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Academy Industry Analysis Article

Filecoin gets DeFi integration, but it is still far from mass adoption

2020.10.25 Matthew Lam

OKEx Insights' DeFi Digest is a weekly examination of the decentralized finance industry.

DeFi Market Snapshot

The decentralized finance market saw a modest increase last week as the total value locked in DeFi products rose from $11.2 billion to $12.38 billion. 

Uniswap maintained its position as the market leader with a 22% market share of the total USD value locked. The decentralized exchange also had the largest liquidity pool and maintained its trading volume dominance of 54%.

In the decentralized-lending sphere, Compound continued to lead, with a market share of 52%.

Both total value locked and borrowing volume rose, while the weekly volume of DEXs dropped. Sources: DeFi Pulse and DeBank

Filecoin mainnet finally launches

Filecoin, a decentralized storage provider known for its landmark $200 million ICO in 2017, launched its mainnet on Oct. 15 after multiple delays. The mainnet was activated when Filecoin reached a block height of 148,888.

Built on top of the Interplanetary File System, Filecoin aims to become a decentralized marketplace for users to buy and sell unused storage. Users pay storage miners to store their files on the Filecoin network. Storage miners run software and hardware to store files for their clients and are compensated with Filecoin's native coin, FIL.

Filecoin and DeFi

With the popularity of decentralized finance surging in 2020, the Filecoin team planned to integrate DeFi into its ecosystem prior to the launch of mainnet. 

In early October, Codefi, the flagship DeFi product of ConsenSys, announced its support of Filecoin's mainnet launch by offering two DeFi-related services on its Codefi Activate platform: Filecoin Storage and Filecoin DeFi Bridge. 

Filecoin Storage aims to enhance price discovery for storage on the Filecoin network. As stated in Filecoin's white paper, the marketplace consists of both the storage market and retrieval market. There are limitations to the price-discovery process of these markets. For instance, users can make retrieval storage requests to retrieval miners in the retrieval market. To achieve fast retrieval requests, the Filecoin team does not run an order book on the blockchain. This makes the price discovery less transparent, as users cannot view the full order book on the blockchain. Additionally, the lack of price transparency slows down the matching process between users and retrieval miners.

Filecoin Storage by Codefi attempts to enhance the price discovery of Filecoin's marketplace. Available on both the web app and an API, Filecoin Storage consists of a searchable marketplace that allows users to set filters and find suitable miners for their needs. Miners in Filecoin can announce their pricing and availability on the platform.

To provide enhanced transparency for users, Filecoin Storage also records the key information of active miners, such as the miner's account ID, their storage capacity, location, reputation score and monthly price per gibibyte.

A snapshot of the Filecoin Storage market. Source: ConsenSys Codefi

Connecting the DeFi ecosystem

The Filecoin DeFi Bridge offered by Codefi is the most notable connection between Filecoin and decentralized finance, by far. 

The DeFi Bridge leverages the Ren protocol to enable the conversion between FIL and ERC-20 tokenized FIL. It is expected to address the issue of low liquidity present at the initial launch of Filecoin. To ensure the full commitment of miners, Filecoin requires miners to stake a large number of FIL tokens as an initial pledge to start mining operations. Filecoin also set a lock-in period of 20 days for newly mined FIL, which then will be released linearly every day in 180 days. This made some miners unable to stake and begin their operations. For instance, one of the top miners, Zhihu Cloud, only operated 256 out of 8,000 mining machines on Oct. 17. While much of the FIL is staked by miners during the initial launch, the circulating supply and liquidity of FIL are low.

The Filecoin DeFi Bridge connects Filecoin with a huge liquidity pool from DeFi protocols. With more FIL supply on the Ethereum network, FIL holders can deposit their tokenized FIL as collateral in DeFi lending markets, such as Maker and Compound, to earn interest. Miners, on the other hand, can borrow more FIL in the lending protocols to stake.

This bridge to DeFi also attracts users to participate in the Filecoin ecosystem. DeFi users can first deposit Ethereum-based assets as collateral and borrow wrapped FIL. Then, they can convert it to native FIL to store data on the Filecoin network.

A long way toward mass adoption

Filecoin has demonstrated its potential to revolutionize the data storage industry with its low storage costs. According to the Filecoin team, the average FIL price per gibibyte is 0.000043 FIL ($0.001328), which is much lower than the $0.023/GB per month for the base tier of Amazon Web Service S3.

However, Filecoin is still in its early development and is not yet capable of competing with cloud giants. The total network storage power of Filecoin is 619 pebibytes (0.61 exabytes), compared to over 1 exabytes of data stored in the cloud. The market size of Filecoin, $495 million, is far less than the public cloud market of $233.4 billion in 2019 — so, Filecoin still has a long road ahead of it.


Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.


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Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.

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