Interpreting Glif, led by Multicoin: What is special about "liquidity leasing" built on FVM with points + staking?

BlockBeats
2024-02-08 16:34:46
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"Liquidity leasing" = "Liquidity pledge"?

Author: Luca, Blockbeats

On February 6, the Filecoin ecological liquidity staking platform Glif completed a $4.5 million financing round, with participation from Multicoin Capital and others.

Arthur Hayes, co-founder and former CEO of BitMEX, previously expressed a bullish outlook on Filecoin during a keynote speech at Toen2049 in Singapore, stating that "in Europe, people are using SEAL to help reduce data costs, and SEAL earns FIL rewards by storing this data on the Filecoin network."

Perhaps influenced by this, the price of the FIL token has been steadily rising since its low point last October. As a DeFi protocol on Filecoin, the amount of FIL borrowed and leased on Glif continues to increase, with approximately 10 million FIL currently borrowed and 8 million FIL leased.

In addition to the favorable factors for the Filecoin ecosystem, Glif's "liquidity leasing" facility centers around the yield-bearing liquid staking token iFIL, laying the groundwork for an upcoming points program that will reward users based on the accumulated value of their iFIL tokens, with points potentially indicating a future token airdrop. This funding will help Glif expand its "liquidity leasing" facility.

Glif: A Solution for the Filecoin Staking Market

Glif is the foundational DeFi primitive for Filecoin and the first liquidity leasing protocol in cryptocurrency, utilizing the Filecoin Virtual Machine (FVM) for its liquidity leasing facility. Therefore, before interpreting Glif, let's briefly understand Filecoin and FVM.

Built on FVM

Filecoin is a decentralized data storage protocol, with its biggest competitor being Arweave. Kyle Samani, founding partner of MultiCoin, views Filecoin as a superset of Arweave, offering more optionality and configurability due to its parameterization capabilities, allowing developers to customize storage parameters such as the number of replicas, unlike Arweave's single parameter. He believes that Filecoin and Arweave may coexist for a long time, but Filecoin, with its higher configurability, provides greater flexibility and potential use cases.

A notable distinction is that while Arweave addresses data redundancy through protocol design, Filecoin relies on economic incentives, specifically FIL token staking.

Whenever miners provide storage space for clients, they need to stake FIL as collateral. This staking amount is meant to seal storage blocks and keep the sealed storage blocks on the miner's device. This structure ensures that miners will store data for clients during the agreed transaction period in exchange for incentives. Incentives are distributed through PoSt (Proof of Space-time), with miners earning rewards by proving they have stored the correct client data.

However, miners only have about 1% of their rewards (or operating income) liquid, forcing them to borrow fiat currency or FIL tokens from third parties to cover operating expenses, upgrade hardware, pay maintenance fees, or attract/renew transactions. Since these are loan products, storage providers must undergo KYC and strict auditing processes to borrow FIL.

Related reading: "Interpreting Filecoin Staking Economics: Staking Will Fill the Supply-Demand Gap of FIL in the Ecosystem"

On this basis, Filecoin launched the EVM-compatible virtual machine on March 14 last year, allowing any developer to deploy smart contracts on the network. FVM introduces programmable payments for storage, retrieval, bandwidth, and computation, making Filecoin programmable. For a detailed explanation of how FVM works, refer to "In-Depth Interpretation of the Filecoin Virtual Machine: How It Works, Unlocked Use Cases, and Its Importance"

In simple terms, FVM allows for the creation of a trustless market, establishing a marketplace for FIL borrowers (miners) and lenders (which can be FIL holders). FVM brings FIL lending on-chain, allowing retail FIL holders to stake their FIL, while miners borrow FIL from the liquidity pool. Essentially, FIL lending allows miners to access cash in advance by accumulating future rewards, making FIL mining more capital efficient.

And this solution is Glif.

Glif's Technical Architecture

The main difference between Glif and other CeFi/DeFi lending protocols is that SP (Service Providers) maintain control over their miner roles (Miner Actors). The protocol achieves this through an "Agent architecture."

An Agent is a smart contract located between SP and the infinite pool. The Agent abstracts the ownership of the borrowing pool from SP, alleviating the "lock-in" suffered by other DeFi or CeFi collateral, lending, and leasing solutions.

Image source: Glif Documentation

SPs own and operate their Agent smart contracts and interact with the pool using that contract. Each SP in the system deploys, owns, and controls its own Agent, which is operated through the GLIF CLI.

GLIF CLI maps human-readable names to account addresses. Whenever you pass an "address" parameter or flag to the command, you can use the human-readable version of the name. For example, if you have an account named "testing-account," you can send transactions using "from testing-account." Additionally, GLIF CLI includes a wallet for writing transactions to Filecoin, based on a go-ethereum cryptographic key store. A single "wallet" can hold multiple independent "accounts," each with a human-readable name.

Agent smart contracts can be in one of three states: good, monitoring, or default. Currently, the Glif team manually transitions Agents from "good" to "monitoring" or "default" states to avoid potential dangerous automation errors. Once stabilized and sufficiently secure, this process will be decentralized and automated.

On the other hand, to borrow, the Agent needs equity. The more miner roles committed to the Agent, the more equity it accumulates. The Agent accumulates borrowing capacity by staking miner roles, and SP can remove Miners from their Agent at any time, as long as the remaining equity on their Agent is sufficient to collateralize the outstanding borrowed funds from the pool.

When the Agent wants to take actions such as borrowing funds from the pool, it must first request credentials from ADO. ADO is an off-chain data aggregator that allows pools to securely receive any real-time and/or historical data about SPs at a very low cost. Each pool can receive its own unique data from ADO, allowing for maximum flexibility. ADO issues a signed credential to the Agent containing the latest data snapshot regarding the associated Agent and all its associated miners. The Agent then brings this credential to the pool it wishes to borrow from, and the pool uses the credential to decide whether to approve the action.

Image source: Glif Documentation

Permissionless Market Glif Pools

The "pools" mentioned in the previous section are essentially customized capital markets deployed on the Filecoin network.

Currently, the primary function of the Filecoin network is file storage, with SPs staking FIL as collateral on behalf of their clients. To provide storage, SPs must provide two forms of capital: hardware and financial capital (in the form of FIL).

SPs come in many shapes, sizes, jurisdictions, and skill levels, while FIL holders have different economic situations, time horizons, and risk preferences. Additionally, the theft protection on the Filecoin network requires a regulatory-style arrangement between FIL holders and SPs to ensure that SPs do not take the funds. This relationship between FIL holders and SPs creates additional capital inefficiencies on the network, as SPs are effectively "locked" to a single capital provider at a time.

To address the core capital efficiency issue in the Filecoin ecosystem, Glif uses FVM to create a permissionless market, Glif Pools, between those who own FIL and SPs who have hardware.

Glif Pools are a unique DeFi protocol that makes it safe, simple, and efficient to deploy any number of pools. Each pool should be sufficiently different from one another to attract a broader range of capital and SPs. A single SP should be able to borrow from each pool simultaneously without being locked into any single pool. FIL holders should have the ability to deposit FIL into any pool that aligns with their risk, return, and time horizon preferences.

Infinity Pool

The first pool of the protocol is the Infinity Pool.

The Infinity Pool is a decentralized lending pool for Filecoin lending, with standard rules for every SP on the network, prioritizing the safety of stakers. The Infinity Pool does not set an expiration date for the FIL deployed to SPs in the system; all SPs on the network are treated equally by the Infinity Pool, and as long as they pass the risk standard check, they can borrow from the pool. Thus, permanent staking provides the most productive and efficient environment for the entire network. SPs do not need to worry about whether they have enough FIL to renew and extend their sectors, keeping the network's energy online and growing at a faster pace.

The Infinity Pool protects stakers by enforcing two strict rules on borrowers: SPs must not fail to repay any funds for three consecutive weeks, and SPs must not experience sector fault incidents for three consecutive days (resulting in reduced computing power). If either of these rules is violated, the SP will face liquidation. GLIF will recover as much FIL as possible and terminate the SP miner's sector. This is a destructive action for both the SP and the entire network, resulting in data loss from sector termination.

According to Glif's official simulations conducted over 18 months, the network recovery rate is approximately 60%, meaning that (on average) the risk of loss for any FIL deployed to SPs is about 40%.

iFIL and Points

When SPs borrow FIL, they must make weekly payments to the pool, which are counted as earnings for FIL Stakers, known as iFIL. Stakers earn rewards by holding the iFIL liquid staking token; however, the value of 1 iFIL is not fixed.

iFIL operates as a liquid staking token: over time, it earns rewards from SPs. SPs can lease FIL from the liquidity pool for staking based on the amount of collateral they have locked in the protocol. After leasing, SPs must make weekly payments to the pool. These payments serve as rewards for liquidity providers. Due to the complexity of the underlying cryptoeconomics of Filecoin, the mechanism adopted by Glif is similar to crypto "leasing."

Specifically, the amount of iFIL received for each 1 FIL deposited will gradually decrease, as over time, 1 iFIL can be exchanged for more FIL tokens, making it more expensive to mint 1 iFIL. Additionally, if the pool loses funds during operation, its underlying FIL will decrease, meaning the number of FIL that can be exchanged for 1 iFIL token will also decrease.

Image source: Glif Documentation

Moreover, according to informed sources, Glif is set to launch a "tentative" points program that will reward users based on the accumulated value of their iFIL tokens.

Glif will reward points based on how much value users bring to the ecosystem, with more iFIL equating to more points. Currently, 1,600 depositors on Glif have locked up 10 million tokens, influenced by the points program. The program is expected to launch later this quarter.

Team and Funding Background

In terms of funding, Multicoin Capital has long been optimistic about the Filecoin ecosystem.

In a podcast episode of "Empire" last April, MultiCoin explicitly expressed its optimism for Filecoin. On February 6 of this year, MultiCoin led a $4.5 million investment in the Filecoin ecological liquidity staking platform Glif.

The Glif team, led by Jon Schwartz and Peter Andersen, has been building foundational products in the Filecoin ecosystem since 2019. Before launching the liquidity leasing protocol, they built the first network wallet for Filecoin's mainnet, a multi-signature wallet version for Filecoin's SAFT tokens (which the Protocol Labs and Filecoin Foundation still use to manage payments), Filecoin's de facto RPC service (handling over 85 million requests daily), and several other key applications and tools for the Filecoin network.

One interesting and under-observed aspect of Glif is the protocol's ability to deploy multiple interoperable capital markets using its custom assets and rules. While there is currently only one market, this capability opens the door for Glif to collaborate with LPs and SPs in a customized manner and to horizontally expand as Filecoin matures to accommodate new use cases.

For example, Glif could deploy custom pools specifically designed to lower the barriers to entry for new SPs joining the network, stablecoin-based pools that utilize SPs' storage transaction flows as borrowing collateral, and/or pools that deploy capital to SPs storing specific datasets or running specific computational programs.

Ultimately, we envision a Filecoin economy with many customized pools to incentivize niche or specific use cases in data storage, retrieval, and eventual computation. In this way, Glif's architecture is entirely unique and capable of scaling alongside Filecoin and the new use cases that will emerge as FVM matures.

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