Key points of this article
- Filecoin is growing very strongly in the second quarter of 2022, with active storage transactions up 128% sequentially and network storage capacity up 7%.
- On a FIL basis, protocol revenue was up 264% sequentially; however, it was still down 74% year-over-year since the July 2021 HyperDrive upgrade lowered network transaction fees.
- Supply-side revenue declined 4% sequentially on a FIL basis as the storage provider continued to expand its presence in Europe and the U.S.
- In the second quarter of 2022, the number of Filecoin-based projects increased by 32%, showing the healthy development of its ecosystem.
Getting Started with Filecoin
Relying on a centralized data store has one major disadvantage: data integrity is difficult to verify. Filecoin is a peer-to-peer version of AWS that periodically verifies the storage of data. To achieve this, Filecoin uses storage transactions on an open market.
Storage deals are similar to contracts with service level agreements (SLAs) – users pay storage providers to store data for a specified period of time. To ensure data security, Filecoin uses an encrypted economic incentive model to verify storage through zero-knowledge proofs. At the same time, if the data is not retrievable or the storage fails, the storage provider will be penalized. In order to retrieve the data, the user pays the retrieval provider to obtain the data. Unlike storage transactions, which involve on-chain transactions, retrieval transactions can be paid off-chain using payment channels, resulting in faster retrieval.
The Filecoin blockchain is used by both the demand side (i.e. storage users) and the supply side (i.e. storage providers) of the network. Any storage transaction or proof requires transaction-based network fees. All network participants—whether demand-side or supply-side—pay this fee to interact on the network.
According to our recent in-depth analysis of Filecoin’s revenue structure, protocol revenue is the sum of all network fees, excluding “tips” that block miners collect to speed up transactions. This “tip” together with the token reward paid to the storage provider constitutes the revenue of the supply side.
Protocol revenue for the Filecoin network increased by 264% sequentially. It was the first positive quarter for agreement revenue growth in five quarters. However, it was still down 74% compared to the same period last year.
The decrease in protocol revenue may have been caused by the HyperDrive network upgrade. HyperDrive was launched in July 2021 as a mechanism to scale throughput to 10-25 times its original capacity. An important implication of HyperDrive is that proofs of storage are aggregated, which greatly reduces congestion and frees up block space. While the HyperDrive upgrade benefits most network participants, it hurts the protocol’s revenue as it results in a reduction in transaction fees.
Supply-side revenue declined 4% sequentially in FIL terms and 48% in U.S. dollars. The near-zero storage fee affects the revenue of the supply side because it limits the revenue of the storage provider and only offers block rewards and tips.Potential future revenue streams for storage providers could include other fees, such as fees from smart contract applications or decentralized computing services. Currently, almost zero storage fees are possible due to the dynamic changes on both the supply and demand sides of the network, as described below.
storage capacity growth
Filecoin’s open market policies and incentives enable storage providers to provide capacity, participate in transactions, and compete on price. Through block rewards paid in the network’s native token (FIL), Filecoin incentivizes storage providers to contribute capacity to the network.
Regardless of overall market conditions, Filecoin’s committed storage capacity has grown steadily over the past six quarters. As of the second quarter of 2022, network storage capacity exceeded 16EiB, an increase of 7% from the previous quarter. This network capacity is equivalent to more than 65,000 Wikipedia or 1,600 Netflix movie archives.
Storage capacity breakdown
Filecoin’s storage capacity is provided by more than 4,000 decentralized storage providers distributed around the world.
Attempts to show the geographic distribution of storage providers show that nearly half of them choose not to disclose their locations. Meanwhile, storage capacity is also high in Asia (32%) and North America (14%). Throughout the second quarter of 2022, storage vendors have become more geographically diverse: network capacity has been gradually replaced by storage vendors in other regions. Notably, storage providers increased their operations in Western Europe (+3%) and the US (+2%) to partially offset regulatory concerns in China.
Globally, well-known storage providers built on the Filecoin network include: Seal Storage (Canada and US), Non-Entropy (Japan), Origin Storage (Hong Kong, Singapore, US) and Dcent (Netherlands).
Supply dynamics show only one aspect of network activity. The need for Filecoin in the context of actively storing data shows another aspect of network activity.
Storage transactions grow
The demand for Filecoin comes from Web2 and Web3 specific storage. The most direct measure of demand on the Filecoin network is the amount of data stored in active storage transactions between storage users and storage providers.
By the end of Q2 2022, Filecoin had stored more than 115PiB through active transactions, a 128% increase from the previous quarter. This may be due to the fact that users are charged almost zero for storing data.
Store transaction details
In order to prevent the game of network rewards by storage providers and increase the useful storage capacity on Filecoin, Filecoin has launched the Filecoin Plus (Fil+) incentive program. Over time, the program can incentivize storage providers to participate in verified transactions by increasing their probability of winning block rewards. To compete for storage deals, storage providers offer lower fees than other providers when competing for storage deals. This results in little to no fees for providing storage.
Since Q4 2021, there has been a transition from Filecoin Regular (unverified data transactions) to being dominated by Filecoin Plus (verified data transactions). This shift corresponds to the continued uptrend in Filecoin Plus transactions. In the second quarter of 2022, Filecoin Plus transactions accounted for more than 99% of all new transactions. The flipping of Filecoin Plus transactions to Filecoin Regular transactions, coupled with a massive increase in new transactions, shows that the proven data incentive mechanism is working as planned.
Filecoin Plus further enables two major services — NFT.Storage and Web3.Storage — to provide essentially free storage on Filecoin. These services provide end users with a simple user interface and act as aggregators to bundle and store data from multiple users in the hands of a single storage provider.
NFT.Storage is a service that provides a simple user interface specifically for storing NFT content and metadata on Filecoin.It focuses on permanent redundant storage through dedicated IPFS servers managed by NFT.Storage and Filecoin. The simplicity of the service brings the benefits of permanent NFT storage to a wide range of users, from individual artists to large marketplaces like OpenSea, MakersPlace, MagicEden, Holaplex, Jigstack, and Project Galaxy.
Similar to NFT.Storage, Web3.Storage is a service that simplifies the process of storing and retrieving Web3 data on Filecoin for developers and end users. Its focus is to make it easy for developers to build Filecoin storage into their applications.
By participating in the Filecoin Plus incentive program, both Web3.Storage and NFT.Storage are able to provide storage on the Filecoin network without additional fees to end users. Overall, both services experienced significant growth in Q2 2022 – Web3.Storage grew 25%, while NFT.Storage grew 39% sequentially. While the introduction of the Filecoin Plus program has taken a step forward in generating demand, they are still working together to incubate new businesses and build use cases on Filecoin.
Filecoin is actively supported by multiple organizations with the common goal of developing the Filecoin ecosystem. The most famous of these organizations are Protocol Labs, Filecoin Foundation, and Outercore. Together they form the Ecosystem Working Group. The responsibilities of the Ecosystem Working Group members include maintaining and upgrading the underlying protocol, supporting the development of the ecosystem, and promoting governance.
These efforts have contributed to Filecoin’s development activity reaching an all-time high in the second quarter of 2022.The ecosystem has been actively developing the pipeline between developers and builders through events such as hackathons, accelerators, grants, mentoring, and growth support. This resulted in a 32% month-over-month increase in Filecoin-based projects. A large portion of the growth came from new programs participating in the accelerator, which increased nearly 4x from 29 in the previous quarter to 114 in the second quarter of 2022.
This channel is designed to help early stage projects and teams grow enough to receive funding and investment. As such, there are currently over 450 projects being built on Filecoin. The Filecoin ecosystem is applied to a variety of use cases: from decentralized storage for NFTs, to music and video streaming, to the Metaverse and gaming.
v16 Skyr upgrade
The v16 Skyr upgrade kicked off in Q2 2022 and was completed on July 6. It brings the non-programmable, WASM-based Filecoin Virtual Machine (FVM) to Filecoin. FVM enables permanent storage (similar to Arweave), undercollateralized loans to SPs, and insurance against cuts.
Filecoin Storage Vendor Mentoring Grant (FSPM)
Filecoin launched a grant program in April 2022. Qualified recipients have access to professional storage provider operator consulting, which is subsidized. The total amount allocated to the program has not been disclosed, but the program will begin with 10 qualified applicants receiving 10 hours of fully subsidized consulting services (valued at $4,000).
Protocol Labs launched the web indexer in April 2022. The indexer is designed to support searching of content-addressable data provided by storage vendors. Storage providers can publish the content IDs of their data to a web indexer, and users can query the web indexer to find out where to retrieve content identified by those IDs.
New services such as CDN quality retrieval and decentralized computing are on the roadmap for the remainder of 2022.These services, combined with smart contracts augmented through the Filecoin virtual machine, should increase the demand for block space, allowing FIL to gain more value. Ultimately, the value of FIL depends on the strength of the Filecoin economy.
In addition to increasing the storage capacity and utilization of the network, the Ecosystem Working Group is also working to help transform many of the early-stage projects in the Filecoin ecosystem into full-fledged businesses—that is, from the initial stage all the way through to Series D and beyond.
Q2 2022 was a strong quarter for Filecoin as active storage transactions increased 128% sequentially. If Filecoin continues to meet demand, it has the opportunity to become a preeminent provider of decentralized storage and cloud services for Web3 and traditional applications. While decentralized storage is still in its early stages, the Filecoin ecosystem continues to thrive with over 450 projects currently being built on Filecoin. Filecoin is used in multiple use cases, including NFTs, Web3, gaming, Metaverse, and audio/video.
In the future, the adoption of decentralized storage solutions and the integration of smart contracts built on them may open doors for new applications. Open data initiatives and decentralized computing may enable next-generation applications beyond storage. Another important milestone is the adoption of IPFS by major browsers. The main goal of Filecoin is to demonstrate its reliability as a storage provider and potentially become an enabler for a wide range of data-intensive services.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/a-quick-look-at-filecoins-business-growth-in-the-second-quarter-of-2022/
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