From Messari by Micah Casella

Key Insights

Primer

Sia (SC) is a decentralized cloud storage network that combines a Proof-of-Work blockchain with a contract-based storage model. Storage contracts are used to uphold storage agreements between hosts and renters. Renters define the amount of data to be stored, the timeframe for storage, and the price. As users and storage providers enter into storage contracts, they deposit the native asset — Siacoin (SC) — into an escrow account. Storage providers must cryptographically prove they are hosting the required data, and if they do not uphold the storage agreement, their collateral is slashed. At contract expiry, the storage provider receives most of the escrowed funds, with a small portion (3.9%) going to holders of Siafund (SF) tokens. Siafunds are security tokens that accrue SC to the SF holder from finished contracts on Sia.

Sia facilitates a global data storage marketplace by connecting storage providers (hosts) with underutilized hard drive capacity to storage consumers (renters). Siacoin can be used to pay for gas on the Sia blockchain and as the medium of exchange for the storage market. Renters pay a storage fee, upload/download bandwidth prices, and gas to create storage contracts. Files stored on the Sia network are encrypted via ChaCha20 and stored redundantly via Reed–Soloman Erasure Coding. The encryption aspect ensures that uploaded files remain private, and redundancy ensures security by sharding files. Files uploaded to Sia are split into 30 chunks, or shards, and sent to various hosts. Only 10 shards are required to rebuild the file, and their copies are re-duplicated to new hosts whenever one is offline. For a full primer on Sia, refer to our Initiation of Coverage report.

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Key Metrics

Performance Analysis

Transactions and New Contracts

New storage contracts are a measure of the origination of active storage contracts. New contracts require renters to allocate funds (called allowances) in advance. These allowances determine how much SC the renters are willing to pay for storage on Sia. The allowance is derived from an equation that multiplies the price in SC per TB stored by the expected number of TBs and by the expected number of months for storage. For example, if a user wanted to store 3 TB of data for 3 months at a price of 500 SC per TB, their allowance would be 4,500 SC (500 x 3 x 3). Renters also pay contract formation and upload bandwidth fees when creating new contracts. Hosts must lock up collateral, which can be slashed if they don’t uphold the contract agreement.

Transactions on Sia account for all activity related to storage contracts, peer-to-peer transfers, and trades of the SC token. New contracts lead to various types of onchain transactions, such as contract initiation payments, bandwidth payments, and ongoing storage payments. For this reason, transaction count tends to be influenced by initiating new contracts. In Q1, new contract creations increased by 38% QoQ, contributing to the 31% QoQ increase in total transactions. The growth of contract initiations may have partially resulted from the official release of Sia’s new renting module just before the start of the year. The new module focuses on improving UI, increasing developer utility, and adding S3 compatibility.

Active Contracts

When a contract is active, it automatically facilitates the exchange between escrowed SC and storage provided by hosts.

Active storage contracts on Sia increased by 37% QoQ, to its highest level in over a year. The increase in contract initiations during Q1 indicates that either more new contracts were initiated at the end of the quarter or that the ones created at the beginning of the quarter had longer terms. The updates around Sia’s renting module may have also contributed to the increase in active contracts for the same reasons they’d influence the growth of contract initiations: UX improvements, more developer utility, and ease of implementation. Specific updates include integrating tools like Duplicati (backup software) and S3FS (Amazon S3 integration).

Storage Utilization

While a storage network's capacity helps highlight its current scale, its utilization rate reveals the demand for the type of storage it optimizes for. Sia operates in the hot storage market, primarily targeting developers. It's favored by those searching for a decentralized storage system offering privacy and fast retrieval.

Storage demand on Sia flows through storage contracts, incentivized by its Stake-for-Access (SFA) token model. For this reason, storage demand is closely linked to active contracts. The record quarter of active contracts also led to a record quarter in used and provided storage over the past year. In Q1, Sia saw used storage grow by 59% QoQ and capacity by 58% QoQ, maintaining a 29% utilization rate. With active contracts only up by 37%, users demanded more storage per contract agreement initiated.

Network Revenue

Sia produces revenue for multiple parties: hosts, miners, and Siafund (SF) holders. Its network revenue is the sum of payouts to hosts, Siafund fees, miner fees, and burned collateral. Burned collateral is included in revenue because burning SC makes it more scarce, accruing value to SC holders.

With QoQ increases in contracts initiated (+38%), active contracts (+37%), and storage demand (+59%), network revenue jumped 287% QoQ to $25,000. Sia’s recent releases of its hosting and renting modules may have compounded optimistic sentiment from the current market cycle, leading to higher demand and usage. And integrations with media servers, like Jellyfin and Plex, may also have contributed to the growth in demand and revenue that Sia experienced in Q1.

Storage Prices

Renters entering a storage contract on Sia pay multiple fees to set up and maintain the contract. Storage fees are based on the amount of data uploaded, the length of the contract, and the price in SC per TB per month.

Storage prices continue to appear inconsequential in affecting the demand for storage on Sia. Despite storage prices in USD growing by 6% QoQ, storage used increased by 59% QoQ. The rising price of SC (+51%) countered the decrease in storage prices denominated in SC (–26%), continuing to make storage more expensive in Q1.

Bandwidth Costs

Storage providers offload the costs of uploading and downloading the renter’s data to the individual renter. Users seeking to store data on Sia initially pay upload fees to hosts, and users seeking to retrieve uploaded data pay download fees to hosts. In both cases, bandwidth is priced per TB.

As the USD price of SC grew 51% QoQ, upload and download bandwidth costs denominated in SC fell by 52% and 24%, respectively. For renters already holding SC, storing data on Sia became more attractive despite any opportunity costs from speculation. Moreover, there was frequent usage of stored data, given that Q1 was the first quarter in a year that saw a decrease in download costs denominated in SC.

With such a severe drop in upload costs denominated in SC, the USD price also dropped, falling 30% QoQ. The less intense drop in download costs led USD prices to rise 9% QoQ, hitting $4.68. These less severe movements in upload and download costs denominated in USD can be attributed to the 51% QoQ increase in the price of SC and may have contributed to the 59% increase in used storage at the end of the quarter.

Block Rewards in USD

Siacoin has an unlimited maximum supply; its current supply is over 56.6 billion SC. Siacoin inflates at 60,000 SC per block mined, with half going to miners and half to the Sia Foundation’s development fund (used for community grant funding and company operations). Because a portion of SC must be locked up in storage contracts, Siacoin's inflation mechanism aims to maintain liquidity.

DXPool increased rewards by 158% QoQ, earning $2.1 million in Q1. Though Luxor (+56%) and SiaMining (+92%) also increased rewards, F2Pool’s rewards fell by 10% QoQ, dropping under $500,000. Since Q4, DXPool has worked to gain a majority share of mining rewards while F2Pool has fallen from the top miner (Q3 2023) to the third miner (Q1 2024). With the 51% increase in the SC price, F2Pool’s rewards actually reflect a much larger fall in the amount of work performed by the miner.

Percentage of Blocks Mined by Pool

The percentage of blocks mined by each mining pool shows how dominant certain entities are in block creation on Sia.

F2Pool lost significant market share, ending the quarter with nearly no blocks mined. Meanwhile, DXPool took roughly 63% of the average mining share in Q1 and ended the quarter with over 70%. This much dominance on the network may pose security risks to the Sia blockchain, especially if the other mining pools continue to lose share.

Market Cap

For the first time in over a year, the SC market cap passed $1 billion before ending the quarter at $570 million, up 53% QoQ. Though the 51% increase in the price of SC made a few costs (price/TB and download costs) more expensive for storage consumers, network demand continued to increase with price, leading to rises in used storage (+59%), contracts initiated (+38%), active contracts (+37%). Sia shipping updates and bullish market sentiment may have contributed to the price and market cap increases throughout Q1.

Qualitative Analysis

Software Updates

Rent

Released just before the start of 2024, the renterd module enables Sia users to create storage contracts on the network. Improving on Sia’s previous renting module, this release focuses on quality UI, developer utility, and S3 compatibility.

Unlike the previous renting tool, renterd is horizontally scalable and consists of three modules: a persistence layer (Bus), a stateless communication layer (Worker), and an optional automation layer (Autopilot). In separating these functions, builders that run these layers in a cluster can scale Worker nodes directly and increase workloads, while maintaining persistence and automation in a single instance. Renterd has been live since the start of Q1 2024 and has been widely adopted among Sia users.

S3

Sia verified its cloud storage S3-gateway with S3FS. S3FS seamlessly communicates between a user’s local filesystem and S3 storage, simplifying data access and management in S3 buckets. Users can employ standard file operations and familiar tools, all while maintaining Sia’s architectural advantages of redundancy, market-based cost structure, and default encryption. This setup offers a flexible storage solution, combining the scalability and reliability of cloud storage (like S3 and Sia) with the accessibility and ease of use of a local filesystem.

Host

The hostd module was also released with renterd just before the start of the new year. This module offers hosts a user-friendly interface and an API for managing storage resources and revenue. It also features an embedded web UI that enables remote management of storage operations. Hostd went through a series of updates throughout the quarter, improving its performance, reliability, and UX.

Ecosystem Grants

The Sia Foundation approved eight grants that accounted for $123,000 in Q1 2024. Since its inception, the grant program has approved a total of ~$1.5 million for projects spanning from development to research. The grants committee meets biweekly and consists of three Sia Foundation employees and three Sia community members. The eight approved grants from Q1 are detailed below by order of grant size.

Fabstir Media Player – $38,000

The Sia Foundation approved $38,000 for Fabstir to continue building the Fabstir Web3 Media Player. Funding for this project was first approved in Q4 2022 when Fabstir was focused on building a MetaMask Snap extension that would enable NFT content streaming from Sia storage. With funding from this new proposal, Fabstir plans to launch a Polygon-based public platform on MetaMask’s Snaps marketplace. It would enable users to transcode, upload, and stream media using Sia as a backend for hosting the content.

DartSia Mobile App – $25,000

The Sia Foundation approved $25,000 for two community members, James Brel Tamegno and Egoume Mouyong Rekiyatou, to develop a mobile application enabling users to interact with Sia’s renting module (renterd). With this grant, Tamegno and Rekiyatou will also build a middleware layer that manages communication between the application and the renterd API.

Renterd Mobile App – $23,600

The Sia Foundation approved $23,600 for community member Tolga Yaycı to build the Sia Renterd mobile application. Like the DartSia proposal, this mobile application will facilitate interactions with Sia’s renting module. Specifically, this application will enable users to upload/download files, monitor their activity, and receive alert notifications.

Collect3 – $10,000

The Sia Foundation approved $10,000 for Diego Torres of Infinite Labs to develop a browser plugin to snapshot and save digital content using Sia as the backend storage solution. Collect3 will also serve as an interactive platform and NFT marketplace where users can communicate with each other, annotate the tokenized content, and trade uploaded content as NFTs.

LitPad – $9,900

The Sia Foundation approved $9,900 for LitPad Platforms to build an ebook platform using Sia as the content storage layer. LitPad also plans to incorporate the SC token into the platform's economics. The asset would be used to unlock access to books and purchase platform credits to vote on popular content.

DeCast – $8,000

The Sia Foundation approved $8,000 for two community members, Leren Leren Unipesoal and Aman Bishnoi, to build a platform and browser extension to enable users to upload video recordings, using Sia as a cloud storage layer. DeCast aims to enable users to create, stream, and post-process videos on its platform.

Sia FUSE Filesystem – $4,500

The Sia Foundation approved $4,500 for a community member named Luis Daniel Lucio Quiroz to develop a FUSE filesystem mount. The project would enable users of Sia’s renting module to interact with Sia files as if they were local files on the user’s machine. FUSE, which stands for Filesystem in Userspace, allows users on Unix-like operating systems to create their own filesystems without the need to modify the core system (kernel) code. To clarify, FUSE filesystems simplify file management for end-users and are widely used for accessing various cloud storage services.

Renterd Alert Bots – $4,500

The Sia Foundation approved $4,500 for a community member named Patrick Gerard to build an alert bot. The alerts bot will be integrated with Telegram and Discord, sending renters activity-based alerts to their respective social accounts.

Closing Summary

Sia's timely release of core products just before 2024 coincided with a strong performance in Q1. Sia experienced growth in contracts initiated (+38%), active contracts (+37%), and storage demand (+59%), all leading to a 287% jump in network revenue. The SC token also performed well, increasing 51% QoQ, while the market cap exceeded $1 billion before ending the quarter at $570 million. Throughout Q1, it also improved core products, such as its renting and hosting modules, while the Sia Foundation allocated $123,000 to fund eight projects. Two of these projects are building mobile applications to access Sia’s renting module. With plans to continue updating current tools and launching new ones, Sia will likely make its protocol even more useful over the next year.