Filecoin's token economy is simple and effective. $FIL was created to facilitate the transactions between people who need storage and those who provide it, as well as to be used as collateral and extra rewards, creating a “carrot and stick” incentive model for uptime.
Although transactions can be done in other cryptos, and so can collateralisation and rewards, the main reason for $FIL’s creation is to continue the notion of decentralisation - why trust another entity, be that Bitcoin or Tether or Circle, to be so integral to your economy?
The only issue $FIL runs into is price appreciation: there is high velocity between users paying for storage and storage providers - one buys, one sells, and although this velocity is slowed by the requirement to stake $FIL as collateral, it is also accelerated once more by Filecoin rewarding minting more $FIL as rewards.
This creates a simple equation: as long as the quantity of $FIL newly collateralised is more than the $FIL sold onto the market, $FIL will appreciate in price. But this will only happen when the demand for storage goes up.
Herein lies the problem: when demand plateaus (meaning no new collateralisation required), due to extra $FIL being rewarded, $FIL will depreciate.
In essence, there is only 1 scenario for $FIL to appreciate (when the demand for storage is going up), and there are 2 scenarios for $FIL to depreciate (demand going down, or simply remaining the same).
This works fine for L1s like Bitcoin or Ethereum because their tokens are used for far more than one utility, but $FIL sadly doesn’t have the same luxury.
As Filecoin grows, $FIL will keep appreciating towards a new equilibrium due to the increase in demand, but, until all $FIL is mined, that equilibrium will constantly face excess sell pressure.
Filecoin is an L1 that allows users to lend their computer storage to others, in a decentralised manner. Instead of using centralised storage providers, for instance One Drive or Google Drive, Filecoin allows users to use the storage on computers of other users, creating a peer-to-peer network of storing data.
This network means there is no single point of failure, as well as a guaranteed lack of external parties being able to access your files.
The Filecoin ecosystem extends out via the Filecoin Virtual Machine allowing dApps to build on Filecoin, utilising its storage mechanisms and providers for any use cases.
$FIL is used to transact in the economy and to ensure storage uptime by requiring being collateralised and by being minted as extra rewards. There are two main parts to the economy:
The extra rewards come from two sources of distribution, “baseline minting” and “simple minting”, where 770M $FIL is minted based on network growth and 330M $FIL is released on a 6-year half-life, respectively. These rewards experience a vesting schedule, whereby 25% is unlocked straight away, and the other 75% is vested linearly over 180 days.
Even with this vesting, $FIL’s aforementioned problem is only delayed, not solved.
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