on Filecoin, further supporting the development of the Filecoin DeFi ecosystem.

As of March 31, 2024, over 3,400 unique contracts were deployed on the FVM, up 26% QoQ from 2,700 at the end of Q4’23. Simultaneously, TVL on FVM surpassed $600 million in Q1’24, up almost 2x QoQ.

According to the FVM Explorer, total DeFi net deposits accounted for 27 million FIL (approx. $256 million) at the end of Q1’24, primarily used in staking, liquid staking, and DEXs. The liquid staking protocol GLIF accounted for the majority of deposits (52% as of the end of Q1’24), followed by SFT Protocol (10%), Repl (9%), and others (29%). For context:

• GLIF announced a rewards program to incentivize DeFi community participation.
• Repl introduced a mechanism to earn rewards on FIL locked by storage providers
• FILLiquid proposed a FIL lending for storage providers.
• Thetanuts Finance introduced FIL-covered call vaults for earning yield.

Simultaneously, total DeFi net borrows accounted for 17 million FIL (approx. $162 million) as of March 31, 2024, according to the FVM DeFi leaderboard. Both monthly net deposits and borrows showed rapid increases in Q1’24, in line with the risk-on market. As FVM continues to gain traction, it serves as a base for developing monetizable FVM-enabled services such as cloud storage and compute services.

Financials

Filecoin's revenue framework is similar to Ethereum's because its gas system is based on EIP-1559. This gas system consists of network fees that are burned to compensate for the resources used. Both storage users and storage providers generate revenue.

Revenue

As per Messari's revenue analysis, Filecoin's revenue represents the sum of:

• Base fees – Determined by blockspace congestion and required by any storage proof.
• Batch fees – Used for bundling storage proofs.
• Overestimation fees – Required to optimize gas usage.
• Penalty fees – Collected for storage provider failures.

While demand for Filecoin storage grew, revenue from fees increased 21% in Q1'24 to $1.6 million. The reduction in storage capacity is reflected by the rising penalty fees and batch feesNotably, base fees from storage deals accounted for only over $8,400, which is in line with the overall decline in demand-side fees charged to the users across the decentralized cloud storage space. Groups including the Decentralized Storage Alliance (DSA) are actively working on reducing costs for onboarding data on the Filecoin network.

Rewards

Filecoin's rewards consist of:

• Block rewards disbursed by the network to storage providers.
• “Tips” to speed up transactions.

Block rewards accounted for more than 99.9% of all rewards in Q1'24, while “tips” accounted for only a small portion. The minting mechanism of new FIL tokens relies on both:

• An exponential decay model (30% of tokens): Block rewards are highest initially to stimulate participation and then decrease exponentially over time.
• A baseline model (70% of tokens): Block rewards are allocated as storage capacity grows.

By combining these models, Filecoin can maintain participation after block reward distribution in the early stages of the network (see exponential decay model). It also helps continuously reward additional value created for the network through increased storage capacity (see baseline model).

Supply-side rewards increased 39% from $55 million in Q4’23 to $76 million in Q1'24, driven by the FIL/USD price increase. In FIL terms, rewards were down 16% from 12.6 million FIL in Q4’23 to 10.6 million FIL in Q1’24. The decrease was driven by an overall reduction of FIL reward issuance due to the exponential decay model and the baseline minting model. The decrease in FIL reward issuance will likely continue in the coming quarters. For an in-depth discussion and various simulations of future FIL issuance, please refer to Messari’s investigation on the FIL circulating supply.

Ecosystem Overview

Teams across the Filecoin ecosystem have been actively developing a funnel of builders. Filecoin has regularly engaged in hackathons and accelerators to help early-stage projects and teams receive funding from external parties and affiliated entities, including hackathons like Encode Club and ETH Global. The ecosystem is channeled toward onboarding various use cases in different sectors: namely, data infrastructure, media streaming, metaverse, and gaming.

As of March 2024, over 160 known projects are included in the Filecoin Ecosystem Explorer, a non-exhaustive community-powered database of projects in the network. Most projects that leverage Filecoin offer data services:

• Banyan: Web2-like decentralized storage for enterprises beyond archival.
• Lighthouse: Perpetual data storage service with a one-time payment pricing model.
• Numbers Protocol: Preserve data authenticity for digital media and generative AI.
• Seal Storage: Immutable data storage solutions.
• Steeldome: Data protection and data storage solutions.
• Fluence: Empowers developers to scale their Web3 projects.
• EQTY Lab: Uses cryptographic methods to validate snapshots of an AI model's lineage, leveraging decentralized technologies, like IPFS and Filecoin, to anchor model data.
• Tableland: SQL-based cloud database.
• Basinv2: Data management and collaboration, used by Tableland, theWeatherXM network, and the Bacalhau computer network.
• Wb3mine: Monetization of idle compute capacity.

Media and entertainment-focused protocols include:

• Mona: 3D art gallery in the metaverse.
• Huddle01: Decentralized video conferencing.
• OP Games: NFT minting for games.
• FileMarket: Web3 shop builder and marketplace

Several use cases aim to leverage Filecoin’s infrastructure to power highly specific data needs:

• Cryptosat: Uses mini-satellites to prevent side-channel attacks and allow for secure verifiability.
• ZKsig NFTs: Access control to the marketplace.
• DataMarket: Data purchase and checkout functionalities.

Qualitative Analysis

Key Developments

V22 Network Upgrade (Dragon)

The scope of the upcoming V22 upgrade (Dragon) includes several improvement proposals:

• FIP-0063: Switching to New Drand Mainnet Network
• FIP-0074: Remove Cron-based Automatic Deal Settlement
• FIP-0076: Direct Data Onboarding
• FIP-0083: Add Built-in Actor Events in the Verified Registry, Miner, and Market Actors

The Dragon upgrade is estimated to arrive on April 24, 2024.

Uniswap V3 Deployment

Following a successful governance vote in October 2023, Uniswap V3 (through Oku.trade) deployed on the Filecoin Virtual Machine (FVM). The deployment is supported by Axelar as a deployer and bridge provider. Concretely, it allows bridged ETH and USDC to be used natively on the FVM, thus increasing Filecoin’s relevance to DeFi applications.

Solana Integration

Teams from Solana are working to archive Solana’s block history on Filecoin. Once completed, Solana data will become more accessible to infrastructure providers, explorers, and data indexers. Solana will benefit from higher redundancy and enhanced security. Additionally, the price feeds of Solana’s leading oracle, Pyth, are now available on Filecoin.

Fluence Powered by IPC

Fluence Network announced the launch of its decentralized computing platform powered by Filecoin’s InterPlanetary Consensus (IPC). The IPC launch enables services like aggregators, hot storage, and compute networks to be built on Filecoin. To help make this possible, the FVM utilizes efficient proofs to validate compute integrity and introduces faster verification of proofs of capacity for onboarding providers. Fluence benefits from this partnership due to the cheap transactions and fast finality.

Pyth Price Feeds on FVM

With over 400 data feeds, the leading Solana oracle, Pyth, launched on the FVM. Pyth price feeds are now available to smart contract developers on Filecoin, thus supporting the further development of the Filecoin DeFi ecosystem.

Key Events

FIL Dev Summit

FIL Dev Summit continued its third edition at EthDenver 2024, featuring discussions on Filecoin's programmable storage, archival use cases such as Solana, and upcoming innovations with hot storage layers for Filecoin.

IPFS in Space

Filecoin Foundation (FF) announced in January that it completed a demonstration that sent files from Earth to orbit and back using an IPFS implementation for space communications. This demonstration was part of a collaboration with aerospace company Lockheed Martin.

Digital Art Archive

The Museum of Crypto Art launched the ROOMs Archive, a digital archive that uses Filecoin to permanently preserve snapshots as digital galleries

Key Governance Decisions

Retro Funding for Public Goods

The first round of retroactive public goods funding, FIL-RetroPGF-1 will award 200,000 FIL (approx. $1.9 million ) to recognize the impact achieved by contributors to the Filecoin network. The program aims to fund contributions that have generated impact for Filecoin using Optimism-style retroactive public goods funding.

Closing Summary

Filecoin’s storage market continued to grow in Q1'24, as active deals grew 9% QoQ. Storage utilization increased from 18% in Q4’23 to 23% in Q1’23, as storage capacity fell 14% QoQ. As of the end of Q1’24, over 2,000 clients have onboarded data on Filecoin, of which 508 onboarded large datasets (over 1,000 TiB in size), up 9% from 465 in Q4’23. Rewards increased 39% from $55 million in Q4’23 to $76 million in Q1'24, thanks to the FIL/USD price increase. In FIL terms, rewards were down 16% QoQ driven by an overall reduction of FIL issuance.

A year after the FVM was introduced, Uniswap V3 was launched on the FVM in Q1’24. Uniswap deployment on the FVM enabled developers to leverage ETH and USDC within the Filecoin ecosystem.

As of March 31, 2024, over 3,400 unique contracts were deployed on the FVM, up 26% QoQ from 2,700 at the end of Q4’23. Simultaneously, TVL on FVM surpassed $600 million in Q1’24, up almost 2x QoQ. Both monthly net deposits and borrows showed rapid increases in Q1’24, in line with the risk-on market. As FVM continues to gain traction, it serves as a base for developing monetizable FVM-enabled use cases around data and compute.

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