Background

Filecoin storage providers need to pledge collateral in FIL when onboarding sectors. Sourcing pledge collateral is an impediment to providers’ growth. Some providers would like to borrow FIL in order to fund the pledge for onboarding new sectors. Off-chain, custodian-mediated programs for this exist already, and the FVM will enable on-chain lending like

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Filecoin mining loan broker design sketch

, but these are either low-volume or moderately far in the future.

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.

We are proposing network loans: a way for the network to lend FIL to miners for pledge collateral. This is a relatively small protocol change that could be delivered to the network quickly without significantly impacting other ongoing work.

Goals

Miners can borrow funds for pledge collateral from their own future income

Including new/small miners with little up-front capital or reputation

The network earns a return on loaned capital
Economic impact only in the direction of locking up more circulating tokens for longer
Retain consensus security, etc

Design ideas

The Filecoin network lends funds to providers for use as pledge collateral, and then captures their rewards to pay back the debt. The funds are lent from rewards the provider will earn in the future.

There are two types of network-provided loans: under-collateralised loans (for new/small providers) and collateralised loans (for established providers).

Under-collateralised network loan

A miner can commit sectors with less than the required initial pledge lockup.

The initial pledge is currently 10x more than the pledge required for consensus security, so we could allow as little as 10% actually pledged.

The shortfall between the notional and actual pledge is a collateral debt that the miner owes to the network, tracked by the miner actor.
While a miner has collateral debt, it incurs interest. The interest rate is dynamic and has two parts:

a network interest rate, which is a function of the ratio of collateral debt to collateral posted for the network as a whole (more debt → higher interest)
a miner risk premium, which is a function of the individual miner’s collateral debt to collateral posted

As a miner earns block reward, all vested rewards are first redirected to:

pay down fee debt [this is already the case today]
pay down the interest accumulation, by burning the funds
lock up as pledge collateral, until miner’s collateral debt is reduced to zero.

A miner defaults on their loan if they cease operation (i.e. earning rewards) while in collateral debt. Their posted collateral will be burnt as sector termination fees.

The “loaned” funds are not recovered by the network in this case. The has defaulted on a service obligation, rather than a financial one. The network loses the pledged service of maintaining the sectors.

This type of loan is ideal for new miners with little up-front capital or earned rewards. Interest rates would likely be higher than for collateralised loans.

Collateralised network loan

A miner can use their earned-but-vesting rewards to pay pledge collateral for new sectors, essentially borrowing from their own future income.

Logically equivalent to taking an under-collateralised loan, and then paying it off over time with the vesting funds. Simpler in operation to just move the funds directly.
The loan is collateralised because we can secure the funds immediately.

The miner pays (burns) an up-front interest charge when taking the “loan”.

The rate may be the network interest rate, with miner risk premium = 0.

The idea of using vesting funds as pledge has been proposed before. This proposal casts it explicitly as a loan, and the network earns revenue from it.

Since the minimum sector commitment (180d) matches the vesting period, this results in funds being locked up strictly longer than if they were allowed to vest. If this condition didn’t hold, we would need to continue to track the vesting schedule of the borrowed funds.

Discussion

Helps with collateral bottleneck, but not sealing throughput
Using vesting FIL is not as good as using free funds. May reduce buying/borrowing pressure from lenders. Doesn’t put idle tokens to work.
If treating unearned rewards as collateral, might we as well treat vesting ICO tokens as collateral too? It’s more predictable as income.
Runs some risk of undermining active lending programs, which would reduce locking up of free FIL. Changing the underlying protocol has an “unfair advantage”.