Despite the rise of memecoins and BTC Layer 2 solutions in 2024, the DePIN sector is also thriving, introducing blockchain technology into the real world with a variety of advantages. If you’re seeking a thorough guide on DePIN and wish to explore some of the leading projects in this area, this article is ideal for you!
DePIN TL;DR
- DePIN uses cryptoeconomic protocols to develop real-world infrastructure and hardware systems within the Web3 ecosystem. Operating on a peer-to-peer basis, it allows individuals to contribute resources like data storage, wireless connectivity, sensors, and energy grids. Through a blockchain-enabled, token-incentivized framework, contributors receive financial compensation and ownership stakes in the networks they help build.
- The lifecycle of DePINs involves protocol tokens that reward individuals for deploying hardware. Participants earn tokens for supplying hardware to those in need, and the absence of intermediaries makes goods and services more affordable and faster. This process helps DePIN projects grow stronger as they expand.
- DePINs are divided into two main categories: Physical Resource Networks (PRNs) and Digital Resource Networks (DRNs). PRNs are decentralized networks offering geographically-specific, non-fungible hardware resources in sectors like wireless, mobility, energy, and geospatial. DRNs provide fungible digital resources such as computing power, bandwidth, and storage, which are not tied to any specific location.
What is DePIN in Crypto
DePIN, short for Decentralized Physical Infrastructure Networks, uses cryptoeconomic protocols to develop real-world physical infrastructure and hardware systems, positioning itself as the next evolution of the Internet of Things (IoT) within the Web3 ecosystem. These networks operate on a peer-to-peer (P2P) basis, allowing individuals to contribute resources such as data storage, wireless connectivity, sensors, and energy grids. At its core, DePIN utilizes a blockchain-enabled, token-incentivized framework through which contributors receive financial compensation and an ownership stake in the network they’re building and the services they’re providing.
Delving deeper, according to a report from Cointelegraph, there are four essential components of DePIN: physical infrastructure, offchain compute infrastructure, blockchain architecture, and token incentives.
- Physical Infrastructure: DePIN networks rely on physical infrastructure for functionality. This can include vehicles for mobility networks, solar panels and batteries for energy networks, hotspots and routers for wireless networks, or servers for cloud networks.
- Offchain Compute Infrastructure: DePIN relies on middleware to connect the physical and blockchain worlds, tracking user activities for rewards. This middleware is crucial for managing and interpreting data gathered from the physical infrastructure.
- Blockchain Architecture: Each DePIN network interfaces with blockchain architecture that includes smart contract logic. This blockchain network serves as a ledger, documenting transactions and other value exchanges among network members, such as buying broadband access from someone leasing their router.
- Token Incentives: Supply-side participants are motivated to join and build the network through token rewards, which subsidize their efforts until sustainable fees from demand-side usage are generated.
The Origin of DePIN
The term “DePIN” emerged in November 2022, introduced by Messari, a leading crypto research firm in the Web3 realm. Before this, the sector had developed to a certain extent, and several different terms were used to describe it until Messari coined this acronym, bringing unity to the space under one name.
In November 2021, IoTeX first introduced the term MachineFi, blending “machine” and “DeFi” to signify the financialization of machines and their data. By April 2022, Multicoin introduced “Proof of Physical Work” (PoPW), emphasizing incentive structures that allow open contributions to shared goals. July saw Lattice defining “Token Incentivized Physical Infrastructure Networks” (TIPIN) as networks using token incentives to drive participation in decentralized network deployment and operations. In September, Borderless Capital proposed “EdgeFi,” describing decentralized infrastructure networks that focus on deploying hardware resources near end-users at the network’s edge. In November 2022, Messari conducted a Twitter poll to unify these concepts under one acronym, with DePIN emerging as the winner with 31.6% of the votes. On December 22, 2022, Messari first mentioned “DePIN” in its annual “Theses,” highlighting it as a key area for crypto investment over the next decade. Finally, on January 19, 2023, Messari published a comprehensive report on DePIN, cementing its significance in the field.
The Resurgence of DePIN in 2024
After examining the timeline and development of DePIN, it’s clear that DePIN isn’t an entirely new concept. However, it has gained wider attention in 2024, with the sector reaching its peak at approximately $80 billion in mid-March, according to a dashboard from EV3, a firm focused exclusively on this vertical. Additionally, Salvador Gala, the co-founder of EV3, mentioned that the DePIN space has quietly surged in popularity since his firm was established two years ago. “When we first started, there were about 25 companies in this sector. Now, we’re tracking almost 1,000,” he noted.
This paper suggests that the resurgence of DePIN can be attributed to two main factors. First, there has been a rapid acceleration in the growth of Real-World Assets (RWA), which reached nearly $4.5 billion as of July 10, 2024. This uptick has drawn attention to other narratives linked to real-world applications, with DePIN emerging as a key focus. Second, the development of a DePIN project often depends on having robust infrastructure in place. For example, the Helium team initially launched their own blockchain in 2019 before migrating to Solana in 2023, developing open-source, verifiable programs that are on-chain and well-suited for DePIN’s growth.
Why DePIN Was Created: The Problems with CePIN
Physical infrastructure networks are crucial for modern society, enabling connectivity and the flow of goods, services, and information through roads, bridges, airports, ports, telecommunications systems, and power grids. These networks underpin economic development and societal progress. However, because traditional physical infrastructure networks are predominantly centralized, they face significant challenges. Their complexity and scale make maintenance expensive and time-consuming. Aging infrastructure, compounded by rapid urbanization, leads to increased congestion and inefficiency. Additionally, political and regulatory barriers can hinder the adoption of innovative solutions.
Statistics on the cost of CePIN in major categories such as computing and storage highlight the high expenses involved, indicating a significant business opportunity for more efficient solutions.
To address these challenges and fully harness the potential of physical infrastructure, innovative approaches such as decentralized physical infrastructure networks (DePINs) are crucial. By integrating emerging technologies like blockchain, DePINs enhance connectivity and efficiency, offering a promising alternative to overcome the limitations of centralized systems.
The advantages of DePIN
A deeper look shows three major benefits of adopting DePIN instead of CePIN.
1. Protocol and consensus
One of the reasons blockchains are ideally suited for decentralized networks is their established protocols, specifically designed for governing peer-to-peer interactions. This includes the consensus mechanism, an essential component of every blockchain protocol that enables network participants to agree on the network’s state in a trustless manner. In contrast to CePIN, which operates under the control of centralized institutions, DePIN functions as a distributed, trustless, and anonymous network without the need for centralized organization and coordination. Consequently, consensus mechanisms are crucial in DePIN to help all participants reach consensus, thereby ensuring network security and sustainability.
2. Tokenomics
Another benefit of blockchain protocols is their inherent mechanisms that promote participation and positive behavior. Often, a blockchain network either possesses a proprietary crypto token or can easily generate one, enabling a DePIN to offer rewards based on user involvement and contributions. Thus, it’s crucial for a DePIN to establish a tokenomics model tailored to the network’s requirements and the characteristics of its users, ensuring the reward system is equitable and appealing while maintaining the network’s long-term viability.
3. Accessibility and affordability
Developing online services and applications generally demands a significant upfront investment, including equipment, time, and development resources to set up the necessary infrastructure for your product. DePINs employ crowdsourcing and peer-to-peer infrastructure models to make this early phase more achievable. Moreover, these networks are typically open and permissionless, enabling anyone to join and start contributing.
The Mechanism of DePIN: Sharing Economy and Flywheel Effect
The entire lifecycle of creating and incentivizing DePINs involves protocol tokens that reward individuals who deploy hardware to help others. Network participants earn rewards for supplying new or existing hardware to individuals or businesses that need it. Additionally, the absence of intermediaries often results in goods and services being more affordable and delivered more quickly. This process allows DePIN projects to grow stronger as they expand.
Delving deeper, there are several steps involved in the flywheel process:
- Incentivize participation: Users provide resources to the network and receive tokens as rewards. These incentives draw more participants who contribute their resources, thereby enlarging the network’s capacity.
- Enhanced services: Greater capacity leads to improved services. For instance, in a broadband DePIN, having more participants usually results in broader internet coverage and increased speeds.
- Network growth: The improved quality of services tends to attract more users, who then contribute additional resources.
- Resource infusion: As the network grows and the potential token value increases, investors are attracted, bringing in additional funding and support to further accelerate the network’s development.
Major Types of DePIN and Their Adoption Across Different Industries
According to Messari, DePINs are segmented into two primary categories and seven adoption industries, encompassing Physical Resource Networks (PRNs) and Digital Resource Networks (DRNs).
PRNs are geographically-based, decentralized physical resource networks where providers offer hardware resources linked to connectivity, mobility, energy, and similar sectors. These resources are geographically specific and non-fungible, indicating that the services are localized (rooted to a specific place) and sometimes fixed (tied to a specific location). The networks include sectors such as wireless, mobility, energy, and geospatial.
DRNs consist of fungible digital resource providers. In these networks, providers contribute resources like computing power, shared bandwidth, or storage capabilities that are not bound to any specific location or related to geographical data. The networks span storage, computing, and bandwidth.
Top DePIN Projects
After realizing the concept of DePIN, let’s look at some top projects!
Helium (HNT): Wireless Network
Helium Network is reshaping wireless connectivity and the development of decentralized physical infrastructure networks (DePIN). Initially launched in 2019 as an IoT network on its own blockchain, Helium has since transitioned its operations to the Solana blockchain following governance approval. It operates under a subDAO structure and incentivizes contributors through tokenized rewards, encouraging the crowdsourcing and construction of network infrastructure. By distributing capital and operational costs via ecosystem tokens, Helium makes wireless services more accessible and affordable, addressing traditional telecom’s shortcomings in coverage and investment. Currently, Helium not only supports telecommunications and the Internet of Things but is also expanding into broader decentralized networks, with notable deployments in flood detection and environmental monitoring in various locations.
Render (RNDR): Compute Network
Render Network is a decentralized platform designed to transform the digital content creation sector by utilizing blockchain technology and distributed computing. Its goal is to make the rendering process more accessible in areas like AI, video production, gaming, animation, and VR. Traditionally, rendering high-quality digital content demands significant computational power, leading to high expenses and extended processing times. Render Network solves these challenges by linking users requiring rendering services with GPU providers offering their unused computational capacities, enhancing efficiency and lowering costs.
Filecoin (FIL): Storage Network
Filecoin is a decentralized storage network that enhances data security, storage, retrieval, and computation, serving as an incentive mechanism for the InterPlanetary File System (IPFS). IPFS is a peer-to-peer protocol that utilizes a content-addressing system for efficient data sharing, routing, and storage. Filecoin supports a marketplace for data storage, allowing users with surplus storage capacity to trade space for fees with those needing storage. The platform guarantees that users seeking data storage receive reliable and secure storage options.
Market Situation on DePIN
As of 2023, data from Messari and DePIN.Ninja indicate that the DePIN ecosystem includes 650 projects with a combined market capitalization of $35 billion. These projects cover a range of sectors, with 250 focused on computing, 200 in AI, 100 in wireless, 50 in sensors, 50 in energy, and 25 in services.
At the time this blog was authored, CoinGecko reported that the market capitalization of the DePIN sector was approximately $20.61 billion, with a 24-hour trading volume exceeding $974.74 million, across only 109 protocols. The data from EV3, the first venture capital fund dedicated to DePIN, are even more substantial, boasting an Annual Recurring Revenue (ARR) of $17 million and a market capitalization of $53 billion.
Additionally, Messari estimates the potential market size of the DePIN landscape at about $2.2 trillion, with projections to grow to $3.5 trillion by 2028.
The high valuation can be seen as stemming from two factors: demand and supply.
Demand
- Growing demand for high-quality streaming and online content through decentralized content delivery networks (deCDNs) that reward users for sharing bandwidth and resources.
- Rising need for valuable data sets across various sectors such as healthcare, supply chain, transportation, and agriculture.
- Increasing requirement for online Data Storage — potentially the most robust customer base for DePINs. With token-based incentive systems, anyone can contribute storage capacity to the network.
- Growing interest in software DePINs that offer rewards for data uploads, such as submitting dashcam videos or audio to earn points that can be converted into tokens. Sharing equates to earnings!
- With a continued emphasis on AI, developers are constantly seeking compute power to train their AI models — which can be processed directly on edge devices within the network.
Supply
- In 2023, 600,000 nodes were added, indicating a growing interest in this space by everyday users and highlighting the potential benefits.
- The rise of decentralized marketplaces connecting GPU owners with creators who need rendering power, supported by token utility and rewards for secure transactions.
- An increase in supply is anticipated from GPU owners eager to earn by contributing their idle compute power, thereby enhancing the global DePIN infrastructure.
What is fueling the growth of DePIN?
- DePIN sector revenues are propelled by genuine utility, not just speculation.
- There’s significant interest from blockchain-based businesses eager to bypass traditional Web2 platforms for full decentralization.
- DePIN founders are creating open-source hardware and software, fostering valuable on-chain products and services.
Challenges Faced by DePIN
Despite the optimistic market expectations, DePIN still encounters challenges.
- Centralized Distribution of Tokens: The initial sale of certain DePIN compute tokens isn’t available to the public, resulting in a more centralized allocation of coins. Approximately 30-40% of the tokens are held by early-stage investors, which could potentially affect the ecosystem’s value if these investors choose to cash out.
- Complexity Hindering Adoption: The platform’s complexity is a significant barrier because few decentralized compute platforms have simplified their ecosystem processes enough to be easily understood and accessible. Users often require a substantial learning curve and a certain level of technical knowledge to fully utilize its capabilities.
- Regulation: DePIN, as part of the Web 3.0 ecosystem, faces significant regulatory challenges. Its decentralized and anonymous nature complicates compliance, making it harder for authorities to monitor fund flows and potentially facilitating illicit activities. Additionally, the anonymity of accounts hinders tax collection, as users can be rewarded through mining, data, hardware, or services, making it difficult for governments to gather the necessary evidence for taxation.
Outlook on DePIN
DePIN projects are swiftly becoming essential to the blockchain and crypto space, with a collective market cap exceeding $25 billion. This growth is concentrated in sectors such as computing, storage, and AI, underscoring their significant influence on the industry. Optimistic market forecasts suggest DePIN could reach a market size of $3.5 trillion by 2028, driven by the rising demand for high-quality streaming, online content delivery, and comprehensive data storage solutions, as well as the need for interoperable and scalable infrastructure. The transition from centralized to decentralized networks promises more efficient, inclusive, and resilient infrastructure solutions.
Taking AI for deeper analysis, the development of artificial intelligence faces two primary challenges: a computing bottleneck that restricts development speed and a lack of collaboration, with most research confined to big tech companies and AI labs. This centralization risks concentrating AI power in a few hands. Crypto-based AI projects are addressing these issues. Decentralized GPU marketplaces like Gensyn help balance the supply and demand for GPUs, creating a decentralized supercomputer. Bittensor incentivizes the creation and sharing of machine intelligence, enabling individuals to contribute to and monetize open-source AI work. Bittensor aims to commodify machine intelligence, much like how the internet empowered niche content creators.
