@Alex North and @Nicola.

Background and problems

1. Some SPs have difficulty borrowing the pledge collateral required to commit new sectors, especially FIL+, and probably more-so for longer commitments after SDM. Demand for borrowed tokens exceeds supply, and this constrains onboarding.
2. The network is experiencing inflation as the supply inflows of block rewards, SAFT vesting and pledge unlock exceed the outflows of pledge locking and gas burn. (This compounds the capital access problem, as fewer parties want to own and lock FIL while inflationary, and also pledge requirements increase with inflation.)
3. We hope that off- and on-chain FIL leasing solutions will develop to close the gap. These will take time to mature and grow, but we don’t want to crowd out such developments.

Proposal

The basic mechanism is:

• An SP is permitted to onboard or extend the commitment to sectors with less than the nominal pledge collateral requirement. The maximum allowable under-collateralisation is the shortfall fraction, (calculated for the SP as a whole, not per-sector). E.g. if the maximum shortfall fraction is 30%, the SP must provide 70% of the sector’s initial pledge. The SP is constrained so their total collateral shortfall across all sectors cannot exceed the shortfall fraction. The maximum shortfall fraction is calculated to be that amount that could be repaid in full by garnishing expected block rewards (vested, and after fees) within a target term (e.g. 1y, the minimum sector expiration).
• An SP with a pledge shortfall continuously accrues a shortfall fee for maintaining this shortfall over time, e.g. 20% p.a. This fee is paid by burning tokens from the block rewards earned by the SP (from the part vests immediately). The shortfall fee rate could be a constant, or a dynamic value that scales with each SP’s shortfall. The maximum shortfall fee is bounded by the expected block rewards to be earned and immediately vested.
• An SP with any shortfall has some fraction of their vested rewards automatically redirected into pledge to reduce the shortfall. The repayment rate is at least sufficient to repay the entire pledge shortfall within the target term. This mandatory repayment is the key to this proposal’s positive impact on inflation.

When a sector expires, only the fraction of target pledge that has been satisfied (initially or from repayments) is released to the SP, i.e. actual pledge is released in proportion to the expired sector’s share of the total pledge requirement. The SP’s shortfall fraction remains constant, and the SP could then onboard one new sector with that released pledge while maintaining that shortfall fraction (if the pledge requirement has remained constant).

Summary of intuitions

Problem (1) of difficulty sourcing pledge tokens is addressed by reducing collateral requirements. SPs will be able to commit more storage & deals with the tokens available to them, but receive a lower net reward after paying fees, compared to SPs that deposit the full pledge.

Problem (2) of inflation is addressed by both the shortfall fees and, much more significantly, by the automatic redirection of vested rewards into pledge.

Problem (3) of crowding out is mitigated by requiring each marginal sector to still provide a large portion of its required pledge, and by setting generally high shortfall fees. Demand for leased tokens will remain high, and leasing externally will usually be more economical than taking a shortfall (but doing both at once is likely).

It is rational for an individual SP onboarding storage to take on a pledge shortfall because they can then get more power for a fixed amount of pledge. However, any increased share of rewards may be competed away by other SPs doing the same thing. The rationality of maintaining a shortfall (when pledge funds are limited) induces a large fraction of block rewards to be re-committed to pledge before they vest, so never enter the circulating supply.

Summary of impacts

To give a guide to the scale of impact, rough analysis suggests that given Feb 2023 network conditions, a high bound is:

• A maximum shortfall of ~35% could let SPs onboard 53% more QAP for the tokens available to them (18EiB → 28EiB, over time). This shortfall is repayable with a max repayment rate of 75% of gross rewards (i.e. all vesting rewards) over one year.
• A shortfall fee of 33% p.a. could result in burning up to 65K FIL/day, at max shortfall (up from ~2K/day gas burn recently). This is burn rate of 5.6% p.a. of circulating supply (up from 0.17%). SPs would still have a 53% p.a. return on pledge requirement (down from 71%).