One of the more misleading terms in the digital asset space is ‘mining’. The term stems from Bitcoin mining, where people use it to describe the process whereby, after allocating computer resource to the Bitcoin Network, you ‘find’ (or are rewarded) Bitcoins. The term has been loosely extended to incorporate all forms of earning cryptocurrency.
Filecoin is one of the most exciting developments in Web 3.0. It is a decentralised cloud platform that is set to become the ‘Airbnb’ for cloud storage. Like Airbnb, Filecoin allows participants to rent out storage on their computer or facility.
But when it comes to Filecoin, ‘mining’ is far from mining at all. It is more like a cloud (data) storage business. In the Filecoin ecosystem, participants who provide computer storage are paid for providing that storage. The main difference is that participants are paid in the network’s native currency, FIL. The more storage you provide the network the greater the percentage of FIL rewards you earn.
Filecoin mining is really an exercise of providing data storage, with a little more complexity. Filecoin is a blockchain, so there are few steps that a storage provider must do to provide the storage to the Filecoin network.
Holon has become a Filecoin ‘miner’ – or in more accurate terms – an operator of a Filecoin data storage business. To help scale the operation, we have launched the Holon Wholesale Filecoin Fund.
Below I explain how Holon and the Wholesale Filecoin Fund are structured to work together to deliver a strong yield for investors.
It is an example of how innovative asset managers are shifting from ‘passive’ investments (buy and hold) to ‘active’ investments by partnering with technical teams to add value to networks, so they can deliver superior returns in the burgeoning digital asset space.
The power of collateral in the Filecoin Network
If you want to add storage to the Filecoin Network, you need two things. Firstly, hardware, and then, secondly, FIL as collateral.
The hardware side is technical. It requires Holon experts to research, design and implement. The hardware itself has two specific tasks. The first is to store the data, and the second is to communicate to the network and provide proof that you are in fact storing the data.
Customized machines, that are typically designed for machine learning, conduct the proofing component. The more efficient they are, the faster Holon can add data storage (“Sectors”) to the network, and the more profitable the operation.
When it comes to collateral, it allows the Filecoin network to create an incentive for operators to store data for a lengthy period of time. If an operator drops someone’s data, their collateral is slashed. So, there is an economic incentive to store data for extended periods.
This is where the our Holon Wholesale Filecoin Fund comes in to raise money from investors who want exposure to FIL.
The FIL raised by the Holon Filecoin Fund is used to add collateral to the network to enable the operations to scale out faster than they could by themselves. This helps solve the collateral side of the operation.
Because of the unique features of Filecoin, we are already starting to see adoption, particularly in the Web 3.0 space, where people are looking to store non-fungible tokens (NFTs) on a decentralized network which aligns with their values.
Overtime, we expect the Filecoin Network and the tooling surrounding the network to improve, making it easier for people/businesses and developers to adopt. Holon is working with many in the Filecoin community to build these tools, providing direct value to the Network.
Unlocking yield and higher returns
As Holon adds storage capacity on the Filecoin network it earns FIL as payment. Holon can then use this FIL to grow the cloud storage operation further by using it as collateral. The FIL could also be sold down to pay costs or returned to investors.
The Holon Wholesale Filecoin Fund is structured so that for every FIL that investors invest in the fund, they will receive two times that FIL at the end of a five-year period (the Fund makes the final payment in AUD.) Investors, therefore, can achieve a capital gain on top of a yield of their FIL.
It is important to note that an investor interested in getting exposure to FIL could ‘passively’ invest in FIL. But it is the Holon Wholesale Filecoin Fund’s relationship with innovative data storage that means investors can reap the benefits of using FIL as collateral on the network. That not only adds more value to the Filecoin Network, but it lets the investor earn a greater return in FIL.
This is common in many aspects in the digital asset space. Holding Ethereum, for example, returns no yield. But ‘staking’ (temporarily locking up your ETH) on Ethereum 2.0, which improves the security of the network, earns approximately 5% on its cryptocurrency ether (ETH).
Asset management in the digital asset space will require firms to work closer with a technical team to unlock these higher returns, whilst also minimizing the risk to suit the investor needs.
It is a significant shift away from the ‘passive’-like investing of today. These networks reward those adding value and its likely asset managers adding the most value to these networks will be the ones that add the most value to their investors.