Filecoin’s upcoming production cut is changing tokenomics

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Filecoin (FIL) is one of the most famous coins in the storage area of ​​cryptocurrencies. Last month, FIL’s price and market capitalization hit new highs. On April 1, the coin hit $ 233.68, breaking into the top 10 cryptocurrencies by market capitalization.

Basically, Filecoin is a decentralized cloud-based data storage network that allows users to receive rewards for selling their excess storage on an open source platform. Filecoin is made by Protocol Labs.

While FIL’s position in the top 10 lists was short-lived, it’s important to note that Filecoin’s fully diluted market cap hit a high of $ 450 billion. This is almost half of the sacred $ 1 trillion mark Bitcoin recently held for 10 straight days.

For the past 30 days, Filecoin has seen unprecedented gains of around 440% from trading around the $ 42 mark to trading in the $ 184 range. Although the price is down around 20% from its all-time high on April 1, the fact that it settled down to three times the price before it rose is an incredible feat in itself.

On March 17th, the FIL token received another boost from the market. Grayscale Investments, the benchmark for institutional interest in cryptocurrencies, announced new funds to invest in five cryptocurrencies. These tokens are LINK, Filecoin, Livepeer (LPT), Basic Attention Token (BAT) and Decentraland (MANA) from Chainlink. As a result of this announcement, FIL’s price rose 40% in 48 hours, indicating that the community and the market as a whole have responded positively to this development.

Marie Tatibouet, Marketing Director of Gate.io – a cryptocurrency exchange – spoke about the reasons why Filecoin is attracting institutional interest: “Data is the most valuable commodity today, and there is a race to find out cheaper and more efficient ways to do it Saving data. Martin Gaspar, Research Analyst at CrossTower – a digital asset exchange – told Cointelegraph how this announcement actually had an impact on the markets:

“As of April 5, 2021, the Filecoin Trust only had assets of $ 8.1 million, according to Grayscale. This is a very small amount compared to CoinGecko’s recent 24-hour trading volume of over $ 1 billion, suggesting that the price spike has other major drivers. “

Cameron Winklevoss, co-founder of the Gemini Exchange, noted that he was not surprised that the price of the token “skyrocketed”. He cited the key messages that the Filecoin project brings such as “the amount of network storage performance” as the main driver for the surge. Tatibouet continued, saying, “Bitwise 10 Crypto Index Fund and Grayscale have both added FIL, while The9 Limited and New Universal have invested millions of dollars in filecoin mining.”

However, many different factors play a role here.

China’s market plays a crucial role for Filecoin

A crypto journalist from China, Wu Blockchain, noted on Twitter that on the day the FIL hit its all-time high, huge amounts were from China’s largest trading exchange, Huobi, with a 24-hour trading volume of $ 24.2 billion came. That volume was almost three times that of Ether (ETH) and Bitcoin (BTC) on the same day. Gaspar further mentions:

“Filecoin is popular in China and has great interest among Chinese miners who are required to pledge the FIL token as security, which leads to a demand for the token. Additionally, given the lack of BTC and ETH mining equipment, mining Filecoin appears to be an attractive alternative for these miners. “

According to CoinGecko, on April 9th, Huobi accounted for nearly 40% of Filecoin’s 24-hour trading volume. These data support the belief that interest in Filecoin is primarily driven by retail investors and miners based in China. The hype surrounding this sign in China is so great that there are allegedly even posters in the subway advertising for Filecoin.

This is similar to the phenomenon of Bitcoin posters being hung in Soho, London, with the difference that Filecoins are obviously an advertisement to get private investors to buy the token.

Robbie Liu, market analyst at OKEx Insights – the research team at Cryptocurrency Exchange OKEx – told Cointelegraph, “Filecoin market development in China is very strong and Chinese miners account for more than 95% of Filecoin nodes.” With China being the global cryptocurrency mining hub, it is only natural that the market would be very sensitive to the mining economy. Tatibouet further stated that the reason for the high demand is that the FIL mining “is much cheaper than the Bitcoin and Ethereum mining”.

In August 2020, the Chinese government announced its new Internet infrastructure plan, which will focus on building innovation in 5G, artificial intelligence and Internet of Things. This plan could potentially have an impact on the Filecoin ecosystem as decentralized cloud storage fits onto the agenda.

There are also unconfirmed reports that Chinese government officials are practically officially promoting Filecoin mining, as a decentralized cloud storage solution fits perfectly with China’s vision of its own Internet infrastructure.

The future of Filecoin

Another reason for the growing demand for Filecoin is the production cut planned for April 15. Regarding FIL’s changing supply and demand economy, Liu said: “The rise in FIL prices is mainly due to speculation prior to the April 15th production cut. The protocol currently publishes 648,000 FIL per day, but after April 15th production will drop to 365,000 FIL per day. “

Following the publication of the Simple Agreement for Future Tokens in the middle of the year on April 15, the daily production of FIL will be reduced by 43.2%. At the time of writing, FIL has a circulating supply of 65.33 million tokens, with the maximum supply capped at 2 billion coins. Such a drastic drop in daily production could therefore lead to a perception of the scarcity of the token, which in turn leads retail investors and miners to buy more of the coin to weather the upcoming planned drop in the daily influx of FIL.

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Another interesting feature of FIL’s tokenomics is the built-in mechanism that requires miners to buy more FIL tokens in order to mine more of the cryptocurrency, which also acts as a utility and governance token for the Filecoin ecosystem. This mechanism prevents FIL from being dumped in the open market by creating incentives for the token holders by offering them more mining power.

Due to the nature of the Filecoin product offering, Filecoin is in direct competition with technology giants such as Google, Amazon Web Services and Alibabas offerings. Since Filecoin is a blockchain-based open network, the data storage cannot be manipulated and the storage space to which it has access is theoretically unlimited.

It is important to note, however, that services from Amazon, Google, and other technology giants have been well established since they began offering cloud storage and computing as a service, meeting the needs of retailers and institutions. Believing it’s too early to say whether Filecoin can compete with the giants, Liu adds:

“While the outlook remains positive, institutional solutions rely on much more than just storage space. Operations management and technical support are required to fully host their services in the cloud. “

Gaspar also explained the factors the Filecoin team would need to consider before they can really compete with the industry leaders in the field: “Filecoin needs to make sure its network stays online, files are securely stored and accessible, and the risks and costs of storage The data is lower than that of a central storage solution. “

Although it remains to be seen how the demand for FIL tokens will sustain beyond the planned production cut, it is clear that due to the real-world use cases of Filecoin, the increase in price and market capitalization corresponds to a growth phase for the project and its offerings to compete in a market led by companies with virtually unlimited resources at their behest.