The newly launched Filecoin project is running into problems already as miners pull their collective plugs over a token model that does not appear to be economically viable.
The much-hyped Filecoin data storage network launched late last week following a three-year hiatus after its $250 million pre-sale and ICO. A huge level of Chinese FOMO pushed token FIL prices over $60 at the weekend but the dump has already been started and the project is being labeled a Ponzi.
Mining these new storage-based tokens requires a lot of expensive hardware due to the complexities of the blockchain. Additionally, miners need to stake tokens in order to collateralize their drive space which is shared on the network.
This means that they also have to buy tokens before they mine them which has brought the entire tokenomics model under the spotlight.
Filecoin Miner Strike
According to reports citing Space Cloud chairman, Lai Chuhang, miners had already powered down their pricey rigs in protest;
“The mainnet is online and all the miners are stopped there. It is really not a so-called ‘demonstration’, it is helpless! Do mortgage mining! Stupid economic model!”
A twitter account called ‘Nico Deva’ broke down the model using examples of earnings and expenses in a tweet that has been widely shared across crypto social media.
@filecoin has transitioned from calibration net to mainnet at block 148,888 after a 200M ICO and 3 years of dev.
Within 24h of launch a majority of miners are already on strike and talk about a failed wedding and forks.
— Nico Deva (@NicoDeva_) October 18, 2020
He added that there is also a problem with the staking system which presents a ‘chicken and egg’ dilemma; ‘nobody has FIL to start mining and get FIL’.
Less than a week after launch there is already talk of hard forks and improvement proposals such as FIP-0004 which aims to make 25% of storage-mining rewards immediately available with no vesting.
Prominent crypto venture investor and analyst Andrew Kang stated that over $1 billion was spent on mining machines in China, adding that it is a Ponzi at 1000x scale;
“Either this is one of the greatest economically engineered pumps in crypto history, or Filecoin needs better economic advisors,”
FIL Pump and Dump
FIL token prices were sold to investors at an ICO price of $2.36 with six months vesting and they didn’t move much for the three years that followed the sale. In the buildup to the final mainnet launch, token prices pumped and topped $60 when it did go live on the 15th of October.
Over the weekend FIL prices have collapsed around 50% from that peak to around $30. If the mining saga cannot be resolved, Filecoin may go down has just another elaborate crypto pump and dump.