@Alex North, 1 February 2022

Background

Filecoin storage providers need to pledge collateral in FIL when onboarding sectors. This pledge is held to require providers hold a stake in the network’s value, as well as as a buffer from which to pay penalties if other fund sources are consumed. Tokens locked as pledge collateral account for a substantial portion of the money supply. When providers earn block rewards, 75% of those rewards are also held as a kind of collateral, and vest to the provider over a period of 180 days.

Sourcing pledge collateral is an impediment to providers’ growth, both because buying it entails price risk in a volatile token, and it is a large amount relative to expected earnings and other costs. It takes nearly a year for one sector to earn enough to pledge another (plus vesting time).

Some providers would like to borrow FIL from long-term investors in order to fund the pledge for onboarding new sectors, and investors would like to earn a return on their holdings. Some ad-hoc off-chain arrangements exist, but they could be far better supported. An on-chain lending market could significantly ease the borrowing process and make far more capital available to providers. Such loans would not be collateralised by other funds, but by the provider’s vesting and future earnings.

The Filecoin VM is expected to enable user-programmable contracts by about mid-2022. At this point we hope that many financial building blocks and applications may be developed, including lending markets. This is one possible design for a loan broker that has minimal other dependencies and could be practical quickly. It could also be implemented as a built-in prior to the FVM.

Goals

• An on-chain system for token holders to fund pledge collateral for storage providers
• Non-custodial, funds are controlled by private keys and contracts
• Under-collateralised loans, providers don’t need to stake equivalent value to the loan drawn
  • Over-collateralised loans are already available on Ethereum via renFIL/Aave.
• Minimal dependencies on other applications (e.g. DEXs, oracles), which will take time to mature
• No special access, can be implemented in FVM once user-programmable contracts are possible
• The simplest thing that could reasonably work well over the next year or so

Some non-goals

• Be enshrined as the lending market, locking out innovative future competition

Design ideas

Requirements and constraints

The implementation of loans must align with the reality of providers’ cash flows in the Filecoin mining system.

Some observations which lead to design constraints: