Filecoin Categorically Denies Any 'Mining Crisis'

Token price drops 25% on rumors of miner strikes. But Filecoin says none have dropped out and miners are making ‘a ton of money.’

Decentralized storage network Filecoin launched last week, amid much excitement. But less than 24 hours later, reports surfaced of miner unrest, and Filecoin’s token, FIL, has since plummeted 25%.

The much-anticipated project presents an alternative to centralized storage providers such as AWS. But Chinese crypto site 8btc has claimed that five of the largest mining pools have thrown in the towel since Filecoin launched on Thursday, and there’s talk of them potentially forking the network. Critics claim that the project’s economic model provides little incentive to mine the cryptocurrency.

Filecoin pushes back

Filecoin founder Juan Benet today strenuously pushed back against the reports.

(7.0) I was asked about a supposed “Miner Strike” — This is nonsense. There is no strike. Miners are proving their storage just fine. There’s been no power loss out of the ordinary in the network. Miners are following the protocol, and making a TON of money doing so. pic.twitter.com/3U9MN0JGm9

— Juan Benet (@juanbenet) October 19, 2020

The company said that they know of no big miners that have exited its blockchain. “We’re confident that miners are very favorably incentivized to participate in the network,” Ian Darrow, Head of Operations at Filecoin told Decrypt. “We don’t know of any miners who have gone offline.”

The company also issued a detailed report early today attempting to rebut criticism and offered new loan programs to help any miners that need support. Protocol Labs, which oversees Filecoin, “is working with a partner (TBA) to provide small loans to miners from now until broader loan markets take off. More on this during the week,” Benet tweeted today.

(6.4.) Third, PL is working with a partner (TBA) to provide small loans to miners from now until broader loan markets take off. More on this during the week. pic.twitter.com/uxcoGt9eNx

— Juan Benet (@juanbenet) October 19, 2020

Disputing reports that miners are quitting the network, Darrow said that miners are still providing storage capacity, with an additional 2 pebibytes (PiB) added in the past three hours alone. (One pebibyte is equivalent to approximately a million gigabytes.) “Not one large miner has said they are going to stop mining,” he said.

“In fact, the network continues to grow rapidly, and just crossed 600 PiB today,” Darrow said. “Some miners who have been working on the project for months or years before launch are indeed choosing to sell FIL they mine instead of reinvesting it. We don’t know what sorts of financial obligations these miners might have—they may have taken out loans that are due, or be getting pressured by investors to pay dividends. Ultimately, we totally respect miners’ choices on how they manage their cash flow.”

Woohoo! @Filecoin just crossed 6⃣0⃣0⃣PiB! Happy Monday to you too! pic.twitter.com/bPTCUkgCij

— Molly (@momack28) October 19, 2020

However, 8btc.com quoted Lai Chuhang, who is prominent in China’s Filecoin community, and chairs technology startup Space Cloud, as saying that miners were “helpless.” No one has money to continue, he claimed.

Filecoin’s tokenomics criticized

Filecoin’s economic model means that successful miners are rewarded with tokens each day for 180 days, however, the miners must provide FIL as collateral, ensuring that their commitment is honored. Filecoin has created a lockup that mandates investors to hold onto FIL for at least six months after the mainnet launch

An anonymous Twitter user, Nico Deva, posted a long thread with detailed criticism of the model on Sunday.

@filecoin has transitioned from calibration net to mainnet at block 148,888 after a 200M ICO and 3 years of dev.

Within 24h of launch a majority of miners are already on strike and talk about a failed wedding and forks.

Why? (1/n)

— Nico Deva (@NicoDeva_) October 18, 2020

“Here in China people are disgusted, 恶心 (nausea), this is the word repeated,” he tweeted. “A napkin calculation shows you early on that your mining system that requires $20k hardware also forces you to buy more coins. In a country where ponzinomics is an art, the 2017 poster boy just [blew] it.”

In his tweetstorm today, Benet pointed out that it has tried for weeks to get ahead of miners’ concerns by making 25% of token rewards available for withdrawal immediately after a block is successfully created.

(5.2.) Note: there’s some confusion and some think FIP-4 is a reaction in the last couple of days. (covered in press that way…) To be clear: FIP-4 was the outcome of long prior analysis, and conversations spanning many weeks. These parameters were contemplated several weeks ago

— Juan Benet (@juanbenet) October 19, 2020

“Following launch, we saw some miners choose to sell some Filecoin, and this is totally understandable; miners have been working with no cash flow for years and it’s not surprising that they want to de-risk slightly before continuing,” said Darrow.

But he added that few miners were selling all the FIL they’ve generated, and most are reinvesting. “The net result of which is the continued growth of the network,” he said.

Filecoin’s Liftoff

“Overall, we’re very happy with what we consider to be a very successful launch,” said Darrow. “The transition to mainnet has been super smooth and the software works very well—which is by far the most important thing. Of course, we’ve seen some craziness, but no more than we anticipated given all the excitement around Filecoin, and things are leveling out.”

But despite the team’s best efforts, the price of its token has continued to fall. Trading opened on Thursday at $26 and peaked at $63 before the token fell to $31, with market capitalization falling from $952 million, at peak, to $539 million.

And there are concerns that Filecoin’s tokenomics may require further work.

Is there some statement if @Filecoin wants to recover and tune-up their tokenomics for good long-term traction?

I sense huge outrage on launch which as a believer in your underlying tech, I’m disappointed for now

— Matej /ˈmatɛj/ (@yangWao) October 19, 2020