State of Sia Q2 2023

Key Insights

• Used storage increased by 12% QoQ, leading the storage utilization rate to increase from 19% to 25% QoQ. Despite the fall in new storage contracts, renters stored more data per contract in Q2 than in the previous quarter.
• The addition of storage contracts, which impact most metrics of the Sia network, fell by 3% QoQ. This followed the negative momentum from Q1’23, which saw new contracts drop by 88% as a result of problems with third-party interfaces, specifically the shutdown of Skynet Labs and halting of storage uploads to Sia by Filebase.
• The Sia Foundation approved seven grants throughout Q2’23 for a total of $260,000, with the largest being $94,000 and the smallest being $5,000.
• Sia published the beta version of its “hostd” application on GitHub. The hostd app for storage providers offers a user-friendly interface, an API for managing storage resources and revenue, and an embedded web UI that enables providers to remotely manage storage operations. In a test comparison, hostd significantly outperformed siad with 1.4x faster download speeds and 20x faster upload speeds.
• Sia published the alpha version of its “walletd” application on GitHub. The walletd app enables users to interact with Sia assets like SC and SF tokens on both hot and cold wallets. It also supports multi-signatures and hardware wallet integrations.

Primer on Sia

Sia is a decentralized cloud storage network that combines a Proof-of-Work blockchain with a contract-based storage model. Storage contracts are used to uphold storage agreements between hosts and renters. Renters define the amount of data to be stored, the timeframe for storage, and the price.

As users and storage providers enter into storage contracts, they each deposit the native asset — Siacoin (SC) — into an escrow account. Storage providers cryptographically prove they are hosting the required data. At contract expiry, the storage provider receives the majority of the escrowed funds, with a small portion going to holders of Siafund (SF) tokens. Siafunds are security tokens that accrue SC to the SF holder from finished contracts on Sia.

Sia facilitates a global data storage marketplace by connecting storage providers (hosts) with underutilized hard drive capacity to storage consumers (renters). Siacoin can be used to pay for gas on the Sia blockchain and as the medium of exchange for the storage market. The costs associated with storage contracts are listed below.

• Contract Formation — Gas for creating a contract on the Sia blockchain.
• Storage Price — SC per TB per month of data stored.
• Bandwidth — SC per TB of data uploaded (added) or downloaded (retrieved).
• Collateral — Posted by the host, collateral is slashed if the host does not uphold the contract agreement.
• Siafund Fees — Fees that accrue to Siafund (SF) tokenholders. Consists of 3.9% of storage, bandwidth, and collateral, all paid by the renter. SF holders can claim fees when contracts are completed.

Files stored on the Sia network are encrypted via ChaCha20 and stored redundantly via Reed–Soloman Erasure Coding. The encryption aspect ensures that uploaded files remain private, and redundancy ensures security by sharding files. Files uploaded to Sia are split into 30 chunks, or shards, and sent to various hosts. Only 10 shards are required to rebuild the file, and their copies are re-duplicated to new hosts whenever one is offline.

Sia was conceived at HackMIT in 2013 and launched in 2015 by Nebulous Inc., which later split into two entities: the Sia Foundation and Skynet Labs. The Sia Foundation launched after a successful hardfork of the Sia blockchain, which introduced an SC token subsidy to fund the foundation. In April 2021, Nebulous announced its full rebrand to Skynet Labs. It started to reduce its services in August 2022, shutting down its portals in early November 2022 due to a lack of funding. Despite the shutdown of Skynet Labs, Sia continues to operate and implement new developments under the Sia Foundation.

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Key Metrics

Rocky Road

Sia has weathered market cycles since 2015, overcome SEC scrutiny, and proved its decentralized resilience even when a founding entity shut down operations. While Sia experienced declines in many metrics this quarter, the Sia Foundation continued to build and fund seven new grantees in Q2’23.

Despite the ecosystem’s drive to continue development and release user-friendly applications like renterd and hostd, the number of new contracts fell another 11%, transactions dropped by 13%, and revenue fell by 23%. Sia’s best performing metrics were nominal used storage and storage utilization, which increased by 11% and 5%, respectively.

Performance Analysis

Active Contracts

Storage contracts on Sia enable users (called renters) to enter into agreements with storage providers (called hosts). When a contract is active, it means that storage is being provided and the contract is automatically facilitating the agreed-upon value exchange.

Over the last five quarters, the number of active contracts has increased, peaking in late October 2022. Since then, active contracts have continued to decline. Following the 88% decrease in Q1’23, the average number of active contracts decreased by ~54% in Q2’23.

The collapse in active contracts in Q4’22 was largely due to problems with third-party interfaces that created storage contracts for their users. For example, Filebase was responsible for a majority of storage contracts before it stopped uploading new files to Sia due to technical issues in late September 2022. The shutdown of Skynet Labs and the Skynet application in November 2022 also compounded this problem.

Without reliable and user-friendly interfaces, Sia experienced a severe decline in the creation of storage contracts. To address this issue, the Sia Foundation is developing the renterd application, an interface for users to create Sia storage contracts, which is currently in beta. That said, the number of active contracts appears to have stabilized since May.

New Contracts

The “new contracts” metric observes the origination of active contracts. New contracts require renters to allocate funds in advance that determine how much SC they are willing to pay for storage on Sia; this is called an allowance. The allowance is derived from an equation that multiplies the price in SC per TB stored by the expected number of TBs by the expected number of months for storage. For example, if a user wanted to store 3 TB of data for 3 months at a price of 500 SC per TB, their allowance would be 4,500 SC (500 x 3 x 3). Renters also pay contract formation and upload bandwidth fees when creating new contracts. And hosts must lock up collateral, which can be slashed if they don’t uphold the contract agreement.

Similar to active contracts, the creation of new contracts should spur multiple areas of network activity. It should encourage more transactions, directly lead to more data being stored, and put upward pressure on the SC token.

In Q2’23, the negative momentum continued from the previous quarter, leading the sum of newly formed contracts to decrease by 3% QoQ. While total transactions fell by 5% QoQ, storage used increased by 12%, and the price of SC only decreased by 3%, largely following the broader market. The smaller decline in new contracts may be a leading indicator that active contracts next quarter will not experience another large decline as seen in the past two quarters.

Transactions

Transactions on Sia account for all activity related to storage contracts, peer-to-peer transfers, and trades of the asset.

After falling 81% in Q1’23, Sia’s blockchain transactions dropped another 5% QoQ. This continued decline could be driven in part by the 3% decrease in new contracts. New contracts spur various types of transactions on Sia like contract initiation payments, bandwidth payments, and ongoing storage payments. Hence, the performance of new contracts is likely also reflected in transactions. Sia may still be recovering from the loss in activity due to the problems that third-party interfaces experienced late last year, which lowered access to the creation of storage contracts via simple user interfaces.

Storage Utilization

The capacity of a storage network helps highlight its current scale, and its utilization rate reveals the demand for the type of storage it optimizes for.

Sia uses a Stake-for-Access (SFA) token model to capture value and provide storage. In this model, utilized storage is achieved through storage contracts. Although new contracts fell by 3% QoQ, storage used increased by 12% QoQ. This implies that, although fewer storage contracts were created, users were storing larger files per contract.

In this same quarter, total storage capacity fell by 12%, leading to a 5% increase in utilization. The decrease in storage could result from storage providers responding to the previous QoQ change, where 36% of capacity used in Q4’22 dropped to 19% in Q1’23. With less capacity utilized from the previous quarter, providers may have felt the need to scale back operations.

Storage Prices

Renters entering a storage contract on Sia pay multiple fees to set up and maintain the contract. Storage fees are a function of the amount of data uploaded, the length of time of the contract, and the price in SC per TB per month.

Average daily storage prices in both SC and USD terms were essentially unchanged QoQ. Despite the 3% decrease in SC price, the 5% increase in storage utilization may have countered any potential decrease given storage was slightly more scarce this quarter. However, storage prices shouldn’t experience any major movements unless there is serious price volatility or large changes in network activity.

Bandwidth Costs

Storage providers offload the costs of uploading and downloading the renter’s data to the individual renter. Users seeking to store data on Sia initially pay upload fees to hosts, and users seeking to retrieve uploaded data pay download fees to hosts. In both cases, bandwidth is priced per TB.

Upload and download bandwidth prices decreased by 9% and 10% QoQ, respectively, following consecutive decreases in bandwidth prices from the previous two quarters. These decreases may have been in response to the decline in activity from the 3% decrease in new storage contracts. In addition, they may have contributed to the increase in utilized storage, given price per upload had dropped.

The USD price for bandwidth followed the USD price of SC: a near 3% decline from the SC bandwidth costs. Without positive USD price action, storage providers did not receive any relief from the decline in bandwidth costs in Sia’s storage market.

Transaction Fees

As a Proof-of-Work blockchain, transaction fees on Sia are paid to miners that maintain the blockchain’s state and approve new transactions.

The amount of total fees collected declined severely near the middle of Q4’22, carrying into Q1’23 for a QoQ decrease of 76%. However, in Q2’23, Sia miners netted a 14% increase in average daily fees collected QoQ. Although activity did not increase, the size of the average daily transaction fee increased by 17% QoQ, compensating for the stagnant activity. This may have resulted from the 12% increase in used storage while storage fees remained constant. In other words, storage providers would earn more on each contract given the larger size of the files.

Network Revenue

Sia produces revenue for multiple parties: hosts, miners, and Siafund (SF) holders. Its network revenue is the sum of payouts to hosts, Siafund fees, miner fees, and burned collateral. Burned collateral is included in revenue because burning SC makes it more scarce and theoretically accrues value to SC holders.

After the 82% decline from last quarter, total revenue continued to drop another 17%. Issuing roughly 511 contracts a day, the total number of new contracts fell by 3%.

All aspects of revenue are affected by the number of new and active contracts on Sia. Hosts are paid based on the contents of each contract; SF fees are a percentage of contract fees and collateral specified within the contract; miner fees come from all transactions (many of which come from contract-related transactions); and burned collateral can only result from a failed contract.

Block Rewards in USD

Siacoin has an unlimited maximum supply; its current supply is over 51 billion SC. Siacoin inflates at 30,000 SC per block mined, which equated to an annual inflation of ~3.3% in 2022. Since the start of 2023, annual inflation has hit ~0.3% (annualized). Over time, this rate will approach but never reach 0%. Because some SC is required to be locked up in storage contracts, Siacoin’s inflation works to maintain liquidity.

Quarter-over-quarter, the number of blocks mined and inflationary block rewards both increased by 1%, but the price of SC dropped by 3%. This dynamic led to a 2% decline in USD-valued block rewards QoQ, with miners earning a total of ~$1.4 million. Due to the change in mining pool distribution (explained below), DXPool and Luxor increased their block reward earnings by 19% and 18%, respectively, while F2Pool’s and SiaMining’s fell by over 15% each.

Percentage of Blocks Mined by Pool

The percentage of blocks mined by each mining pool shows how responsible certain entities are for creating new blocks on Sia.

At the end of Q2’22, the mining pool distribution was more well-balanced: three pools each accounted for roughly 30% of the blocks mined, with SiaMining taking the final 10%. By Q1’23, F2Pool was mining 52% of Sia blocks while SiaMining dropped to 7%. In Q2’23, both lost an aggregate of 10% with F2Pool’s mining share dropping to 44% and SiaMining’s to 5%, allowing DXPool to jump to 31% and Luxor to 20%.

Market Cap & Price

Sia’s SFA model requires hosts and renters to lock up SC in order to accept storage deals. The more SC hosts lock up, the more data they can store. The resulting dynamic forces storage providers to increase their collateral as they store more data, thus increasing demand for the network’s native asset. In theory, the asset's price should increase with the amount of data stored on the network and vice versa.

Although storage utilization and nominal storage increased by 5% and 12% QoQ, respectively, the price of SC largely followed the broader market with only a slight decrease of 3%. While Sia activity remains relatively low, the price of SC is still largely affected by general market movements. If the Sia network were to be adopted more broadly, its existing storage market dynamics would gain more influence over the price of Siacoin.

Qualitative Analysis

Grants

The Sia Foundation approved seven grants that accounted for $260,000 in Q2’23. Since its inception, the grant program has approved ~$860,000 for projects spanning from development to research. The grants committee meets bi-weekly and consists of six members: three employees of the Sia Foundation and three Sia community members. The seven approved grants from Q2’23 are detailed below.

S5 Network and Apps – $94,000

The Sia Foundation approved ~$94,000 (€86,000 EUR) for S5 to build a content-addressed storage network. The S5 network is similar to IPFS and Sia Skynet; it addresses the limitations and issues present in centralized storage services and platforms by providing web access to decentralized networks like Sia, Arweave, and Pixeldrain. This grant will also fund the development of S5 applications like the Vup Cloud Storage app, the Tube5 video streaming app, and more.

TwikkL – $53,000

The Sia Foundation approved $53,000 for TwikkL to build a censorship-free video-sharing platform using the Sia network for backend storage. TwikkL will also integrate with LumeWeb and S5, two other Sia Foundation grant recipients.

Sia Satellite II – $48,000

The Sia Foundation approved a second grant of $48,000 for Sia Satellite to improve the Sia Satellite network infrastructure. Sia Satellite’s first grant was approved in November 2022 to initially build the network. Sia Satellite is a network service that reduces the friction between consumer and decentralized storage on Sia. Satellite nodes do the work of forming contracts with hosts on behalf of the renter. They also manage the contracts, track spending, and pay hosts with SC. The storage consumer pays satellite nodes with credit cards or some other fiat medium. Sia Satellite provides a decentralized alternative to centralized portals like Skynet and Filebase.

Autify Network – $25,000

The Sia Foundation approved $25,000 for Autify Network to integrate Sia into its supply chain management platform. Autify Network plans to enable businesses to track the origins, movement, and ownership of goods and services. Autify will use Sia to store the metadata of the tracked goods (and any associated images).

SiaFrench – $25,000

The Sia Foundation approved $25,000 for SiaFrench to build an API framework in English and French. This framework includes the creation of a developer portal that provides API keys, data dashboards of the Sia network, documentation for the Sia API, and other technical implementations.

Sia Atomic Swap with Adaptor Signatures Feasibility Study – $10,000

The Sia Foundation approved $10,000 for UTXO BV (Komodo Platform Developers) to conduct a feasibility study to estimate the cost and resources needed for the development of the technology to allow Sia’s adaptor signatures to be used in atomic swaps on the AtomicDEX protocol.

SiaShare – $5,000

The Sia Foundation approved $5,000 for SiaShare to build a lightweight web service for encrypting, storing, and sharing files utilizing renterd.

Development Roadmap

Sia has run as a functional blockchain and storage network since 2015 and has undergone many network developments in the past eight years. Sia’s recent developments largely focus on giving network participants a better user experience. The key roadmap items are a continuation from Q1’23 as the Sia Foundation continues to implement new features. All items are listed below.

renterd (in beta)

The renterd interface is an important tool for the Sia ecosystem that enables less-technical users to access decentralized storage and spurs economic activity on Sia. The halting of storage uploads to Sia from Filebase in September 2022 not only contributed to the Q1’23 decline in active contracts but also demonstrated the need for another access layer on Sia. Since launching in beta, the Sia Foundation has implemented novel features, including an autopilot mode and the renterd HTTP API, which gives developers the power to build applications on Sia. The renterd module can also distribute workloads in parallel across multiple machines, making it horizontally scalable. The Sia Foundation is targeting a full release for renterd in September 2023.

hostd (in beta)

The Sia Foundation launched the beta version of hostd in Q2’23. The hostd module offers a user-friendly interface, an API for managing storage resources and revenue, and an embedded web UI that enables providers to remotely manage storage operations. In a comparison with the prior hosting module (siad), hostd proved to be over 20x faster at uploading data to hosts and 1.4x faster at downloading data for renters. The Sia Foundation is targeting a full release for hostd in September 2023.

walletd (in alpha)

The Sia Foundation recently launched the alpha version of walletd. The walletd application allows users to interact with Sia assets like SC and SF tokens on both hot and cold wallets. It also supports multi-signatures and hardware wallet integrations. The Sia Foundation is targeting a full release for walletd in September 2023.

Utreexo (in progress)

Utreexo is a scalability solution for UTXO (unspent transaction output) blockchains, originally designed for the Bitcoin network. It is a hash-based accumulator that makes managing and verifying a UTXO set more efficient. Full nodes only need to store the Merkle root and a proof representing each UTXO set, significantly reducing full node requirements.

By adapting Utreexo to the Sia blockchain, the Sia Foundations aims to increase performance, scalability, and functionality. To implement Utreexo, the Sia Foundation must change Sia’s block and transaction formats, which have not been altered since Sia’s launch. The Sia Foundation continued to update core libraries throughout Q2’23 to ease the future transition to Utreexo.

explored (in progress)

Accompanying the Utreexo launch, the Sia Foundation plans to replace the current Sia explorer, siad, with explored. Expanding on the capabilities of siad, explored will offer users a blockchain explorer web interface. It will also offer developers a library that can be indexed and used to query third-party explorers and lite clients.

Closing Summary

Sia has maintained a functional, low-cost, and decentralized Proof-of-Work blockchain and storage network since 2015. It has pushed through multiple crypto cycles and continues to iterate, becoming a more usable and efficient protocol. Despite a continued drop in new contracts on the network, the amount of storage used increased in Q2 2023, signaling positive potential for other metrics in future quarters.

The increase in grant applications and approvals shows the resilience of the Sia ecosystem as it aims to bounce back after nearly all its metrics fell the previous quarter, largely due to the shutdown of Skynet and Filebase’s temporary halting of file uploads to Sia near the end of 2022. As the Sia ecosystem continues to build to enhance user experience and integrate into more platforms, Sia will be equipped with more solid foundations to support the potential activity generated in the next phase of the market cycle.

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