DePIN: A Primer on One of Web3’s Most Interesting Emerging Verticals

DePIN: A Primer on One of Web3’s Most Interesting Emerging Verticals

Written by
River Fields
Date published
February 23, 2023

DePIN is a fast-growing emerging Web3 market sector where projects use token rewards to incentivize the deployment of real-world infrastructure. As the space begins to truly ramp up, you don’t want to get left behind. Here’s a thread 🧵 on everything you need to know.

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1/ What is DePIN?Decentralized Physical Infrastructure Networks (DePIN) refers to the burgeoning ecosystem of Web3 projects utilizing crypto-economic incentives to encourage the deployment of physical infrastructure: physical hardware such as @helium’s wireless hotspot nodes.

2/ DePIN goes by many names including Proof of Physical Work (PoPW), Token Incentivized Physical Infrastructure Networks (TIPIN), and EdgeFI Networks, introduced by @multicoincap, @lattice_fund, and @borderless_cap, respectively.

3/ Closing out 2022 and setting the scene for 2023, @twobitidiot’s annual Crypto Theses cited DePIN as one of the top 10 trends in web3 to pay attention to this year, adding it will be one of the most important verticals for investment over the next decade.

4/ The ecosystem is currently valued at a $3 Billion market cap with a TAM of approximately more than $2.2 Trillion (expected to grow to $3.5 Trillion in 2028) according to @messari Crypto Researcher @Old_Samster.

5/ These networks bootstrap supply by utilizing powerful incentivization structures (token rewards) to encourage individuals to deploy physical infrastructure.

6/ The DePIN ecosystem can be decoupled into four main categories, according to @Old_Samster:- Server Networks- Wireless Networks- Sensor Networks- Energy NetworksWe will briefly cover each but will leave an in-depth analysis of the segments for another thread.

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7/ Server NetworksTo begin, Decentralised Server Networks can be thought of as similar to cloud networks. They’re groups of interconnected computers and servers collaboratively working to provide web-based services (i.e. storage and processing power).

8/ Decentralized server networks break down into four sub-categories:

- Storage Networks (file storage and relational databases)

- Compute Networks (both general purpose and specific purpose compute networks)

- Content Delivery Networks (CDNs)

- Virtual Private Networks (VPNs)

9/ Wireless NetworksDecentralized Wireless networks (DeWi) aim to introduce a better approach to building and operating communication networks. DeWi projects’ usage of token incentivization methods has proven effective in bootstrapping supply and scaling these networks.

10/ IoT, Cellular, WiFi, Bluetooth, LoRaWAN, positioning, and hybrid networks are all actively being built across different DeWi projects within the broader DePIN ecosystem.

11/ Sensor NetworksDecentralized sensor networks are interconnected hardware devices with embedded sensors collecting real-world data in real time. For example, @Hivemapper dashcams gather street-level imagery in a collective effort to create a decentralized global map.

12/ Energy NetworksFinally, decentralized energy networks pool together various distributed energy resources (small-scale power systems) such as rooftop solar panels and small wind turbines in an effort to create more flexible and efficient energy grids.

13/ Virtual power plants (VPPs) play a key role in these networks, enabling the optimization of power on a given energy grid by being able to balance supply and demand.

14/ Why is DePIN important?

Historically, building and scaling hardware networks was reserved for only a small handful of large corporations due to its immense CapEx and OpEx responsibility.

DePIN networks change this narrative.

15/ Indeed, their token incentive models present a compelling new opportunity to effectively build out large-scale decentralized hardware networks, boasting potentially promising benefits while still having a fair share of unique challenges.

16/ Additionally, relative to other crypto projects, DePIN networks tap into a form of a real-world utility familiar to consumers. Network participants own tangible physical devices tied to value creation, which could ultimately help enable greater adoption of the space.

17/ How Do They Work?

DePIN projects introduce a bottom-up approach to building infrastructure networks.

By incentivizing individuals with token rewards, they bootstrap supply. Over time, as the network grows, its use cases become attractive to end users, bringing in demand.

18/ A flywheel begins to emerge: more engaged network participants garner more end users leading to increased network value which causes the cycle to repeat.

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19/ It’s important to note, in the early stages, DePIN networks aim to attract risk-takers, individuals willing to upfront initial capital, with the goal of receiving the most tokens.

20/ The fundamental idea is that the earlier you are to participate, the more you can earn.

21/ However, a notable concern with DePIN networks is that they’re essentially an all-or-nothing type of ordeal. If the network grows significantly, participants can truly benefit but if the network doesn’t grow, it essentially becomes useless to them.

22/ Referencing @Austin_Federa, it is indeed the alluring capitalist token incentive model that makes these networks workable (i.e. how @helium could galvanize individuals to purchase and deploy almost 1 Million micro-cell towers to date).

23/ Needless to say, incentives strongly influence human behavior.

24/ Competitive AdvantagesDePIN networks present several notable competitive advantages compared to traditional centralized infrastructure companies.

25/ Referencing @AlpenSheth, @arul_1111i and @alvarogracia, DePIN projects enable:

  • Fast infrastructure network growth
  • Significant CapEx and OpEx reduction
  • Frictionless payment systems
  • Open-source development (healthy competition and innovation)

26/ For example, @helium has deployed nearly 1 Million hotspots in about three and a half years (relatively fast) by incentivizing individuals through token rewards (crowdsourcing labor and capital), providing a model other protocols could iterate on (i.e. @Hivemapper).

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27/ While still very early in its development, the DePIN sector effectively connects blockchain technology with real-world utility and presents unique competitive advantages over traditional centralized entities engaging in large-scale infrastructure development.

28/ As many consider what will drive greater adoption of Web3 technologies, projects that enable fundamentally new behavior while rooted in providing real value to consumers lie at the core. DePIN rides on this theme and presents a vast design space worthy of excitement.

29/ Want to learn more about DePIN and stay up-to-date with new projects and developments in the space, here are some awesome accounts to follow:@twobitidiot @Old_Samster @TusharJain_ @arul_1111i @alvarogracia @AlpenSheth @MikeZajko @lmrankhan @QwQiao @MohamedFFouda

30/ Interested in reading more content from the @chapterone researchers? Check out the Chapter One Research Twitter List!