 I feel like the people in this room I don't think you understand actually how important you are to this ecosystem so let me try to make that case today by showing you needs that people have in the community and by articulating those needs I'm gonna try to put it through a lens of finance that I hope that will stimulate a conversation that we can start to get answers that we can all work on together because to be very clear nothing I'm going to speak about in this presentation is specific to the people that I work with this is an ecosystem-wide problem now we're starting to address these challenges through a new initiative that we're working on with protocol labs called Slingshot Dow and this is going to be a new governance layer that we're putting into the Slingshot program which is now on its third iteration and our idea was to think about how Slingshot Dow could provide new types of governance vehicles for curation primarily so what data sets are allowed into the Dow and yet and yet nothing we can do in that Dow is possible unless we're able to make storage deals and what I want to give you some context on today is that there are some major constraints with the financing of those storage deals that I believe this community can actually work towards providing us answers and that begins by understanding a little bit about how token economics work and specifically what their goals are for a utility token like Filecoin so in the traditional world when you think about how startups grow the idea is that you obviously are striving to create a product or a system or a network that has value and utility is basically the goal right we have a network and we create utility within that network and the theory is through network effects the more nodes there are within the network and the more activity there is within the network the utility should go up so like marketplaces are a really good example of that right the reason why eBay continues to dominate all these years later is because the number of nodes within that network has grown to the point in which you have escape velocity and it becomes very difficult for people to leave that ecosystem right that's why the marketplace works and that of course trends towards monopoly it trends towards all sorts of market distortion so we know that there is this problem and the way that tokenomics are supposed to work is that they are providing a new set of economic incentives with tokens that create essentially think of it as like financial utility I'm borrowing here from Chris Dixon who's in a really good job at articulating this problem and he's explaining that as you're a new network and you don't have that many nodes in the network you need to provide incentives for users to join for there to be more nodes and there to spend over time for the utility to grow that bootstrapping problem tokens come in to serve that purpose and there are an alternative to the conventional means of finance which is what VCs have done as an example and the idea here is that over time those tokens will actually cease to be the primary mechanism of value creation they'll go down right there's a process in which it's very predictably it goes down and hopefully the two curves intersect at a point in which it makes sense for the network to escape and for it to become successful and so on and so forth there's enough utility even when there's not the financial utility goes down okay that's the theory so therefore the well-designed network has to accommodate all the different types of players within the network which would be the users the core developers the third-party developers the investors and of course the service providers and this is I'm not telling you guys anything you don't know but what is missing from this list is maybe some more precision around the types of services that are needed specifically if you look at where Falcoin is right now we're here we're at this critical point in which actually the utility of the network is is increasing and I can tell you as a user one of the largest holders of data on the decentralized web through the academic work that I've done over the last four years where we understand that this is something that we can start to rely on the challenge is that there's been some leakage and specifically that the financial utility is something that right now even though it's going down in a predictable way people are not necessarily using all the financial utility to actually reinvest into the system and that leakage therefore is specifically crunching our world with a lack of working capital so I want to try to articulate this problem in dollars because I think it's a little bit easier for you to see it from a user's perspective so I'll go over the basics again for those of you who are not as familiar with Falcoin so we bring data into a deal the very first thing you need to do in order to be able to actually get a deal in the system is you need to put up a pledge think of it like a security deposit and then when you put down that pledge and you agree to the terms of the deal you then start to get block rewards that come through your successful storage when you're proving through a proof of space time that you've actually done the work of storage so with that you also if the client chooses to pay you can get some revenue the same way that you would have paid let's say Amazon your monthly fee so those are your components of a deal right I have to put up a security deposit I'm going to get rewards over time if I do that and then I can also get revenue from the client against all of that I'm going to post my operating expenses and then I'm going to have some sort of markup right I want to have some profit if I'm a storage provider so in I'm going to ask you just to hold this in your head when I get to the next slide and during normal circumstances actually pretty much nets out in a way that actually reflects the world as we know it today like with even traditional storage what's interesting about it is that the Phil plus incentives started to really put stress on the system I say first in a good way in that the rewards were immense so with Phil plus if you're taking storage deals that have been deemed to be a value to the ecosystem Phil plus basically 10x the rewards the problem was in order to get 10x the rewards you also need to put up 10x the pledge so let's do some math on this if I store one petabyte orthodata for roughly speaking about a year in 2020 term 2022 terms then as a storage provider my roughly my annual expenses is coming to around $35,000 and if I take a 50% markup on top of that then now we have a total of what I offer the client is something around $52,000 that's within range of what you would expect to pay in Amazon for this tier of storage roughly speaking and by the way all of this is pegged to 50 USD to one Phil which is obviously one tenth of what it is now but I'm doing this exercise to show you where we were and also where we're going to be because you can start to see the challenges in the system so $52,000 is what my actual expenses are and including my markup and what do I get if I successfully store the deals for a year I get $1.4 million that's pretty cool that's a business that most people would want to be in the problem is I need working capital because in order to do that I have to put a security deposit down for that period of time of $3.2 million simple stuff when you look at it like this so what do we do we have to make sure that the working capital comes into the system that it's at a rate with the loans that are something that could be tolerable for people within the ecosystem to pay but there's also something else I want to offer this is the challenge to you all who are much smarter than me with the finance which is that what if instead of just using the block rewards in order to service debt we also thought about a more regenerative approach in which we actually incorporated the lenders into a model in which they become stakeholders for the broader success actually of the storage deal itself so what I mean by that the notion of regenerative finance might be best articulated by something really simple what if we took all the block rewards we used it to pay the operating expenses pay the markup service debt at a reasonable rate and then do something crazy use all the block rewards to buy Lamborghinis wait no no no no what if we use the block rewards to actually reinvest into more storage just perpetuate the deal what would happen so we did some assumptions on this and I want to credit Andrew who's in the audience is being a key part of this and the team of Brett picnic who've been incredible partners and we just did some simple math and we took into account the depth remaining block rewards the whole thing at a unit level that was like nuts I think they basically the granularity of the model was forecasting every week for 10 years what we found was that even if we basically beat the street at the time we were writing this where bonds were like roughly speaking about two and a half percent clearly that's not the case now but in event you know 2x the street so coming at a cost of capital of 5% and you reinvest the block rewards what would happen something crazy you'd be able to store the data for almost a century and that's without any optimization and the yield on this was in the billions the problem is you can't do any of this unless you have some sort of bond some sort of financing vehicle that would allow you to pony up I think it was something like 632 million dollars so we know the reward is immense we know that the system can actually work really really well but we need to have these finance vehicles to help us get there to do audacious things like this similarly if you were to take a look at the current cost of capital that's coming out of the market as it is you know 25% which is the typical rate that would be charged for this have a loan you could see that basically the model collapses and on itself you can't actually get this form of reinvestment this notion of kind of regenerative economics so the way that you can get out of this problem is that ultimately I'm sorry I did put this slide in again no one's offering any sort of investment opportunity disclaimer disclaimer disclaimer what we're saying is here that if you just run the numbers you can start to see that the yield is astronomical right and if you said to an investor hey I'm gonna pay you 5% and by the way I'm even gonna give you a sweetener I'm gonna give you an equity dividend on top of that that's a good business to be in so I'm not coming from the perspective of someone that from finance I'm coming to you from the perspective of a user we need working capital these types of vehicles are really straightforward if you can design them and you can do it cryptographically by the way with FVM these are the types of things that you can actually start to program and so what I offer in this talk is basically a invitation to start a conversation about how you can start to use the block rewards in this way to make these sorts of regenerative investments where they can drive the increase of utility they can drive things like innovation to create new types of products new types of services and finally they can even be part of the cohesion to create the types of community that we need Phil plus is a good example of that you actually can't get Phil plus if you're a single storage provider you need to team up with another three storage providers so the notion of community and the types of reinvestments that can that can drive bonding through a community are something that are very exciting obviously the work we're doing on dows you can connect the dots and understand why we think that's a good structure to do that so here's the moonshot to close the moonshot is we want institutional investment grade products so we can sit there and go credibly to the finance committees of the big players that are out there and I would argue the more boring this financial instrument is the better put yourself in the position of like a pension fund be risk averse find a way to get crypto exposure but then also have covenants that are really meaningful like seize the equipment if they can't pay that type of thing and also think about ESG I think that's one of the things that we can actually distinguish ourselves is that there are a way of showcasing here how the opportunities can only create new forms of storage that can deal with the social inequities that we know that the current market currently reflects but also they can promote things like green technology they can also promote opportunities for reinvestment so that maybe we take some of those blocker awards and we invest into other types of social goals as well good example of that that's thematic for this world with storage store culturally sensitive information right those are the types of things that you now as a bond holder are helping enable so do all of that and then think about the long haul think about a really boring product that can last a decade and so the requirements of these I just put this out there and I would hope that please be in touch as we'd love to have this conversation with many of you is to think about first of all the comps how can we translate what we're doing from our crazy web three world into something that can actually pass muster with traditional finance second we need to think about realistic covenants and that goes both ways things that have teeth so in the case the deals go south there's a way to actually collect and also something that the source providers will actually agree to because they have alternatives second you need to think about structure third rather you need to think about structured risk so we've got to start differentiating between ways of how to get different risk profiles addressed think about insurance mechanisms so that people fail to honor their obligations under covenants there are protections and you can start getting fancy with you know credit default swaps and derivatives and all that type of stuff I leave it to the more learned people in this audience just please don't do what you did in 2008 second fourth syndication we need to think about syndicating risk and also the rewards what I mean by the latter is that syndicating rewards is really important to create new incentives so that the stakeholders which could include even end users crazy idea they can actually benefit from the rewards as well and obviously we need to create a marketplace for this and I think that will come by having clear comps I think it will come without reach to the DeFi community as things get more programmatically possible with FEM I'm confident this will happen and then finally on the innovation side there's a whole world of opportunities and making these types of products more and more attractive but a close please please be boring don't get excited about all the incredible opportunities for innovation just create a really boring stupid bond that's it and if we can do that first then you can get to your thousand percent APY thank you very much hi so I think this is great I just have one question because the falcoing network that is crypto economic designs designed both around proof of useful work and also like it also has some component of proof of escape so I guess what do you think about the potential mismatch between these two it's like we cannot really just determine the reliability or future probability based on our assessment of either just proof of work or like proof of state there could be a mismatch the mismatch could could lead to a like future problems as well so what's your what I'm curious what types of future problems do you see because I think I have a hint of what you're thinking about but are there concrete things so so basically if we have all the capital ready but then you have failures of certifiers to maintaining a good service quality that could leads to like slashes and terminations or just mostly just like a lack of efficiency in terms of the probability of profitability I think well at a practical level let me try to explain to you from the storage providers perspective I'm not a storage provider but I work with them almost every day and I don't think that that's necessarily the issue they know how to run these rigs and the actual work of storage providing is a fairly stable and far less complicated endeavor than one might think so I think the risk on that if we were like in 1993 maybe we'd be pretty like concerned but the reality is that storage is one of the more fundamental tasks and stable tasks that exist in our world today so I'm less concerned about them operating maybe there's like security issues but those are not specific to storage providers by any means and by the way right now the type of storage that we're talking about is glacial in its performance levels so that even lowers the risk even more if I have to find a way to get to your storage back and basically within 24 hours it's going to be okay and if I have to wait another day I'm not slashed an amount that is like terminal to my business I do think that there's opportunities to create insurance products that I think could address some of the risks that you're talking about so I think that's very important and when you are trying to create products like a bond that essentially remove that type of financial disincentive from storage providers then you know you really need to be very careful about what type of gaming that they can do through the system and I think insurance can start to play a role on that essentially to put it in a more simple way if you're removing the requirement for storage providers to have a ton of working capital around and putting that working capital at risk then you need to create other forms of disincentive so to make sure that they actually do what they need to be doing so I think that we're aligned with in terms of recognizing that there needs to be other forms of insurance that need to come into play I also would argue that covenants can do this work just the same so just to add on that do you think it's more of a like a financial instrument design problem or is like a protocol design problem to address some of the risks that you just mentioned you know I don't know if I actually can answer that question I'd be honest and I'll tell you why because I think that the protocols are designed with a much longer horizon so what might be a problem right now may not necessarily be a problem in the future so I would I really wouldn't want to rush on that protocols are best when they are actually fairly limited in their functionality right you want to actually have things that are more complicated to be pushed up to the application layer so again the types of problems you're describing they might be solved above the protocol and that might be the better place for it paradigmatically that's the right approach at least from a protocol design standpoint yes sorry please hi I have a question so you talked about making a boring bond that can sell to institutional investors but I guess like one big thing that I had in mind when like imagining this is like there's an like a clear exchange risk right when like with Filecoin and that in turn is depends on like the as you said the actual utility of Filecoin rather than the financial utility on a financial like financial engineering level like did you take this into account or like are there ways to like lower down the risk on this like exchange risk because I think it would be a hard sell to institutional um yeah so agreed there is a lot of volatility in the price and then you have to somehow account for that in the instrument the modeling for the most part was actually quite optimistic about all of this and here's what I mean by that we crashed the price of Filecoin in our modeling we looked at a variety of I'd say very conservative assumptions around the appreciation of Filecoin and in the end we still had like regenerative economics that could happen at reasonable lending rates so I just spoke to before this panel I just spoke to Andrew who's updating the model but you know even still like we went down from 200 years we went down to in some cases we went down to like 20 years I'd argue that's still like insanely cool and so orders of magnitude right now yeah things like kind of wave wildly but I think we've passed a threshold of confidence that we could actually speak very pragmatically with investors to say your yield is fixed and here's how we can actually account for some of the volatility that might occur yes oh there's we don't have time okay great thanks for letting me chat for a bit please be in touch