The sector initial pledge requirement is dominated by consensus pledge, calculated as a power-based pro-rata share of circulating supply. Fluctuations in the network power and circulating supply over time result in sectors with equivalent power, onboarded at different times, having quite different pledge amounts.
Initial pledge per unit power is fixed at the time of onboarding. It can increase if a sector is extended or upgraded when the initial pledge requirements are higher, but can never decrease. Sectors that are onboarded during a period of high circulating supply or low network power are thus locked in to that high pledge, while sectors onboarded later might enjoy a much lower initial pledge.
The extent of this “cost of power” pledge variation is shown at epoch 2,900,000. The current initial pledge for 32GiB is 0.208 FIL.
15% of power is paying a cost of pledge that is higher than current requirements. This has improved quite significantly since 2023-Q1, where nearly half of power was paying a high rate. However, this “improvement” is likely mostly due to sectors expiring or being terminated rather than extended.
The variance is much greater for 64GiB sectors. I haven’t investigated why, but I would expect the difference comes down to variations in age distribution.
A relatively high sector pledge is an incentive to expire/terminate a sector, because the pledge (less any termination fee) is returned to the SP. Even if a provider wishes to continue participation, incentives push them to expire/terminate sectors and seal new ones rather than simply maintain their current storage. Pledge arbitrage is a pejorative for SPs explicitly terminating sectors for this reason, but they are just responding to the incentives provided by the network.
This relative incentive to terminate is independent of a sector’s value to the network. When high pledge corresponds to a sector carrying client data, an SP faces an incentive to terminate the deal too in order to re-onboard a new sector at a lower pledge.
Heterogeneous cost-of-power between sectors can thus distort an SP’s alignment with network outcomes. If an SP wishes to offboard sectors, it would be better for them to offboard the sectors that are least valuable to the network, on the assumption that this value can be aligned with value to the SP (e.g. through client deal payments or FIL+).
Sector initial pledge requirements may decrease quite significantly over the medium term as the baseline function overtakes the network QAP. This could quickly put a very large proportion of existing sectors and power into the position of being more expensive to maintain than new onboarding.
A termination penalty acts against this differential incentive, but is far from perfect:
- termination penalty is only effective when a sector is terminated early
- termination penalty thus incentivises shorter commitments
- termination penalty increases risk for all SPs and sectors (and their funders), not just those with high pledge
A more effective mitigation might be to remove this pledge differential altogether, at least when a sector is above the current initial pledge requirement. Then an SP can terminate less-valuable sectors without opportunity cost.