Decentralized storage protocols are becoming increasingly popular due to their ability to offer secure, affordable, and efficient storage solutions. These protocols are built using blockchain technology, which provides a decentralized and distributed network that is resistant to tampering and downtime. More and more protocols are entering the market, each with their own unique business models.
In this article, we will explore the business models of several decentralized storage protocols and how they generate revenue. By understanding these business models, we can gain insight into the economics behind decentralized storage and its potential to disrupt the traditional data storage industry.
What is the typical business model for a decentralized storage protocol?
Decentralized storage protocols represent a marketplace where storage providers can sell their unused storage space to users who need it. The protocol acts as a mediator, facilitating transactions between users and storage providers and taking a fee for its services.
Demand- and supply-side fees are two types of fees used in decentralized storage protocols to incentivize users to participate in the network.
In general, demand- and supply-side fees are used to create a sustainable and decentralized storage ecosystem where both users and storage providers are incentivized to participate in the network. By aligning the incentives of both parties, decentralized storage protocols can offer a more efficient, affordable, and secure storage solution compared to traditional centralized storage solutions.
Overall, we can define three typical sources of revenue:
- Base fees – required by any storage deal or proof; base fees are determined by message congestion;
- Batch fees – used for adding storage capacity;
- Overestimation fees – required to optimize gas usage;
- Penalty fees – collected for storage provider failures.
Messari, State of Filecoin Q1 2023
It's worth noting that not all decentralized storage solutions are profit-driven, as some are developed by non-profit organizations or run on a community-driven model. However, those that do seek to make a profit generally use one or more of the above methods.
Overview of popular decentralized storage protocols
Filecoin was created by Juan Benet, the founder of Protocol Labs, in 2014. The project was initially funded through an initial coin offering (ICO) in 2017, which raised over $257 million. After several years of development, the Filecoin network launched in 2020, offering users a decentralized storage solution that incentivizes the sharing of unused storage space.Filecoin uses a token-incentivized model to incentivize users to provide storage space on their computers. Users can earn Filecoin tokens by providing storage space to other users, and then they can use these tokens to store their own data on the network.
Arweave
Sia
Storj
Akash
BitTorrent
BitTorrent was acquired by Tron in 2018 and it subsequently launched its own cryptocurrency, BitTorrent Token (BTT), in 2019, which can now be used to incentivize users to share their unused storage space. The BitTorrent token was initially used to speed up downloads by paying seeders for priority bandwidth through BitTorrent Speed. This acted as a solution to the longstanding problem of a lack of incentives for users to continue seeding or sharing files.
The project expanded their services and shifted their focus to creating a token-based economy that prioritizes networking, bandwidth, and storage resources within the existing BitTorrent network. Users are rewarded with BTT tokens for sharing their storage space, which can then be used to pay for additional storage space or to trade with other users.
There are plans to include livestream tipping in BTT, the purchase of downloadable media from creators, and the ability for creators to crowdfund their works.
IPFS
Datamall Chain
Nonstorage
Nonstorage is a storage service based on the TON Blockchain, created by the founders of Searching TON. Nonstorage uses TON Storage, a peer-to-peer file-sharing system on TON Blockchain.
This service enables users to effortlessly upload, download, and distribute files among others through TON Proxy. Currently, users can upload files up to 100 MB by signing in via the wallet app.
Although the developers acknowledge that all user files are currently stored in a centralized way, they have assured users that they will soon adopt TON Storage and create the first-ever decentralized cloud storage service on TON.
Tondrive.io
Tondrive.io is a storage service on TON that presents itself as a "Google Drive" on TON. The team has released a demo where users can upload and manage their files.By the end of Q2 2023, they plan to create a complete infrastructure with upload, download, contract binding, archive functions, and security technology. In addition, the team plans to launch Tondrive Ecological System, a file management system like Amazon Cloud Drive, and Ton Connect technology for decentralized accounts in Q3 2023. This technology will eliminate the need for traditional email registration, as the TON wallet will be used to identify the user, streamlining authentication and protecting their personal information.In early 2024, the team plans to establish a User Privacy Board by adding an encryption algorithm. They also plan to add a private sharing feature that allows file owners to share encrypted file privileges with other users.
Revenue performance
We have prepared a table with an overview of fees for each mentioned protocol, that generates revenue and reports its fees and revenue figures.
Fees and revenue for the last available time period as of 20.04.23*:
*as of 30.01.23
The adoption of decentralized options is still lagging, so even outliers like Filecoin have a long way to go to catch up with common centralized storage providers.
What’s next?
Decentralized storage protocols can offer a variety of new business models beyond the traditional model of creating a marketplace for storage providers and users. Some options include:
- Decentralized content delivery networks (CDNs), where users can pay for faster and more reliable content delivery;
- Micropayments and monetization for content creators, allowing them to earn cryptocurrency for sharing their content on the network;
- Tokenization, enabling content creators to create tokens that represent access to their content, which can be later bought and sold on decentralized exchanges;
- Digital asset storage, allowing users to securely store and share assets like NFTs and providing an alternative to traditional custodial solutions;
- Perpetual storage option, a feature that ensures that data remains available on the network indefinitely without a predefined expiration date or the need for periodic renewal or re-upload.
Overall, there are a variety of options available for providing and monetizing a more sophisticated user experience and offering tailored security and privacy features for content creators. As technology in this space continues to evolve, we can expect to see continued innovation.
Current outlook on the decentralized storage industry
The sustainability of business models for decentralized storage protocols is still the subject of debate. Some models incentivize suppliers to provide more storage regardless of demand, often resulting in large amounts of unused space (such as Filecoin). Others create incentives through mining on a demand/supply basis, significantly limiting the protocol's revenue (such as Storj). Despite being the most revenue-generating protocol, Filecoin only generates a fraction of the revenue that centralized storage solutions such as Amazon Web Services, Google Cloud Platform, and Dropbox do. One major advantage of centralized solutions is their distribution through big tech and integration with their ecosystems. However, we have not yet seen big tech companies acquiring decentralized storage providers.
Decentralized storage stands out for its user data ownership, something that centralized solutions simply do not offer. Despite this advantage, revenue figures suggest that on its own it is not enough to convince users to switch from centralized to decentralized options. To remain competitive with centralized solutions, decentralized storage providers may need to offer new value points beyond privacy. Nevertheless, it is clear that decentralized storage has the potential to revolutionize the way we store and share data in the future. However, there is an adoption hurdle that needs to be overcome first.
Frequently asked questions
How do decentralized storage protocols make money?
Decentralized storage protocols act as marketplaces where storage providers can sell their unused storage space to users who need it, and typically take a fee for their services paid by both storage users and suppliers.
What are demand- and supply-side fees?
Demand-side fees are paid by users to store data on the network and compensate storage providers. Supply-side fees are paid by storage providers to offer their space to the network and compensate the network for providing resources to facilitate the storage and retrieval of data.
How much revenue do decentralized storage protocols generate?
The 30D fees range from $0.9K to $20K with Filecoin being the outlier at $5.4M in fees. The annualized figures are only available for Arweave ($197.4K) and Filecoin ($65.8M).
What innovations can we expect in future?
by Anastasia Zhiltsova & Kirill Malev.
About the authors
Kirill is a Jr Partner First Stage Labs, DeFi & NFT enthusiast. Ex-deputy head of data science at Localkitchen, co-founder of Vinci. Kirill maintains project sourcing and helps portfolio companies within the area of his expertise. He gets involved in the operations and management of certain DevRel, community, and marketing initiatives of TON Blockchain.
Kirill maintains project sourcing and helps portfolio companies within the area of his expertise. He gets involved in the operations and management of certain DevRel, community, and marketing initiatives of TON Blockchain.