History of GLIF and Filecoin DeFi

In September 2021, GLIF began researching the capital inefficiencies within the Filecoin network. Even with existing and successful Filecoin “asset-reuse” style businesses, most Filecoin Storage Providers (“SPs”) still had unmet demand for FIL, and Filecoin token holders (“FIL holders”) had no easy, safe, and efficient way to put their FIL to work with SPs in need. A major gap in the market existed.

Our focus was on exploring how the emerging Filecoin Virtual Machine (FVM) - a tool that enables user-programmable smart contracts on Filecoin - could be leveraged to significantly reduce those capital inefficiency gaps.

Early on in our research, it became clear that no one-size-fits-all solution would alleviate Filecoin’s capital inefficiencies. SPs come in many shapes, sizes, jurisdictions, and skill levels, and FIL holders have different economic situations, time horizons, and risk appetites. To adequately solve the problem, the network needed something flexible that could support diverse groups of FIL holders and SPs.

To make matters more difficult, theft-protection on the Filecoin network requires a custodial style arrangement between a FIL holder and an SP in order to guarantee the SP doesn’t run away with the funds. This relationship between a FIL holder and an SP creates an additional capital inefficiency on the network because an SP is effectively “locked-in” to one capital provider at a time. As a result, every SP becomes burdened by their capital provider’s liquidity management, like a citizen having to monitor the investments of their commercial bank. It’s not a scalable model.

It’s not obvious, but one cannot simply just deploy multiple capital markets in isolation and expect any one of them to scale big enough to solve Filecoin’s capital inefficiencies. We’ve already seen how this plays out in practice.

With this information in mind, we set out to build GLIF Pools - a unique DeFi protocol that makes it safe, easy, and efficient to deploy any number of custom made capital markets (“pools”) to the Filecoin network. Each pool should be sufficiently different from one another in order to attract a wider range of capital and storage providers. A single SP should be able to borrow from each pool simultaneously, without getting locked-in to any single pool on its own. FIL holders should have the ability to deposit FIL into any of the pools that fit their risk/reward/time-horizon profiles.

This documentation site goes into the design of two major systems: the GLIF Pools protocol and its first pool - the Infinity Pool.