Original title: "Ryze Labs 10,000-word research report: a comprehensive interpretation of the DePIN track"
Original source: Fred, Ryze Labs
Introduction: What is DePIN
DePIN stands for Decentralized Physical Infrastructure Network, which encourages users to share personal resources through token incentives to build infrastructure networks, including storage space, communication traffic, cloud computing, energy and other fields.
Simply put, DePIN uses a crowdsourcing method to distribute the infrastructure originally provided by centralized companies to many users around the world.
According to CoinGecko data, the current market value of the DePIN field has reached 5.2 billion US dollars, exceeding the oracle field of 5 billion US dollars, and showing a continuous upward trend. Whether it is the earliest Arweave and Filecoin, or Helium that took off in the last bull market, and the recently highly anticipated Render Network, etc., all belong to this field.
Some readers may be curious. These projects have existed before, and Helium also attracted a lot of attention in the last bull market, but why has DePIN started to attract people's attention and craze recently?
The reasons can be roughly summarized into three aspects:
The infrastructure is much more complete than it was a few years ago, which paves the way for and empowers the depin track;
On the other hand, at the end of 2022, Messari first proposed the new concept of DePIN, believing it to be "one of the most important areas of crypto investment in the next decade." The new definition and expectations have also added a new narrative heat to this track;
In addition, people once pinned their hopes on social and games as the new narrative for web3 to break out of its circle. However, with the arrival of the bear market, people began to explore more possibilities in other directions. The DePIN track, which is also closely linked to web2 users, has naturally gradually become an important choice for web3 builders.
So is the DePIN track just old wine in a new bottle, or is it a new opportunity for Web3 to break the circle? This article will analyze DePIN in depth from five perspectives: why DePIN is needed, DePIN's token economic model, industry status, representative projects, advantage analysis, as well as limitations and challenges.
Why do we need DePIN?
So why do we need DePIN? What problems does DePIN solve compared to traditional ICT infrastructure?
2.1 Current Status of Traditional ICT Industry
In the traditional ICT industry, we can divide infrastructure into the following categories: hardware, software, cloud computing and data storage, and communication technology.
Among the top ten companies in the world by market value, six are in the ICT industry (Apple, Microsoft, Google, Amazon, NVIDIA, Meta), accounting for half of the market.
According to Gartner data, the global ICT market size reached US$4.39 trillion in 2022. Data centers and software have shown a growth trend in the past two years, affecting our lives in all aspects.
2.2 Dilemma of the Traditional ICT Industry
However, the current ICT industry faces the following two significant dilemmas:
1) The industry has high barriers to entry, which limits full competition and leads to pricing being monopolized by giants.
In areas such as data storage and communication services, companies need to invest a lot of money in hardware purchases, land leasing, deployment, and maintenance personnel. These high costs mean that only giant companies can participate. For example, AWS, Microsoft Azure, Google Cloud, and Alibaba Cloud in the field of cloud computing and data storage have a combined market share of nearly 70%. This has led to pricing being monopolized by giants, and the high costs will eventually be passed on to consumers.
Take the price of cloud computing and data storage, for example. The cost is quite high:
According to Gartner, in 2022, the total spending of enterprises and individuals on cloud services has reached 490 billion U.S. dollars, and it is expected to continue to grow in the next few years, and it is expected to exceed 720 billion U.S. dollars by 2024. According to RightScale data, 31% of large enterprises spend more than 12 million U.S. dollars on cloud services each year, and 54% of small and medium-sized enterprises spend more than 1.2 million U.S. dollars on cloud services. As enterprises increase their investment in cloud services, 60% of enterprises say their cloud costs are higher than expected.
Just looking at the current state of cloud service spending related to cloud computing and data storage, we can see that after the price is monopolized by giants, the spending pressure on users and enterprises will increase. In addition, the capital-intensive nature limits the full competition in the market and also affects the innovation and development of the field.
2) Centralized infrastructure resource utilization is low.
The low utilization of centralized infrastructure resources is a major challenge in today's business operations. This problem is particularly prominent in cloud computing environments, where companies typically allocate a large budget for cloud services.
According to a recent report by Flexera (2022), a worrying trend has emerged where, on average, 32% of a company’s cloud budget is wasted, meaning that after a company spends on the cloud, a third of its resources are left unused, resulting in huge financial losses.
This misallocation of resources can be attributed to a variety of factors. For example, when it comes to resource provisioning, companies tend to overestimate their needs to ensure continuous availability of services. In addition, according to Anodot data, cloud waste is caused in more than half of cases by a lack of understanding of cloud costs, getting lost in complex cloud pricing and a myriad of packages.
On the one hand, the monopoly of giants leads to excessively high prices, and on the other hand, a considerable part of the company's cloud expenditure is wasted, which puts the enterprise's IT cost and IT utilization into a double dilemma, which is very unfavorable to the healthy development of the business environment. However, everything has a double-edged sword, which also provides soil for the development of DePIN.
Faced with the high prices of cloud computing and storage and the dilemma of cloud waste, the DePIN track can solve this demand very well. In terms of price, decentralized storage (such as Filecoin, Arweave) is several times cheaper than centralized storage; in terms of the dilemma of cloud waste, some decentralized infrastructures have begun to adopt a tiered pricing method to distinguish different needs. For example, the Render Network in the decentralized computing track adopts a multi-level pricing strategy to most efficiently match the supply and demand of GPUs. The advantages of decentralized infrastructure in solving these two dilemmas will be introduced in detail in the project analysis section below.
DePIN’s Token Economic Model
Before understanding the current status of the DePIN track, let’s first understand the operating logic of the DePIN track. The core question is: Why are users willing to provide their own resources to join the DePIN project?
As mentioned in the introduction, the core logic of DePIN is to encourage users to provide resources through token incentives, including GPU computing power, deployment hotspots, storage space, etc., to contribute to the entire DePIN network.
Since tokens often have no actual value in the early stages of the DePIN project, users’ participation in the network to provide resources is somewhat similar to that of venture capitalists. The supply side selects promising projects from among many DePIN projects, and then invests resources in them to become “risk miners”, making profits by increasing the number of tokens and increasing the appreciation of token prices.
These providers are different from traditional mining in that the resources they provide may involve hardware, bandwidth, computing power, etc., and the tokens they earn are often related to network usage, market demand, and other factors. For example, low network usage leads to reduced rewards, or the network is attacked or unstable, resulting in a waste of their resources. Therefore, risk miners in the DePIN track need to be willing to take these potential risks and provide resources to the network, becoming a key component in the process of network stability and project development.
This type of incentive will form a flywheel effect, forming a positive cycle when development is positive; on the contrary, it is easy to cause a withdrawal cycle when development is negative.
1. Attract supply-side participants through tokens: Through a good token economics model, early participants are attracted to participate in network construction and provide resources, and tokens are given as rewards.
2. Attract builders and network consumers: With the increase in resource providers, some developers begin to join the ecosystem to build products. At the same time, after being able to provide certain services on the supply side, consumers are also attracted to join in because DePIN offers lower prices than decentralized infrastructure.
3. Forming positive feedback: As the number of consumer users increases, this demand incentive brings more income to supply-side participants, forming positive feedback and attracting more people to participate on both sides of the supply chain.
Under this cycle, the supply side has more and more valuable token rewards, and the demand side has cheaper and more cost-effective services. The value of the project's token is consistent with the growth of participants on both the supply and demand sides. As the token price rises, more participants and speculators are attracted to participate, forming value capture.
Through the token incentive mechanism, DePIN first attracts suppliers and then users, thereby realizing the cold start and core operating mechanism of the project, so that it can further expand and develop.
DePIN Industry Status
From the earliest projects, such as the decentralized network Helium (2013), decentralized storage Storj (2014), and Sia (2015), it can be seen that the earliest DePIN projects basically focused on storage and communication technologies.
However, with the continuous development of the Internet, the Internet of Things and AI, the requirements for infrastructure and innovation are increasing. From the current development status of DePIN, DePIN's projects are currently mainly focused on computing, storage, communication technology, and data collection and sharing.
Judging from the top 10 projects in the DePIN field by market value, most of them belong to the fields of Storage and Computing. In addition, there are some good projects in the field of telecommunications, including industry pioneer Helium and latecomer Theta, which will be further interpreted in the subsequent project analysis.
DePIN Industry Representative Projects
According to the depin market value ranking on Coingecko, this article will focus on analyzing the top five projects: Filecoin, Render, Theta, Helium, and Arweave.
First, let’s take a look at Filecoin and Arweave in the decentralized storage field, which are two projects that everyone is familiar with.
5.1 Filecoin & Arweave——Decentralized Storage Track
As mentioned in the dilemma of the traditional ICT industry at the beginning, in the traditional data storage field, the high pricing of centralized cloud storage on the supply side and the low resource utilization on the consumer side have caused difficulties for the interests of users and enterprises. In addition, there are risks such as data leakage. In the face of this phenomenon, Filecoin and Arweave break through by providing lower prices through decentralized storage and provide users with different services.
Let's take a look at Filecoin first. From the supply side, Filecoin is a decentralized distributed storage network that encourages users to provide storage space through token incentives (providing more storage space is directly related to obtaining more block rewards). Within about a month of the test network being online, its storage space reached 4PB, in which Chinese miners (storage space providers) played a very important role. Currently, the storage space has reached 24EiB.
It is worth noting that Filecoin is built on the IPFS protocol, which is already a widely recognized distributed file system. Filecoin achieves decentralization and security of data storage by storing user data on nodes in the network. In addition, Filecoin takes advantage of the advantages of IPFS, making it have strong technical strength in the field of decentralized storage, while also supporting smart contracts, allowing developers to build various storage-based applications.
At the consensus mechanism level, Filecoin uses Proof of Storage, including advanced consensus algorithms such as Proof of Replication (PoRep) and Proof of Spacetime (PoSt), to ensure data security and reliability. Simply put, Proof of Replication ensures that the node has copied the client's data, while Proof of Spacetime ensures that the node has always maintained storage space.
Currently, Filecoin has established partnerships with many well-known blockchain projects and enterprises. For example, NFT.Storage uses Filecoin to provide a simple decentralized storage solution for NFT content and metadata, while the Shoah Foundation and the Internet Archive use Filecoin to back up their content. It is worth noting that OpenSea, the world's largest NFT market, also uses Filecoin for NFT metadata storage, which further promotes the development of its ecosystem.
Next, let’s take a look at Arweave, which has some similarities with Filecoin in terms of the incentive supply side. It uses token incentives to encourage users to provide storage space, and the amount of rewards depends on the amount of data stored and the frequency of data access.
The difference is that Arweave is a decentralized permanent storage network. Once data is uploaded to the Arweave network, it will be stored in the blockchain forever.
How does Arweave incentivize users to provide storage space? At its core, it uses a proof-of-work mechanism called "Proof of Access" to prove the accessibility of data in the network. In layman's terms, it requires miners to provide a randomly selected previously stored data block as a "proof of access" during the block creation process.
Currently, the official provides a variety of solutions, including permanent storage of files, creation of permanent personal profiles and web pages, etc.
(Source: Arweave official Website)
In order to help everyone quickly understand the differences between Arweave and Filecoin, a table is made to help everyone understand.
As can be seen from the above table, Filecoin and Arweave have obvious differences in storage methods, economic models, and consensus mechanisms, which gives them their respective advantages in different application scenarios. However, due to the lower storage price, Filecoin is currently in a leading position in market performance.
Taken together, with the popularization of big data and artificial intelligence applications, the amount of data generated has increased exponentially, and the demand for data storage has also increased. Against the background of high pricing of centralized storage, the demand for decentralized storage has also increased. There are also more and more. As can be seen from the figure below, the price of decentralized storage is significantly different from that of centralized storage.
Under the same storage condition of 1TB per month, the price of decentralized storage is less than half of Google Drive on average and one-tenth of Amazon S3.
In addition to the price advantage, decentralized storage is more secure. Data is stored on multiple nodes, reducing the risk of single point failure and is also more resistant to censorship.
In terms of data privacy, users retain absolute ownership and control over their data in decentralized storage. Users can access, modify or delete their data stored in the network at any time; in centralized storage, users entrust their data to service providers, so service providers may have certain control over the data, and users need to comply with the service provider's terms of use and privacy policy.
In terms of disadvantages, decentralized storage has many technical challenges, including data storage and retrieval efficiency, node reliability and other issues that need to be resolved. Compared with the high availability and performance guarantee of centralized storage, the availability and performance of decentralized storage may be affected by participants in the network, so there may be some fluctuations, affecting the user experience.
5.2 Helium — Decentralized Wireless Network
After understanding the decentralized storage track, let’s take a look at the highly anticipated decentralized wireless network project Helium. Founded in 2013, it is also a veteran and pioneer in the DePIN track.
Why is decentralized wireless network so important? In the traditional IoT industry, since the infrastructure cost is difficult to cover the revenue, there is no giant network supplier of IoT devices, and there is no integrated market. The demand and the difficulty in supply provide soil for Helium's development in IoT.
Since the most difficult sticking point is the infrastructure cost, then sharing the cost through "crowdfunding" user participation on the supply side has become DePIN's natural advantage in this field. Through token incentives, users around the world are attracted to participate in purchasing Helium network equipment to form a network and realize the supply of the network. Its technical strength gives it significant advantages in the field of Internet of Things (IoT). In August last year, the number of hotspots exceeded 900,000, and the number of monthly active IoT hotspots reached 600,000, which is 30,000 of The Things Network, the leading player in traditional IoT networks. 20 times the hot spot. (Even if the number of active hotspots today dropped to 370,000, there is still a clear advantage)
After making progress in the IoT field, Helium hopes to further expand its network business and begin to enter the 5G and WiFi markets. However, as can be seen from the data in the figure below, Helium currently performs well in the IoT field, but performs mediocrely in 5G.
(Source: Helium official Website)
Why is Helium so good in IoT but so weak in 5G? Let's analyze it from the perspective of market and compliance.
Helium uses LoRaWAN technology in the IoT field, a low-power wide area network technology that features low power consumption, long transmission distance, and excellent indoor penetration. This type of network usually does not require specific authorization, making it an economical and affordable choice for large-scale IoT deployment.
For example, in agricultural scenarios, farmers only need to monitor whether the soil moisture and temperature exceed a certain critical value to implement smart irrigation and crop management. Similarly, in smart city scenarios such as smart light poles, trash cans, and parking sensors, there are also many development prospects.
Moreover, the IoT network market has a wide coverage but small data transmission volume, which makes it difficult to cover revenue, and no industry giant has emerged yet. Helium seized this opportunity, combining web3 technology with the IoT network, and cleverly solved the problem of high capital threshold through DePIN. Through the participation of everyone, the heavy cost of the initial IoT construction can be shared by each user, thus achieving a lightweight start-up. At present, some indoor and outdoor positioning devices and smart farms such as Abeeway and Agulus have begun to adopt Helium. As of August last year, the number of hotspots has exceeded 900,000.
On the other hand, Helium has only been involved in the 5G market for a year, but its performance is still not satisfactory. The root cause can be summarized as the dual dilemma of compliance and market ceiling.
In terms of compliance, the allocation and licensing of frequency bands in the United States are strictly regulated by the Federal Communications Commission (FCC). The low-frequency bands of 600MHz and 700MHz, the mid-frequency bands of 2.5GHz and 3.5GHz, and the 28GHz and 39GHz bands are all subject to strict review before they can be authorized. For example, the authorized T-Mobile uses the 600MHz band to deploy 5G, and Verizon uses the 700MHz band to deploy 5G. As a latecomer, in order to reduce deployment costs and solve compliance problems, Helium chose the unlicensed CBRS GAA band. Compared with the mid-frequency band, the coverage is slightly smaller and does not show a clear advantage over US operators.
In terms of the market ceiling, it is worth noting that 5G is a field that is strictly regulated by national policies. Network operators in most countries around the world are state-owned enterprises, and only a few are private enterprises with close ties to the state. Therefore, from the perspective of the big market, it is difficult for Helium to replicate its 5G market experience in the United States overseas.
In addition, the opacity of cooperative equipment is also an experience problem on the supply side. Since Helium's equipment is open source, the performance, price and installation process of different cooperative manufacturers are different. The opacity of performance and price is a big problem for suppliers participating in Helium. There is also a phenomenon that merchants use second-hand equipment to fill in the gaps. How to optimize the experience on the supply side and balance the transparency and agreeableness of open source and equipment performance and price is also a challenge that the Helium project needs to face.
It is worth noting that on March 27 this year, Helium began to migrate from its own Layer1 blockchain to Solana. The reasons for the migration can be summarized as follows:
The core of the Helium team is the network. After evaluating the importance of maintaining Layer 1, they decided to hand over the maintenance of the underlying blockchain to people who are good at it, so that the team can focus on the construction of the Helium network.
Solana was chosen mainly from the perspective of ecology. Solana has many high-quality ecological projects and developers. Helium's token HNT is natively compatible with other innovative projects in the Solana ecosystem, allowing token holders to have more use cases.
In addition, Solana’s latest state compression function can mint a large number of NFTs at a very low cost, allowing Helium to migrate nearly 1 million NFTs to Solana at a cost of only $113, saving a lot of costs. These NFTs can serve as Helium’s network credentials and verify hotspots. They can also integrate the functions of the entire ecosystem, including token gating and access rights for hotspot owners, which is very efficient and convenient.
In terms of future planning, there is a lot of room for cooperation with Helium in projects such as Solana Mobile Stack and the Saga mobile phone that Solana wants to launch. This is a win-win situation for Solana, which wants to make mobile phones, and Helium, which wants to develop into a 5G service provider.
In the long run, Helium's exploration in the field of IoT is an innovative undertaking from 0 to 1, which is of great value in solving the needs of IoT. Although there will be many challenges in this process, with the popularization of IoT devices and the continuous expansion of application scenarios, Helium's decentralized network solution may be more widely used. It is believed that it will have great potential in the fields of smart agriculture, smart cities and other fields in the future.
5.3 Render Network——Decentralized Computing
Render Network is a decentralized GPU rendering platform. Rendering refers to the conversion of two-dimensional or three-dimensional computer models into realistic images and scenes. Render Network has been hotly discussed before, during the Apple Vision Pro launch, as well as during the Metaverse and AR/VR craze.
Some readers may be curious about why personal computers are not enough to meet the needs of video editing and animation production, and why Render Network is needed? The reason is that for small projects such as short videos or micro-films, the computing power requirements are relatively low. However, for many large projects, the computing resources required for rendering are huge, and usually rely on centralized cloud service providers such as AWS, Google Cloud, Microsoft Azure, etc. However, the prices of giants are often not cheap.
For customers, price is the most important aspect. Render Network adopts multi-layer pricing to match the supply and demand of GPUs most efficiently.
Render Network focuses on the price aspect that customers care about most, and adopts a multi-level pricing strategy to most efficiently match GPU supply and demand.
Rendering services are quantified in OctaneBench units and time, adjusted for OctaneBench4 and normalized to 1€. This pricing model is based on the current cost of GPU cloud rendering services on centralized platforms such as Amazon Web Services (AWS). Specifically, 1€ worth of RNDR is equivalent to 100 OctaneBench4 runs per hour.
Tier2 provides 2 to 4 times the total OctaneBench workload of Tier1 RNDR tokens and 200-400% more computing power than Tier1. Tier2 rendering work has a higher priority in the rendering queue than Tier3, allowing for accelerated parallel rendering services. Tier3 provides 8 to 16 times the OctaneBench workload. However, Tier3 services have the lowest priority in the rendering queue and are not recommended for time-sensitive rendering tasks.
(Source: Render Network Knowledge Base)
In simple terms, the pricing formula for each tier is fixed, but the pricing unit OctaneBench will fluctuate according to market performance. The cost and effect of Tier1 are comparable to centralized cloud rendering services such as AWS, while Tier2 and Tier3 achieve lower prices by requiring lower speed. For price-sensitive users, Tier3 can be chosen, while for users who pursue high efficiency, Tier1 is a preferred choice, and those in the middle can choose Tier2.
In addition, Render Network emphasizes the full utilization of idle GPU resources. Because most GPUs are not fully utilized when they are idle locally. At the same time, artists and developers are working tirelessly to expand the scale of cloud rendering and computing work. The decentralized rendering network provides an efficient two-way market for the supply and demand of global GPU computing, which is a very efficient way to match resources.
5.4 Theta Network——Decentralized Video Network
Steve Chen, the co-founder of Theta Network, was the co-founder of Youtube and has a strong industry background. The core function of this project is to adopt an optimized content distribution network based on blockchain, which significantly reduces the cost of video content transmission and improves the efficiency of content distribution.
To better understand, let’s compare it to a traditional content delivery network (CDN):
In traditional distribution networks, all video viewers directly connect to POP servers (network nodes distributed around the world) to watch videos. Currently, most platforms such as Netflix and Facebook obtain services through centralized CDNs. However, for those geographical locations far away from POP servers, video streaming is often affected. The Theta Network's model allows users to contribute their bandwidth and computing power to become Caching nodes to distribute videos closer to the viewer's location.
This allows the final video audience to have a better experience, while also bringing token rewards to users who provide bandwidth and computing power, and reducing the cost of the video platform. With the continued increase in video content consumption and the rise of industries such as online live broadcasting and game live broadcasting, Theta Network is expected to be used in more application scenarios. At present, in the field of decentralized video streaming, Theta Network will also face competition from projects such as Livepeer and VideoCoin.
Of course, in addition to the top 5 projects ranked by market value analyzed above, there are many other projects worth mentioning, such as IoTex, which provides underlying infrastructure for IoT projects, SDKs for developers on the DEPIN track, and the recently launched Beta version of the data platform DePINscan to help analyze data on the DePIN track.
In addition, Ketchup Republic, the champion project of this year's Wanxiang Blockchain Week Hackathon, aims to create a Dianping-based web3, directly giving the traffic fees purchased by merchants to users, providing merchants and consumers with better traffic and experience...
These noteworthy projects emerging from the DePIN track are like mushrooms after rain. The breakthrough that everyone desires may give birth to a new summer in the DePIN track. However, due to the cost requirements of the combination of software and hardware, the summer may come slowly. But I believe that a late spring is still a spring.
Advantages of DePIN
Looking at the mechanisms of various DePIN projects, the most essential core is resource integration: using tokens to incentivize users to share resources so that resources can flow efficiently to the hands of the demanders. Compared with centralized traditional infrastructure, DePIN is like DeFi compared to CeFi. To some extent, it weakens the role of middlemen and makes resources more unimpeded between suppliers and demanders.
6.1 Transformation from capital-intensive industry to P2P/P2B model
The mechanism presented by the DePIN project is essentially a revolutionary market change. Its decentralized nature means that the threshold for enterprise participation will be significantly lowered, and it will no longer be subject to the monopoly of a few centralized giants. This ground-breaking change will empower SMEs and start-ups with greater participation and provide an opportunity to compete on an equal footing with industry leaders.
In the field of infrastructure construction, the oligopoly problem in the centralized market once existed significantly. Especially in the traditional storage and computing fields, which are obviously capital-intensive industries, giants such as AWS, Azure, and Google Cloud sit on prices. Users often lack bargaining power and are forced to accept high prices or even lack real options. .
However, the emergence of DePIN has brought new vitality to this status quo. Whether it is Filecoin, Arweave or Render Network, by incentivizing user tokens, users provide resources to form a network, thereby realizing the transformation from capital-intensive industries to P2P or P2B models. This greatly reduces the threshold for corporate participation, breaks the price monopoly, and gives users a more affordable choice. DePIN makes the market more open, transparent and competitive by incentivizing users to share resources and establish a free competition ecosystem.
6.2 Reuse idle resources to promote better social development
In the traditional economic model, many resources are idle and fail to realize their potential value. This waste of resources not only has a negative impact on the economy, but also puts considerable pressure on the environment and society, including idle computing power, storage, and energy. Taking the cloud as an example, according to a report by Flexera, the effective utilization rate of cloud purchased by enterprises in 2022 is only 68%, which means that 32% of cloud resources are wasted. Considering that Gartner expects cloud spending to reach nearly $500 billion in 2022, this means that a rough estimate of $160 billion in cloud spending is wasted.
However, the emergence of DePIN provides a new solution to this dilemma. Many users hold many idle resources, whether it is storage, computing power or data, the key is how to mobilize these resources. Through incentive mechanisms, DePIN encourages users to share and utilize their resources, maximizing resource utilization. This includes not only resources such as data storage and computing power, but also environmental-related resources. For example, React Protocol connects batteries and electricity markets into a community network, which helps stabilize the power grid by connecting batteries and sharing users' excess electricity. On the one hand, it contributes to the supply of clean energy, and on the other hand, for users with limited resources, it also provides an additional way to make money and realize cash, which has to be said to be a win-win situation. This initiative can not only reduce the waste of resources, but also bring more sustainable development to society.
6.3 Eliminate middlemen and make money flow more efficiently
In addition to the paradigm shift and reuse of idle resources reflected by decentralized storage, computing, and networking, some recent emerging DePIN projects have discovered the vision and characteristics of O2O projects such as Meituan, Dianping, and Didi that want to become web3.
For example, Ketchup Republic hopes to use the location relationship between consumers and merchants (using Bluetooth) to help merchants attract offline traffic. Merchants can configure their own token incentive methods for users, and can set marketing in terms of location, number of times, distance, etc. Compared with the merchant-platform-user incentive model of Meituan and Dianping in web2, in Ketchup Republic, the marketing fees of merchants are directly paid into the pockets of users, thereby reducing the wear and tear of marketing fees.
This emerging class of DePIN projects aims to replace web2 infrastructure projects, allowing users of the data they provide to be paid directly by merchants, thereby eliminating the middleman.
This means that DePIN has achieved direct value transfer by establishing a decentralized ecosystem that directly connects supply and demand parties, allowing funds and resources to flow more quickly, thereby improving transaction efficiency and transparency. This mechanism will not only reduce transaction costs, but will also bring more opportunities and flexibility to market participants.
Limitations and Challenges of DePIN
The DePIN track covers a wide range of categories, including storage, computing, data collection and sharing, communication technology, etc. These existing markets all present different degrees of competition. The development of DePIN also faces many limitations and challenges:
7.1 Experience level: The industry lacked standards in its early stages, resulting in poor developer and user experience
At present, the development of the DePIN industry is still in its early stages and lacks a complete infrastructure. Each project needs to develop on its own. In addition, the understanding and use thresholds for user participation in the project are relatively high. Users need to learn and hold tokens, and also need to purchase and configure some hardware. These factors have led to the average user experience of DePIN projects in the current market. Companies need to aggregate and simplify the thresholds for user participation and use to improve the availability of the network in order to have more possibilities of breaking the circle.
It is worth noting that some companies are currently starting to build infrastructure for the DePIN track. For example, Filecoin announced the launch of Filecoin Data Tools (a set of computing and storage technologies based on its network) to enhance the developer experience and provide comprehensive solutions for data service needs. In terms of infrastructure, IoTex is also working on toolkits such as the move to earn SDK, hoping to reach some standards and consensus at the DePIN level to promote the proper development of the industry.
7.2 Competition: Lack of Competitive Moat
The lack of competitive moats poses a challenge to the long-term stable development of the network. As resource providers, users may easily turn to other networks once more options appear in the market. For example, Pollen has entered the 5G track, and some miners from the Helium community have also begun to deploy Pollen's mining machines. As a decentralized mobile network provider, how to enhance its own irreplaceability and competitive barriers is a long-term exploration process.
In addition, how to prevent cheating is also very important for sustainable development. For example, how to avoid cluster mining cheating encountered in the Helium project and GPS location modification cheating in geographic data-related projects is also a very important part. For example, Helium has fallen from 600,000 monthly active hotspots at its peak to 370,000 monthly active hotspots at present. How to face the decline and provide better services is an urgent problem to be solved.
Most current projects attract users through token incentives, such as adjusting token incentive amounts based on multiple dimensions such as coverage and availability. However, there is no sustainable and effective solution yet. There is still a long way to go in exploring how to continuously attract user participation and form a positive flywheel effect.
7.3 Extension level: Regulatory restrictions on compliance
Since the DePIN field involves infrastructure and will also have an impact on users in the web2 world, regulatory compliance becomes an unavoidable issue. For example, in the field of communications, 5G technology is subject to strict regulatory requirements. Network operators in many countries are operated by state-owned enterprises, and private enterprises also maintain close ties with the government, so obtaining authorization may face some difficulties. Even if some countries have opened up some frequency bands, such as the CBRS GAA band opened in the United States, due to frequency band restrictions, there is no obvious advantage compared to other operators.
On the contrary, in the field of IoT, since there are no mature giant solutions, Helium has room to play. DePIN is still in its early stages. On the one hand, it can try new tricks in areas that web2 has not yet solved, such as IoT networks; on the other hand, in the track where web2 has relatively mature solutions, such as 5G, data security, etc., it still needs to grow together with the development of regulations, and the speed of this growth is unknown and full of changes.
7.4 Construction level: talent barrier
When communicating with some project parties in the DePIN track, I found that the common pain point and challenge for everyone is the scarcity of talent.
The DePIN field requires talents with comprehensive skills, who not only understand the Internet of Things, but also understand how the web3 market works. However, such talents are relatively scarce in the current industry.
To some extent, the steady development of the Internet of Things and the radical innovation of web3 have become contradictory qualities that are difficult for talents to possess. Most talents with experience in the Internet of Things may prefer to develop in traditional industries, while talents who understand the Internet of Things and the web3 market and operations are even more scarce. The difference between the two makes team recruitment and collaboration a challenge.
In general, the DePIN field faces many challenges in the short term, such as product experience, moat building, regulatory compliance, and talent shortage. However, in the long run, whether from the perspective of lowering barriers, innovation, or utilizing idle resources and money flow, the emergence of DePIN will have a profound impact on the market. The market changes it brings will affect the supply chain, industrial structure, and the evolution of the entire economic ecosystem. As DePIN continues to develop and mature, we have reason to believe that it will become a key force that can bring real changes to society, enterprises, and individuals.
References
https://tadviser.com/index.php/Article:ICT_%28Global_Market%29
https://www.consultancy.uk/news/1079/strategy-top-50-best-performing-global-ict-companies
https://www.linkedin.com/pulse/ict-market-2023-size-share-trends-growth-forecast/
https://www.cloudzero.com/blog/cloud-computing-statistics
https://www.peaq.network/blog/what-are-decentralized-physical-infrastructure-networks-depin
https://iotex.io/blog/what-are-decentralized-physical-infrastructure-networks-depin/
https://coinmarketcap.com/academy/article/a-deep-dive-into-depin-decentralized-physical-infrastructure
https://messari.io/report/navigating-the-depin-domain
https://www.coingecko.com/research/publications/centralized-decentralized-storage-cost
https://www.techflowpost.com/article/detail_14063.html
https://open.spotify.com/episode/0VjsMFwFgVhPifDzMYdDGv?si=e19e74774d634693
https://decrypt.co/137257/helium-completes-solana-migration-minting-nearly-1m-nfts-in-the-process
https://aws.amazon.com/nimble-studio/pricing/
https://filecoin.io/
https://www.arweave.org/
https://thetatoken.org/
https://www.helium.com/
https://rendernetwork.com/
https://www.theblockbeats.info/news/37098
https://www.odaily.news/post/5188821
https://www.odaily.news/post/5187843
https://www.panewslab.com/zh/articledetails/e2agtcx3.html
https://www.panewslab.com/zh/articledetails/jbjh40057cho.html
https://foresightnews.pro/article/detail/40042
https://www.btcc.com/zh-TW/academy/crypto-basics/theta-network-coin
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