⚖️**CryptoEconLab** authors: @Axel Cortes Cubero @Dave Costenaro @Maria Silva @Tom Mellan @Vikram Kalghatgi

<aside> ⚠️ Please note, this analysis is based on simulations of plausible scenarios conditional on the model assumptions listed in the appendix here. The analysis is not a precise forecast of what will happen in the future. As always, a plurality of voices is valuable (people should do their own research).

</aside>

This document is a response to the points that have been raised in FIP discussion #386 and #421, and in-person discussions with EMEA, NA, Asian storage provider (SP) working groups this week. It builds on the previous modeling summary. To keep it light, information and arguments that remain unchanged will not be duplicated. Please refer to the previous summary document.

Topics addressed

• Clarification on the problem and the proposed solution
• Revised details on the duration multiplier slope and the InitialPledgeLockTarget parameter
• Important and/or recurring questions:
  • What will the new ROI be?
  • What will the initial pledge be?
  • What will the % of available supply that’s locked be?
  • What does the QAP projection look like?
  • What will the effect on small SPs be?
  • Does rolling-out too quickly create an unfair preference for CC?
  • Why the short lead time and concurrent rollout?
  • There is not enough FIL circulating to fulfill the changes this FIP potentially entails.
  • Extension of early testnet sectors.
  • I’m a FIL+ SP, will my block rewards decrease?
  • The proposal unfairly favors CC over FIL+.
  • Should there be a ramp in InitialPledgeTargetLock?

Problem and Solution

The motivation and solution are set out in the FIP draft discussion. To make them clearer, following requests, the motivation is reiterated.

Problem

• Current incentive structures and network parameters, such as 180d minimum, 540d maximums, and ROI dynamics, encourage short-term behavior. They should be updated to better incentivize long-term storage so storage providers who are long-term committed are more fairly rewarded.
• This is intended to support client demand for longer storage durations and the long-term network health.
• Part of the package is an intention to stabilize the % of available supply that is locked. This has been decreasing since approximately Sept 2021. Stabilizing locking dynamics is intended to benefit all network participants who are long-term aligned
• The proposal is judged high-priority by the FIP authors and time sensitive. In part this is due to the capacity of smaller SPs to weather the winter cycle in our industry and wider global macroeconomic downturn. Time sensitive because we believe the proposal will be positive for the network and not implementing quickly unnecessarily delays receiving the beneficial effects.

Proposed solution

• Allow committed SPs to express a longer-term view on the network and be rewarded more for their commitment.
• This is achieved with a power multiplier based on sector duration. Longer durations receive a higher rate of rewards, and longer durations also lock more collateral.
• Adapt the InitialPledgeLockTarget parameter so the total value locked tracks on a higher long-term trajectory. This increases stability which is necessary for successful SP businesses and long-term storage goals.
• Collectively these actions incentivize long-term storage and improve the long-term outlook of the network.

Revised parameters