For this star mining coin, when will Filecoin enter deflation? Let's talk about it.
--FIL inflation
The total number of FILs is fixed at 2 billion, and there are two main wanted sources:
1. Block rewards and team releases.
2. Release of investor shares.
70% of Filecoin's total supply (1.4 billion) is used to reward storage providers. These tokens are divided into three categories: simple rewards (330 million), fund rewards (770 million), and mining reserves (300 million). Simple rewards are time-based and continue to decrease exponentially, with a six-year halving cycle. Baseline rewards are based on network performance, and the amount released is linked to the network's storage.
In 2022, approximately 105 million FIL were released.
In its pre-target launch week, that totaled about 256 million. At the pre-target price ($5), the 2022 FIL zone rewards are equivalent to $500 million in new market share. In addition, approximately 100 million will be unlocked for investors in 2022, with a total of 324 million such releases in history.
In other words, combining inflation and investors unlocking, 205 million FIL will enter the market in 2022, equivalent to a supply of $1 billion at current prices. Referring to the average monthly public price from January to December 2022 ($13.37), this means that $2.74 billion of supply will enter the market in 2022.
While this may seem like a large number, for reference, the equivalent number for Ethereum in 2022 will be approximately 2 million at a price of $2,114 per coin, which equates to 43 million supply being released into the market.
--FIL supply reduction machine manufacturing
In fact, there are also tokens being moved out of the circulating supply. Storage exchange proposals like Filecoin Plus, which offers storage providers ten times the block reward, also require ten times the donation. Supply reductions can also be generated through network transaction fees, which cause some tokens to be burned and burned.
An important area should also be raised here - Filecoin is a blockchain protocol, not a simple service agreement, and the core of the area is how value is fed back to the protocol. Instead of relying on storage provision, the coin takes advantage of the demand for block space, where the base fee (in FIL) paid by users to interact with the blockchain is burned (just like ETH in Ethereum's EIP1559). In this case, some activities (publishing proofs, token swaps supported by the FVM virtual machine, etc.) will return value to the Filecoin network instead of being extracted from inventory/service fees, which in turn will make the fees for guest users lower and bring more demand for regional block space. This network demand promotion mechanism works very well in guiding storage demand and capacity.
The inventory provider locks FIL as a donation, and if the inventory service fails, the donation will be confiscated. This provides ample incentives for inventory providers to maintain inventory services. The more demand for storage, the more FIL should be locked. In 2022, the number of locked FILs increased by 738 (the total number of locked FILs is 134.5 million). In addition, any fees produced on Filecoin are paid in FIL and then burned. This number reaches a level of 250,000 FIL burned every day. The fee type package includes base fee (a portion of the network transaction fee burned), wholesale fee (inventory provider or aggregate storage certificate paid immediately), overestimation fee (overestimation fee) and regret fee. About 3,400 FIL have been burned so far, and 517 FIL will be burned in 2022.
In 2022, about 12.55 million FILs were removed from the active supply through collateral product locking and fees. Based on the average monthly open market price in 2022, this is $168 million. This means that about 6% of the incremental supply entering the market was removed.
Overall, approximately 170 million FIL are currently locked or burned, accounting for approximately 8% of the fully released supply, or 30% of the minted or vested released (vested) supply (i.e. streaming supply*) , which is consistent with the 30% goal described at the beginning of the Filecoin document.
--Will FIL shrink in size?
Although the provision of FIL is efficient and dynamic based on the network, it is expected that the network will continue to reduce the speed of its token development and enter a more unobstructed economic system. Note that a deflationary monetary policy is not a necessity for value creation; in fact, most protocols, including Ethereum in recent times, have an inflationary monetary policy.
The majority of the tokens from the Filecoin Foundation and Protocol Labs are forecast to be unlocked in the fourth quarter of 2023; however, 250 million FIL will continue to be categorized for release until October 2026. Therefore, if the current network trends remain the same, FIL is unlikely to enter a sustained deflationary trend in the near future.
Over the past 12 months, an average of approximately 530,000 FILs have been burned each month, while the network’s quality adjusted power has increased by approximately 2% per month over the past year. Assuming the described conditions continue, FIL could reach a deflationary state around 2026.
It is determined that application development on the FVM virtual machine may most directly affect the burning of FIL. We assume that other quantities remain unchanged and propose the following prediction method. Please note that FIL is available in many variations and the model below is just a simplified design.
In summary, at the current rate of token burning and new inventory, it is unlikely that FIL will begin to enter a strict trade tension contraction in the short term. Even under aggressive pretense (FIL burns 4 times more), it takes about 3 years for FIL to reach the best possible flow rate.
So all community watchers are reminded to do a good risk assessment.
