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Comment by dpe82 | Hacker News Reader

> many orders of magnitude cheaper than anything else out there

How does this work? Are other providers earning many orders of magnitude in profit, or are filecoin's storage costs being subsidized somehow?

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It seems to me that, at some level, they must be subsidized by new buyers of filecoin. It's hard to imagine anyone providing storage so cheaply even if they didn't make any profit at all. Miner revenues have to come from somewhere.

What I want to know is whether a good equilibrium is available. Say some decentralized apps with significant storage requirements win big over the next five years, and the filecoin network starts seeing a more moderate level of usage. Assume also that sentiment normalizes so that the filecoin market starts viewing filecoin as a service token for storage and retrieval, not as a speculative investment. Is the network still competitive with centralized storage providers, and how does the filecoin supply inflate over time as the network operates?

So the initial capital investment is supported by the value of the coin, and that's what gets the network to its current capacity of c.17 EiB (https://dashboard.starboard.ventures/dashboard ) . Committing storage to the network gets increases the probability of gaining new filecoin, so there's always an incentive there to grow the network's size, and once you have that storage available, there's an additional incentive to seek out deals to use the space.

I'm not an economist, so I can't speak to the details of the balancing act, but the incentive system is engineered to create a balanced equilibrium -- so more demand increases the incentives to provide storage, etc. It's a challenge to follow all the thinking, but this video from ZX Zhang is a good guide to the current state (I fast-forwarded it to the relevant bits: https://youtu.be/gbJgsav2lP0?t=554 ). There's also one of the regular cryptoecon days coming up in Paris, and the videos of those are kept online. https://www.cryptoeconday.io/event-schedule/cryptoeconday-et... https://www.cryptoeconday.io/videos

The network doesn't exist in a vacuum and that 17EiB isn't free. People had to buy real hard drives using dollars (or whatever) and they have ongoing opex to keep them spinning and connected to the network. Those dollars come from somewhere. If you're getting storage from the network for less than the amortized capex and opex of those drives then it's being subsidized, either by the owners of the hardware (if they're mining at a loss) or by people buying filecoin for purposes other than paying for storage.

Two sources of storage provider revenues are block rewards (minting) and deal fees (paid between storage clients to storage providers). Indeed, there are real fiat hardware costs to providing storage/related services (cost of hardware, computation etc). Given that the network is fairly new, we expect that currently storage provider revenues come primarily from block rewards, and deal fees are minimal (as you noted, storage is cheap). In short, the network is subsidizing capacity onboarding through block rewards; FIL as a utility token has some intrinsic value (storage providers would not incur fiat operational expenses if they did not receive commensurate rewards in FIL). As the network matures and becomes more robust and trusted, rewards from block reward minting will naturally taper, and storage deal fees will constitute a growing share of storage provider revenues.

Regarding the question of a “good equilibrium” and the ability for the network to “compete” with centralized storage/data services, we believe that as the network matures, and quality of service improves, it can certainly be a viable competitive option, with additional unique use cases separate from the current offerings from centralized players. The ability for clients and storage providers to come to market equilibrium prices for customized storage, retrieval, and computational services addresses the inherent inefficiencies in economies dominated by large, centralized players with limited choice.

How the network’s supply evolves over time is subject to many exogenous factors, but, in general as the network matures, we should expect the economy to be more deflationary rather than inflationary, as token vesting schedules end, and block rewards (minting) taper as mentioned earlier. Please see here (https://www.youtube.com/watch?v=mj4QxYKPMmA) for a discussion on Filecoin’s circulating supply, and the sources of inflow/outflow that determine its dynamics.

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