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The key to Filecoin and Arweave accruing value?

Altszn.com by Altszn.com
March 28, 2023
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The key to Filecoin and Arweave accruing value?
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With the rise of Ordinals on Bitcoin (BTC) sparking debate over how users should store their NFTs and blockchain gaming projects searching for cheaper, secure ways to store data, it’s time to revisit the discussion surrounding decentralized storage coins.

Decentralized storage protocols Filecoin (FIL) and Arweave (AR) show similar price action, leaving investors with a decision between the underdog showing signs of increased adoption by NFT users and blockchain gaming projects and the clear leader in market cap and adoption.

The total market capitalization of the entire digital storage cryptocurrency landscape today is $4.87 billion, according to data from CoinMarketCap, and each protocol provides something different. The two largest projects in the space by market cap that specifically addresses storage needs for NFTs and blockchain gaming are Filecoin and Arweave. Filecoin is currently the top-ranked project in the sector. It ranks 27th on CoinMarketCap by total market cap, but Arweave has significant on-chain activity and fundamental news that deserves attention.

The primary difference between the projects is their focus. Arweave is focused on long-term data storage with a one-time payment model, while Filecoin is more focused on incentivizing large-scale storage, especially for private data, and uses a tiered payment model based on storage time and space requests.

Filecoin has recently announced it would launch smart contracts, solidifying its new position as a layer-1 platform. This development has led to speculation on Filecoin’s future success in deploying Web3 offerings with real-world services like computing and storage, supported by Filecoin’s open marketplace for decentralized storage.

Given the current volatile crypto and macro climate, Filecoin revenue is notable at $2.53 million per month (up 238 over 30 days). Over the same period, fees are up 33% ($2.99 million), indicating strong demand for the platform. The market cap of FIL is at $2.76B, up 14% in the same period.

Filecoin has a maximum supply of 2 billion tokens and a circulating supply of around 403 million. Of the total supply, 70% is dedicated to mining rewards, which increase with network adoption. The rate at which new tokens are created decreases over time as the network matures.

By comparison, Arweave has a much smaller market cap of about $441 million, reflecting a 30% drop over the last 30 days. However, its maximum supply (66 million) compared to total circulating tokens (~50 million) could be more attractive to investors worried about inflation. In addition, AR’s price has been significantly depressed since its all-time high in late 2022.

Arweave (AR) compared to Filecoin (FIL) by Total Market Cap. Source: CoinMarketCap.

Arweave is an underdog in price and adoption, but it would be prudent to note the protocol’s rise in popularity due to its unique differentiator as a permanent storage solution for public data. That could be a clear advantage over competitors when providing infrastructure for the Metaverse. Meta already utilizes Arweave to permanently store digital collectibles from Instagram. Despite a significant drawdown in Metaverse and blockchain gaming projects, transactions on Arweave reached a monthly ATH in February (+20% MoM).

The increase in transactions may be associated with the upcoming release of Arweave 2.6, which aims to lower storage costs and increase energy efficiency for miners while improving the protocol’s ESG standing.

However, Arweave founder Sam Williams postulates that the bulk of transactions is thanks to Bundlr, which claims to increase transactions on Arweave by 4,000% without sacrificing security and at “~3000x faster” upload speed. Bundlr accounts for over 90% of data uploaded to Arweave.

Arweave’s price is down ~90% from its ATH, despite record-high transactions and its partnerships with Meta and the Solana (SOL) blockchain. That is less of a difference than Filecoin, a name down nearly 100% from its ATH.

Meanwhile, Arweave’s “Weave” (a blockchain-like structure) size has grown 135% YoY (134 TB). A recent report by Messari estimates 25% of the Weave is related to NFTs, while 72% is Web3 related. The report also mentions that Decentralized Social (DeSoc) projects like Lens Protocol use Arweave as the preferred decentralized storage platform.

On the flip side, Meta also recently announced it would be “winding down digital collectibles (NFTs),” which may cast a shadow on Arweave’s growth potential. In addition, Arweave’s storage growth is shadowed by Filecoin’s 1,390% (687,900 TB) increase over the same period.

It is also worth considering how recent news of Amazon’s upcoming NFT marketplace could impact the storage coin market. Arweave may get the most immediate impact thanks to its partnership with Avalanche (AVAX), considering the L-1 blockchain partnered with Amazon last year. While there’s no clear news from the company on whether they will use Amazon Web Services (AWS) or the InterPlanetary File System (IPFS) used by Filecoin, Arweave, and several other decentralized storage solutions, the increased awareness of NFTs via Amazon may ultimately channel users and capital into the system. Amazon’s NFT campaign will likely lead to more traffic on the leading NFT marketplace, OpenSea, which utilizes IPFS and Arweave for metadata storage.

The NFT market also shows signs of resilience, with $2 billion in trading volume in February, up 117% from the previous month, and the industry’s total value locked (TVL) climbing by over 7% ($81 billion). Blockchain gaming remained the dominant sector and a space hungry for decentralized storage (45% of DApp industry activity), despite a 12.33% decrease in on-chain gaming activity.

With the number of funding deals jumping 90% in February, it’s clear that there remains a strong interest in blockchain gaming in the long term, and that will bode well for storage coins that position themselves to aid that sector.

While the rise of blockchain gaming may boost storage coins like Filecoin and Arweave, it’s important to carefully analyze each project’s fundamental news, security, and adoption trends before making investment decisions. Filecoin appears to be the stronger choice with its greater adoption, but Arweave’s steady rise in usage in growing Web3 narratives remains an interesting trend to keep an eye on.