Title: DePIN: Building a Decentralized Internet of Things Infrastructure Network
Introduction:
DePIN is gradually achieving large-scale interaction between the physical world and Web3, disrupting traditional infrastructure operation models. By combining sensors, wireless networks, computing resources, AI, and blockchain technology, and utilizing cryptographic economic incentives, DePIN promotes crowdsourced development. Analysis of most DePIN projects reveals an important feature in its business model: hardware revenue as the first growth curve, supplemented by monetization of data services to form the second growth curve. This is one of the key factors that enable DePIN to lead the current growth cycle and demonstrates how DePIN-like projects create significant wealth effects and ultimately form a scalable decentralized value network.
1. Building a Decentralized Internet of Things World:
Decentralized Physical Infrastructure Network (DePIN) is defined in Messari’s 2023 report as “deploying physical infrastructure and hardware networks of the real world using cryptographic economic protocols.” This concept envisions an application scenario with immense possibilities: common infrastructures around us, including communication base stations, car charging stations, solar panels, billboards, and the data storage and computing devices behind the Internet, will no longer be controlled by centralized entities and institutions. Instead, they will be divided into equally-sized units held by individuals or scaled miners. Furthermore, similar types of physical infrastructures will be highly standardized and scaled, forming a carpet-like coverage.
Through decentralization, the layout and utilization of infrastructures can achieve higher efficiency and lower costs while enhancing overall system security and resilience. Moreover, various facilities, from energy production to data processing, have the potential to transition to a decentralized model. The combined market size of the industries involved in DePIN already exceeds $5 trillion. Therefore, Messari predicts that the potential market size of the DePIN field is estimated to be around $2.2 trillion, expected to reach $3.5 trillion by 2028.
1.1 DePIN Track Segmentation:
The DePIN track encompasses six sub-domains: computing, AI, wireless communication, sensors, energy, and services. From the perspective of the supply chain, DePIN can be divided into:
– Upstream: hardware manufacturers and users who act as “miners.”
– Midstream: project platforms, blockchains responsible for data verification and token settlement, layer-two protocols serving DePIN, and modular service components for developing and managing DePIN networks (such as platform interfaces, data analysis, and standardized services), DePIN development SDK toolkits, API interfaces, etc.
– Downstream: dApp applications and interfaces that interface with the demand side.
Apart from IoTeX and the former Helium (now migrated to Solana), most DePIN projects rarely cover every aspect of DePIN business. They usually choose Solana or IoTeX as the settlement layer for token economics. Projects in the AI and cloud computing sub-domains focus more on on-chain settlement and the development and management of project platforms, while underlying hardware devices are dispatched to idle electronic devices, such as smartphones or computers equipped with high-performance consumer-grade GPUs, through middleware.
1.2 Overview of DePIN Industry Development:
According to DePIN Ninja’s data, there are currently 1,215 online DePIN projects with a total market value of approximately $43 billion. Among them, the market value of projects that have been listed on Coingecko’s DePIN sub-section and have issued tokens exceeds $25 billion.
In October last year, this number was only $5 billion, showing the rapid growth of the DePIN industry. This indicates that the market demand and recognition for decentralized physical infrastructure networks are continually increasing. With the launch of more projects and the expansion of application scenarios, the DePIN industry is expected to become an important field for the integration of blockchain technology and real-world applications.
2. Insights from DePIN’s Business Logic:
The embryonic form of DePIN can be traced back to the concept of the Internet of Things (IoT) + Blockchain from the previous cycle. Projects like Filecoin and Storj have transformed centralized storage into a decentralized operating model through cryptographic economic models, and have been practically applied in the Web3 ecosystem, such as on-chain NFT storage and resource storage for DApps.
While IoT + Blockchain only emphasizes the decentralized (“De”) nature, DePIN emphasizes the construction of physical infrastructure and the scaling of interconnected networks. In DePIN, “PI” represents physical infrastructure, and “N” represents the network, which is the value network formed by the hardware network of DePIN reaching a certain coverage scale.
The most typical example is Helium, which was founded in 2013 but only confirmed the use of blockchain as an incentive mechanism for decentralized deployment of the IoT in 2018. Until now, Helium has almost met all the elements of DePIN: node economics, miner models, value networks, crowdsourced incentives, and is a leading project in the DeWi (Decentralized Wireless Communication) field. Furthermore, the cooperation between Helium Mobile and T-Mobile to launch a $20 communication package service targeting traditional users at the end of last year not only rewards users with tokens for data transmission on the Helium network but also provides reliable communication services. This partnership also helped T-Mobile solve signal coverage issues in remote areas of the United States, creating a win-win situation. The influx of a large number of traditional users has the potential to break the barriers of DePIN and accelerate the widespread adoption of blockchain technology and Web3 networks.
Helium and Filecoin both fall into the DePIN category, but the difference lies in Helium’s emphasis on hardware, which enables it to support the growth of data services on the second curve through hardware revenue, building an independent ecosystem and reaping alpha and beta returns. Although Helium was involved in false advertising last year and faced challenges such as development difficulties due to obscure programming languages, a series of actions at the end of the year reignited its second curve growth. As the first and most large-scale DePIN project, Helium undoubtedly provides us with some inspiration for the DePIN ecosystem.
3. Explosive Growth of DePIN Based on the Dual Curve Theory:
“The second curve” is a concept in management and innovation theory originally proposed by management scholar Charles Handy. It refers to the need for new innovations or changes to launch a new growth curve when an organization, product, or business reaches the peak of its traditional growth curve in order to avoid stagnation or decline.
Based on the successful experiences of previous DePIN projects, it is evident that the business logic of DePIN naturally points to using hardware sales as the first curve of project development, with the monetization of data value networks added on top as the second curve of growth guidance. Product development and operational capabilities are key to ensuring the growth of the first curve, while launching the growth of the second curve requires two capabilities: organizing a decentralized system and providing services to the demand side.
In the DePIN ecosystem, project parties need to ensure the smooth operation of the data value network while having the ability to organize a hardware network capable of accommodating scaled data transmission. This will enable the demand side to smoothly connect and ultimately provide high-quality, standardized data services. This completes the dual curve business growth, forming a positive cycle within the project ecosystem.
3.1 Hardware Value as the First Curve of Value Creation:
On the first growth curve, businesses go through an initial phase of rapid growth before gradually reaching its peak. The first curve growth of DePIN projects is driven by revenue and profits generated from hardware sales.
Traditional infrastructures, especially in areas such as data storage and communication services, have linear business logic controlled by centralized service providers or entities. In this model, businesses initially invest in building infrastructures and then provide services to end-users (consumers) once the facilities are established. Therefore, developing such businesses often requires the participation of industry giants to bear the high costs in the early stages, including hardware purchases, land leases, deployment, and hiring maintenance personnel. Referring to BCG’s deconstruction of the data value network, the traditional IoT operation model creates a linear data value chain, where data is transmitted as an independent and linear production factor, and each ecosystem is completely independent.
DePIN projects break down centralized supply-side entities into a crowdsourced form to establish the hardware network.
Therefore, the first step in achieving the first curve growth of DePIN projects is to dismantle centralized infrastructures. Project parties need to promote themselves, disseminate their narratives, and attract supply-side users’ participation through various means of operation, including pre-selling “mining machines” and giving away airdrops. By transferring the massive investment in infrastructure construction to supply-side users, the project can achieve low-cost lightweight initiation. Supply-side users, as holders of hardware, become “shareholders” of the project and help deploy the hardware network with the expectation of mining profits.
Moreover, unlike traditional centralized equipment providers, the update and maintenance of DePIN devices are carried out jointly by project parties and miners. Device providers are only responsible for updating, researching, developing, and selling devices, while updates and maintenance are performed by supply-side users. The interaction between miners (supply-side users), project parties, and middleware in the collaborative maintenance and construction of the hardware network strengthens the miners’ community identification and recognition of the DePIN project.
If a DePIN project can smoothly carry out narrative marketing, mining machine sales, and community operations, it will have all the elements for its own first curve growth, ultimately leading to an increase in network coverage, token incentives, and attracting more miners to join the first curve.
The following data is the number of active nodes as of now, with Hivemapper, Helium, and Natix in the top three, all having deployed over 100,000 nodes worldwide.
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Source: DePIN Ninja
Among them, Hivemapper, Helium, Natix, and Nodle have all deployed over 100,000 nodes. Helium and Hivemapper have performed exceptionally well:
Helium
– Helium is a decentralized wireless network. Its main businesses include Helium Hotspot, which provides low-power wide-area network (LoRaWAN) coverage, and Helium Mobile, a mobile communication service launched in cooperation with T-Mobile and TEF.
– On January 25th, the $20 communication package service launched in cooperation with T-Mobile gained 93,000 subscribers in just 5 months.
– Helium has also entered the Mexican market, which has a population of 126.7 million, in cooperation with Telefónica (TEF), one of the major telecommunications service providers in Mexico, further enhancing Helium’s revenue sources and market influence.
Hivemapper
– Hivemapper is a decentralized mapping platform aiming to create a global, real-time updated map ecosystem through blockchain technology and cryptographic economic incentives. Hivemapper’s main business includes HiveMapper Dashcam, a dashcam that allows users to collect geographic data during their journeys.
– Priced at $549, the rough estimate based on the current number of deployed nodes shows that Hivemapper has already achieved over $60 million in hardware sales revenue.
– Hivemapper’s network for collecting map data has covered most areas of Europe and America. The data services revenue of Hivemapper has also grown significantly.
Both hardware sales and data services contribute to the growth of DePIN projects, but the emphasis on the first curve growth through hardware revenue differentiates DePIN projects from traditional IoT + Blockchain projects.
Conclusion:
DePIN’s explosive growth is based on the theory of the dual curve, where the first curve represents the value created through hardware sales, and the second curve represents the value created through data service monetization. The smooth operation of the hardware network and the provision of high-quality data services are critical to achieving the growth of both curves. By leveraging the advantages of decentralization, DePIN projects can disrupt traditional infrastructure operation models and create a scalable decentralized value network.
