Translated by Joel M
Intro by Kenneth K
Edited by Kenneth K
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Filecoin and Elastos have built various cooperative agreements. As such, Elastos Co-Founder Sunny Feng Han has been very involved with Filecoin and is a participant in these discussions on the recent challenges that Filecoin has faced.
These are the meeting notes about the Filecoin miner challenges that have led to Filecoin’s price rising above even Bitcoin’s Market Capitalization.
Recent events summary:
Filecoin is a decentralized storage network launched by Protocol Labs. On launch, miners kept a significant majority of their machines off due to a FIL pre-staking requirement to begin mining. Filecoin’s protocol also has a slow vesting release to miners, and with exchange purchases being the only other solution, this led to FIL being highly overbought and the potential losses to miners significant. Most mining rigs did not participate despite being expensive and advanced machinery needed to run Filecoin and provide storage.
In response to the sudden loss of miner involvement, Filecoin released 25% of their tokens in advance to miners so that they can meet the pre-staking requirements, however this is not a long-term solution and Sunny Feng Han has proposed an Elastos partnership with Filecoin to create a DeFi system where it is possible to rent mining power using assets as collateral.
The first anniversary of the Data Privatization Movement was held in Shenzhen. Elastos, IPFSer, IPFS Main, UKEX, and others have formed the FilDA Industry Alliance which combines the resources of these powerful teams and creates a leading edge in the field. The FilDA Industry Alliance aims to bridge Filecoin and DeFi, creating a one-stop financial service alliance around Filecoin.
Elastos co-founder Feng Han presided over the roundtable discussion organized by Block 360. Guests of the roundtable included CEO of IPFSer Zhang Chenglong, chairman of Shenzhen IPFS Main Technology Co. Ltd. Li Yandong, partner of Open Source Mining Pool Fang Yunhao, CEO of Xingkong Data Cai Qingfeng, and Zheng Xiping of 1024IPFS and Auto Miner.
Feng Han: Today’s roundtable is of great significance. Everyone knows how hot Filecoin has been in the past few days. About three days ago, the Filecoin mainnet went online, and the price per Filecoin rushed to US $200. Guo Erbao called from Silicon Valley and said excitedly that the market value of Filecoin had surpassed that of Bitcoin. Of course, this is temporary. The point is that Filecoin represents decentralized storage and how important it is for the future. This is just the beginning of the capitalization of personal data.
For data to be privatized, it must be protected. This is the consistent philosophy of Rong Chen of Elastos. Therefore, in the Internet of the future, the Internet that supports data privatization must have decentralized storage solutions. This is the reason for this meeting.
Because of the price of Filecoin these days, everyone has experienced the roller coaster price action and there have been a lot of rumors. Involved here are mining leaders who own about 50% of Filecoin’s hashing power. To save time, I will introduce them one by one:
This is Zhang Chenglong, the founder of the famous IPFSer Community, known as the Dragon King in the industry. I admire the IPFSer Community which has been paying attention to IPFS as early as in 2018. The concept of decentralized storage started from this community. They are so large that their entire network accounts for almost 20% of the network.
The chief executive of IPFS Main, Li Yandong, also accounts for more than 20% of the computing power. He arrived with Juan (founder of Protocol Labs) in Shenzhen and is definitely a leader in the industry.
Fang Yunhao is from the Open Source Mining Pool. Fang was invested in by Du Jun [CEO of Huobi], and is technically robust.
Cai was responsible for the server storage side of things. He’s a veteran. Later, he went to work for the listed company Eternal Asia. He is now engaged in Xingkong Data and is also mining for Filecoin. 1024IPFS is invested in by Block Finance. I hear that they are also quite famous in the industry and have become amongst the top three in the Open Contest organized by Protocol Lab.
Basically, everyone here is a representative of China’s mining industry.
I will begin with the first questions. As everyone has been cooperating with the official Filecoin Protocol Lab for almost two years. What is the problem with the token model of Filecoin from your experience? What is the solution? What are your expectations from Protocol Lab?
Zhang Chenglong: One of the problems is the coin mining and staking mechanism which includes the pre-staking requirements and the 180 day release. According to these rules, many miners could not stake enough coins at the launch due to low liquidity. The peak value of mining power exceeded 33.5PB per day before the mainnet release. Now, it is much less, and essentially, the computing power is only 1/8 or 1/7 of the original. The main reason is that the miners do not have enough staked coins to begin mining. Thus, the number of machines able to mine cannot be fully utilized.
Now that there is a 25% release of FIL, it may allow more miners to join. After the 25% release, computing power will increase every day, which will be much better. In tandem with the increased FIL in circulation, the computing power should become relatively stable.
I think we will make a preliminary conclusion today whether the long-term outlook is good or bad. Everyone should stay tuned.
Li Yandong: I can share several perspectives. First, we still believe that the Protocol Lab is still a valuable team. It has gone online only after six years of development. Many people think that the economic model has many limitations, but in reality, this is only temporary due to the short-term phenomenon caused by the imbalance of demand and supply. This phenomenon has actually eased in the last one or two months. In fact, there was some wrong information being spread about the 1.5M FIL tokens unlocked. Of course, this release was early, and a certain percentage of the early releases was part of the unlocking.
Protocol Lab made decisions that, from the perspective of the mining farms, is not easy to understand. The past few years, Protocol Lab stated every day that it is not recommended to buy a mining machine, but investors make their own choices. There is no one in the right or wrong. From this perspective, we still believe that the team is still a very positive team.
Some of the current economic models people may not understand, but I think there is no correct answer. If the coins are released to the miners, and the miners dump the coins to $5, everyone is unhappy. If they don’t release it, there isn’t liquidity, and people are also not happy. There is no satisfactory answer. In short, everyone has his own goals. However, the entire ecology will achieve balance. We believe that balance will come soon.
Fang Yunhao: I agree with Li Yandong’s views on Protocol Lab. In China, we are in the middle of the “New Infrastructure Construction” [China’s national plan for a new digital infrastructure], . Decentralized storage is indeed a very important aspect of the future. Filecoin is currently the most advanced protocol in so many aspects and the recent launch events and price action is a short-term situation. The main issue at present has been the issue of pre-staking and subsequent release schedule which becomes a problem with miner performance. We believe that the pre-staking requirements of Filecoin are too high.
Future adjustments may require companies to speak with the Filecoin official teams. The release schedule is also of vital interest to miners. Therefore, whether it is pre-collateral or post-release, the most important thing for the miner community and Protocol Lab is to achieve a balance. I think the so-called shutdown is a temporary situation and these problems can all be solved. It is just a matter of time.
Cai Qingfeng: I want to share my view from another angle. We know that the Filecoin project is a blockchain project. Mr. Li also mentioned the Filecoin team just now. Protocol Lab team actually consists of hundreds of people, including many volunteers. This is really good. However, for a project to be worthy of our endorsement, we have to think not just about the tech, but the community. What we are creating is a decentralized, distributed blockchain project. It’s not about the Protocol Lab, but whether the power of this community is sufficiently decentralized and distributed rather than being controlled in the hands of the Protocol Laboratory itself; this is my first point.
The second point is that Filecoin is under the banner of blockchain. At present, there is a contradiction in the governance structure as it is relatively centralized or controlled. Let’s examine this. For example, the first phase of the Open Contest started on August 25 and suddenly went to a second phase. Only a few people knew about this, and there was no consensus in the community. When does Open Contest Phase 2 start and when does it end? It is an official and unilateral announcement. The worst thing is that all the test coins accumulated with our computing power and the Open Contest were transferred without any prior notification.
These are issues we should pay attention to if we want to grow with Filecoin in the future. I am personally very optimistic about this project, otherwise I would not be here today.
In terms of governance, we need to think about what direction our community is heading. The team must make a fundamental change. This is my point of view.
Zheng Xiping: We are mainly working on technical services. We develop backend technology. From our perspective, I agree with Mr. Cai’s point of view. Since this is a blockchain project, it should be sufficiently decentralized. Since 2015, we have been doing traditional mining, including chips and algorithms. We have experienced and participated in many things. We believe that every community without transparent rules will only last until a better one emerges and people follow the better one. Therefore, every official decision, including decisions on decentralized projects, will have an impact.
How to operate and participate in a blockchain becomes clear as it matures. We will not talk about the past. There are indeed many things that caught all participants off guard, as Mr. Cai said just now. Everyone is just now reacting. We have observed the project from the beginning, but its economic model and how to participate in the system has always been unclear. By September last year, with the entire consensus mechanism and methods, we considered it to be an economic activity that can be participated in.
Until now, we have not been able to find a reasonable benefit to participate passionately. We are especially optimistic about the future development of IPFS and will actively participate with that, however, the problems that arise are in the balance between the team and the community. If the entire ecosystem of this project is built, its coin price will naturally rise. To storage providers, the initial cost is high and it requires following the investment closely. The money invested and the return is not proportional so the money invested is not cost-effective. Moreover, the return in the future is not guaranteed. If this were a traditional business, few might invest. This restricts our development today. The projects that everyone participates in must have both long-term ideals and short-term benefits. In the current situation, everyone will reconsider their benefits.
Feng Han: Thank you. The second question has already been mentioned in the discussion about the current token model having inherent problems in that it requires both staking and mining, and the mined coins are released after 180 days. In this regard, there is a need for financial solutions. We have had a global DeFi boom recently. It should be said that a new consensus on wealth of more than 10 billion US dollars has been reached. No doubt this is an achievement. But we believe that the future of DeFi must have extensive use in reality. Filecoin mining itself is ready-made, so we [Elastos and Filecoin] hit it off. Later, we onboarded Guo Erbao from the crypto space. We are working on a DeFi project specifically for Filecoin. But it’s not another DeFi copycat. Countless people are copying, and the cycles have become shorter and shorter.
The most fundamental application of DeFi is to help people solve practical problems. Dragon King also spoke about this. For example, Filecoin miners invested in a lot of machines and computing power. In the future, Filecoin must expand and grow mining, so where will these funds come from? You would have to talk about collateralized lending of resources which is not feasible using FIL alone. Therefore, the core problem solved by DeFi launched by Elastos with Filecoin can capitalize on the large-scale computing power in their hands, which is worth tens of billions. So on this one, I want to hear your opinions.
Zhang Chenglong: Mr. Han has made a big push on Filecoin. In fact, we have exchanged ideas a few times. It is true that the current price action of Filecoin was due to its economic model. It is necessary for miners to pledge, for investors to trade, and for the market to have circulating supply. This is indeed a challenge. DeFi is a very good idea for Filecoin, and also relieves the pressure on many miners.
Li Yandong: Time is running out. To put it simply, as DeFi is hyped in other sectors, it can help solve the problem in Filecoin. In Feng Han’s words, it is a natural scenario.
Fang Yunhao: The first time I talked about Filecoin with Mr. Feng Han was a few months ago. Mr. Feng Han actually had a very close observation on the ecology of Filecoin. We also talked with Mr. Feng Han along with Huobi and OKEx on how to create income and let miners pledge computing power to continue to grow. Such a loan on machinery would need collateral. Where do these assets come from? This is a problem to be considered when doing DeFi projects.
For some of us, we have relatively large resources to support a secondary collateralized lending system, and we are very willing to share it.
Cai Qingfeng: I think Mr. Feng Han’s proposal is particularly good. First of all, DeFi is very suitable for solving the Filecoin pre-staking problem. I want to discuss the idea of Mr. Feng Han’s DeFi from a data perspective. First of all, we know that at present, the cost of pre-staking is about 10 FIL, and the current income is between 0.3 and 0.4 per day. If calculated by 0.4, it can basically break even in about 25 days. This is an important premise and we miners need such a mechanism. This version of DeFi has a very important premise, that is, you return what you borrow. This can be a great support to the mining ecosystem.
As far as miners are concerned, they can mine coins, have rewards, and support the network. Otherwise, this is a Ponzi scheme. From this perspective, I support Mr. Han’s proposal. Personally, I think it is a very good proposal.
Zheng Xiping: I think this is the case in traditional mining. It is a very mature way to amplify investment opportunities for everyone. It is very natural to incorporate DeFi into Filecoin. Currently, the game rules are not transparent when solving the current dilemma. We have resorted to talking to the authority, or protesting as a community. DeFi provides another way out. I believe that as long as we are optimistic about this development, this direction is correct. DeFi will play a role in the long-term and is very useful to our use of our funds.
Feng Han: Due to time constraints, the closed door meeting is about to begin. We hope to reach a better consensus in this closed meeting. Elastos will definitely strive to offer full use of its technological advantages and make decentralized storage and Filecoin development improve. Filecoin’s partnership will help enable Mr. Chen Rong’s second-generation Internet ideals to be realized as soon as possible.