This report articulates motivations for Filecoin sector termination fees, notes some issues with the current design, and proposes new design goals.
<aside> 👉 Mostly replicated in https://github.com/filecoin-project/FIPs/discussions/691. See also CEL’s Termination Fee Analysis.
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It’s worth describing why we might want termination fees at all. Participants first need to reach alignment here if we want to later align on a mechanism or change.
In decreasing order of importance.
Termination fees play no role in proof-of-space or consensus security. We only require that a terminating sector pay at least one fault fee (so that termination can’t be used to escape a fault).
fees may not be a sufficient disincentive to prevent storage providers from prematurely exiting storage deals
Clients may need storage providers to be subject to some disincentive to prematurely existing storage deals. The primary incentive to maintain deals is the fees (or QAP) for doing so, but additional stake can still be important.
A sector termination fee is not a good way of providing client assurance. Big reasons why are:
With client interests in mind, surely it would also be much preferred to pay the fee to the client in the event of a deal agreement cut short. Client assurance is important, but applies only to data and would be far better left to the parties to negotiate.
The network could assert a level of minimum client assurance, a minimum termination fee that must apply to all arrangements with all clients. Perhaps there is some social good to be gained from this that can't be reached by the market (compare with a minimum wage law, and all associated uncertainty and controversy). If relevant, it shouldn't apply to CC sectors that provably have no data.
A sector termination fee is a disincentive to storage leaving the network, in that an SP in hard times may be better off maintaining an unprofitable sector than terminating it early. It's also a disincentive to storage entering the network, as an SP accounts for that lack of optionality, and some expected rate of termination due to operational errors, and/or probability of catastrophic event. Both of these can contribute to stability of the amount of storage committed: less onboarding, and what is onboarded is a bit stickier.
How valuable is stability of the storage commitments? Bitcoin has no exit fees, consequently volatile hashpower, but ... does this matter? There is probably some value here for the image of a storage network, even if it only affected CC. Stability will reassure potential clients. Some disincentive to exit is probably justified (but there might be alternatives to termination fee). This motivation does not justify any differential in termination fees for different sectors of the same size – if an SP is going to terminate a sector, it may as well be the least-profitable one to them, regardless of duration.