DePIN (Decentralized Physical Infrastructure Network) refers to projects building infrastructure networks on the blockchain, acting as intermediaries connecting infrastructure providers with customers in need. Think of Uber: drivers provide the vehicles, and Uber connects them with riders. DePIN projects operate similarly to traditional models but incorporate blockchain technology for transparent and trustless transactions, free from third-party control.
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DePIN infrastructure is divided into two categories:
- Physical Resource Networks (PRNs): These DePIN projects provide hardware-related infrastructure like hotspots for WiFi, 5G, or vehicles for ride-sharing services.
- Digital Resource Networks (DRNs): These DePIN projects offer data-related infrastructure such as bandwidth, data storage, and VPNs.
DePIN vs. the Traditional Sharing Economy: A Paradigm Shift
While concepts similar to DePIN existed in 2021 under various names like MachineFi, Proof of Physical Work, and EdgeFi, the term DePIN was chosen by community consensus in a late 2022 Messari poll.
The traditional model most resembling DePIN is the Sharing Economy, where one party provides resources while another provides the network and customer base, sharing the profits. Platforms like Airbnb, Shopee, and eBay exemplify this model.
However, the Sharing Economy suffers from centralization, as providers are entirely dependent on the network provider. For instance, as reported by Vietnamnet, Grab increased its commission from 22% to 25%, even reaching 28% in late 2018-2019, significantly impacting driver earnings.
Sharing Economy Model. Source: IoTeX.
DePIN introduces decentralization to the Sharing Economy through token governance, ensuring fairness for both providers and network operators. In a DePIN-powered Grab, drivers could earn tokens for rides, convertible to cash and granting them voting rights in platform governance.
How DePIN Works: A Flywheel of Growth
To succeed, DePIN projects require compelling business models that attract both providers and customers while maintaining network security.
Most DePIN projects follow a similar model: initially utilizing token incentives to attract infrastructure providers. A successful initial phase, with a robust infrastructure network, attracts customers, further attracting investment. This cycle increases revenue for both the project and the providers. As the network expands, the token value appreciates, further benefiting all participants.
DePIN Flywheel. Source: IoTeX.
Helium, a WiFi hotspot DePIN project, exemplifies this flywheel. By offering substantial HNT token rewards for providing hotspots, they incentivized widespread participation, leading to rapid network growth and attracting both customers and investors.
Helium Flywheel. Source: Multicoin Capital.
DePIN networks typically comprise three key components for security:
- Infrastructure: The specific hardware, varying by project (e.g., hotspots, routers, solar panels).
- Middleware: Components connecting the blockchain to the infrastructure, similar to Oracle protocols, enabling data collection from external sources.
- Blockchain: A decentralized ledger ensuring transparency and immutability of data from the middleware, facilitating faster and trustless transactions.
Advantages and Disadvantages of DePIN
Advantages
- Decentralization: Blockchain technology ensures transparent and trustless transactions, promoting network autonomy.
- Fairness and Transparency: DePIN fosters equitable relationships between platforms, providers, and customers, with community-driven asset valuation.
- Profit Optimization: Leveraging real-world assets in Web3 allows users to generate additional income.
- Scalability: Connecting Web3 with tangible assets and services significantly enhances its potential for growth and real-world impact.
Disadvantages
Despite its potential, DePIN faces challenges:
- Limited Project Maturity: Compared to sectors like GameFi or DeFi, DePIN has a relatively small number of projects, indicating potential hurdles in development, revenue sustainability, and regulatory/technological challenges.
- User Accessibility: Similar to blockchain gaming or RWA, DePIN faces challenges in user adoption due to the technical complexities of blockchain and Web3 concepts.
DePIN’s Rise as a Crypto Trend
Despite the challenges, DePIN witnessed significant growth in 2023, attracting $1 billion in investments, led by Filecoin and Helium securing $500 million. While still behind other crypto sectors, DePIN is establishing its presence.
Top DePIN Projects.
Moreover, DePIN projects demonstrated greater resilience during the bear market, experiencing smaller revenue declines (20-60%) compared to other sectors (70-75%).
DePIN Revenue Compared to Other Crypto Projects. Source: Messari.
Notably, many DePIN projects are built on Solana, a high-performance and scalable network, benefiting from its ongoing upgrades. Experts believe DePIN’s potential extends beyond current applications, citing examples like Hivemapper’s decentralized geospatial data mapping.
The DePIN Ecosystem: A Landscape of Innovation
The DePIN ecosystem is bifurcated into PRNs (hardware-focused) and DRNs (data-focused). Prominent PRN projects include:
- Helium: Providing LoRaWAN infrastructure for low-power, wide-area network connectivity, expanding into 5G and other technologies, with a valuation exceeding $1 billion.
- Hivemapper: A $25 million funded project utilizing dashcams for crowdsourced map data, rewarding contributors with HONEY tokens.
Leading DRN projects include:
- Filecoin: A decentralized data storage network incentivizing users to provide storage capacity, with a peak fully diluted valuation of $300 billion and $250 million raised in 2023.
- The Graph: Providing indexing and querying infrastructure for blockchain data, encouraging developers to build APIs for data access.
DePIN Ecosystem. Source: Coin98 Analytics
While DRNs, particularly data storage projects like Filecoin, currently dominate in terms of revenue and market traction, PRNs exhibit greater diversity in infrastructure offerings. Innovative projects like Grass (web data collection) and Silencio (noise data collection) highlight the expanding scope of DePIN.
Comparison of PRNs and DRNs.
Messari predicts further DePIN breakthroughs, potentially integrating with trending technologies like Zk or Gaming, exemplified by emerging projects like Frodobots, WiFi Map, and Natix. The convergence of DePIN with other innovative sectors promises a dynamic future for decentralized infrastructure.
