CryptoEconLab authors: @Anonymous @Dave Costenaro @Anonymous @Tom Mellan @Vikram Kalghatgi
<aside> ⚠️ Please note, this analysis is based on simulations of plausible scenarios conditional on the model assumptions listed in the appendix. The analysis is not a precise forecast of what will happen in the future. As always, a plurality of voices is valuable (people should do their own research).
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FIP Discussion 386 suggests three changes to better align the network with the principles of long-term commitment:
To explore the effects on the economics of the Filecoin ecosystem and mitigate potential risks, CryptoEconLab (CEL) analyzed the circulating supply dynamics and SPs’ returns across a range of plausible scenarios. Here CEL sets out a summary of the economic benefits and drawbacks of the proposed changes, focusing on a central scenario of linear duration multiplier with slope 2 and Initial Consensus Pledge target multiplier of 40%.
<aside> ☝ Figure 1: Proposed linear Sector Duration Multiplier function.
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In broad terms, theoretical analysis supports a Sector Duration Multiplier that increases with duration. This backs the principle that SPs who undertake a larger commitment should be rewarded commensurately. Detailed arguments on the shape of the multiplier function concern how much the network values long-term commitments in light of options to renew, potential cost to the network of expiration, and the locked collateral’s equivalent risk free rate of return. These are set out in 1. As the theoretical forms partially depend on difficult to determine parameters, a linear multiplier function is selected. This is a compromise but does have the advantage of being a choice that minimizes complexity.
Within this framework, the rationale to select the slope (slope 2 is suggested) is based on a principle that can be summarized as follows. The selected parameters should maximize the effectiveness of the duration incentive, subject to SP’s collateral availability constraints, while taking into account micro and macroeconomic consequences. Specifically accounting for SP returns and changes to supply dynamics, which are set out below.
<aside> ☝ Figure 2: Average sector durations. Data extracted between 1/1/2022 - 6/30/2022.
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The proposal increases the minimum and maximum sector durations. The new lower limit approximately doubles from 180 days to 1 year. This guards the network against negative short-term behaviors, aims to decrease turnover and improve stability. Since most SPs already store for longer durations (Figure 2), this isn’t expected to be an overly burdensome change. The new maximum limit of 5 years gives SPs the option to express a long-term commitment to the network which was previously not possible with the maximum sector duration length of 540 days.