Original title: DePIN: Crypto’s Rising Narrative
Original author: Crypto.com Research and Insights team
Original source: Crypto
Compiled by: Vernacular Blockchain
The main points
● DePINs leverages global untapped resources through blockchain technology and Token-based economic incentives to achieve a new development approach to real-world infrastructure through open participation.
● The main categories of DePIN projects include physical networks (location-based resources such as sensors, energy, wireless networks) and digital networks (e.g. computing, data storage).
● The rapid development of artificial intelligence (AI) is a key driver in DePIN’s perceived rise in the narrative among cryptocurrencies. An example project where DePIN and AI intersect is Render.
● DePINs incentivize individuals and organizations through local tokens by providing excess infrastructure capacity. If the network scales up through increased participation, the local token is expected to gain greater value. This increases the rewards received by suppliers and the returns expected by investors.
● While DePINs show potential, there remain challenges around price volatility, user awareness, and long-term infrastructure maintenance as these networks grow.
Decentralized Physical Infrastructure Networks (DePINs) provide a novel approach to developing and maintaining real-world infrastructure through the use of blockchain technology and token economic incentives. This is a narrative that has attracted significant attention in the cryptocurrency space, especially due to the rapid development of AI.
The goal of DePINs is to decentralize the ownership and governance of traditional physical networks and leverage unutilized or inefficiently utilized resources around the world. One example is the Render project, which adopts a distributed graphics processing unit (GPU) processing model to meet users' growing GPU computing needs, both for current 3D rendering tasks and emerging 3D applications. Another example is Helium, a decentralized wireless network that allows devices around the world to wirelessly connect to the internet and locate their location without the need for satellite positioning hardware or a cell phone plan. DePINs create a link between physical infrastructure and blockchain networks.
The DePIN network proposes an approach that contrasts with the centralized forms of infrastructure that have long dominated various sectors (e.g., utilities, telecommunications, cloud data storage). By leveraging unused and idle physical resources, DePINs aim to leverage large amounts of underutilized capacity through open and voluntary coordination. Proponents of DePINs argue that they may be more efficient, resilient and perform better than centralized infrastructure.
Overall, DePINs presents an infrastructure as an alternative philosophical framework for collaborative commons, although its smoothness in operating at scale has yet to be proven.
1. Overview of DePIN
1) Why is DePIN a rising narrative?
DePINs aim to enable distributed and transparent provision of essential resources and services at a lower cost than centralized solutions, potentially solving the accessibility, price-affordability and single-point issues associated with traditional centralized infrastructure monopolies. Problems such as malfunctions.
Practical application cases cover file storage, computing, wireless networks, sensors, energy and other fields.
For example, the cloud computing market (one of the key categories DePINs is trying to address) is expected to bring in $68 billion in revenue in 2024 and reach $1.44 trillion in 2029. At the same time, decentralized storage (another important DePIN category) is approximately 78% cheaper than its centralized counterpart. In the field of enterprise-level data storage, this gap is even more significant, with costs as high as 121 times.
As the DePIN network grows, they are expected to significantly disrupt the existing centralized infrastructure hegemony by building an open ecosystem using global untapped resources. This real-world application case market opportunity makes DePIN a highly-watched and rising narrative in the cryptocurrency space.
DePIN and artificial intelligence
Another key reason for DePIN’s growing importance is the rapid development of artificial intelligence (AI). With the rapid development of AI technology, the demand for large-scale processing capabilities far exceeds the expansion of centralized cloud infrastructure. Traditional service providers now face a hardware supply backlog of more than a year, which hinders innovation.
The DePIN Computing Network leverages distributed systems to support complex workloads, including large-scale data analysis and complex AI model training/inference. By integrating idle processing resources into its platform, DePINs connects available supply with high computing demand. One noteworthy computing project directly related to AI is Render, which we will cover in a later chapter.
Rather than relying on a handful of dominant cloud providers (e.g., Amazon Web Services, Google Cloud), the DePIN model aims to achieve a transfer of control through competitive market forces. AI pioneers gain access to elastic global aggregated computing resources suitable for the resource-intensive tasks required to advance machine intelligence.
2) How does DePIN work?
DePIN projects usually operate by establishing local tokens to incentivize node operators to provide unused storage space, bandwidth, sensors and other physical equipment or resources.
On the other hand, users use these tokens to access services provided through the decentralized network. The goal is to achieve economies of scale by priming supply and demand so that decentralized networks become self-sustaining over time.
The initial motivation of resource providers is to incorporate otherwise idle physical assets into the decentralized network to earn rewards. This utilizes excess capacity in dormant facilities.
By bringing these distributed resources online, the DePIN network expands the services provided to end users. Users are also attracted by the relatively low costs compared to centralized alternatives.
As the network scales through increased participation, the value of native utility tokens will increase. This not only increases the rewards that suppliers receive, but also increases the returns that investors can expect.
The growing value proposition in turn attracts more providers to bring their facilities online, providing additional resources for the growing network.
As this self-reinforcing cycle repeats, the DePIN model aims to take off like a flywheel, driving the continued expansion of decentralized infrastructure platforms through network effects. The flywheel effect demonstrates DePIN’s goal of motivating resource optimization.
2. DePIN Market
1) Overview
DePIN projects can be divided into various categories; broadly speaking, they can be divided into two categories: physical resource networks and digital resource networks.
The physical resource network is a location-based, decentralized physical resource network. Providers in the network contribute hardware resources related to connectivity, mobility, energy, etc. to provide services. These resources are location-based and irreplaceable in the sense that services are localized (set in one place) and sometimes non-portable (fixed to a specific location).
A digital resource network is a network of interchangeable digital resource providers who contribute resources such as computing power, shared bandwidth or storage facilities. These resources are not location specific or tied to location data.
We can further break down the items in the above categories into smaller sectors as follows:
The market capitalization of DePINToken has been rising and is currently around $25 billion (as of February 24, 2024). The computing, storage and artificial intelligence categories account for the majority of market capitalization.
In terms of blockchain exposure, most DePIN projects are currently on the Ethereum blockchain. IoTeX is an Internet of Things (IoT)-focused blockchain worth noting.
In terms of revenue, the storage category accounts for the lion's share with a total revenue of $25 million, followed by decentralized computing with revenue of approximately $5 million in 2023.
For a more detailed look at the current DePIN ecosystem and projects, check out our report, The DePIN Landscape, which is available only to our private members.
Fundraising
Experienced investors are investing in DePIN, and top projects have raised over $1 billion in funding.
2) Head DePIN Project
Here, we briefly introduce the two top DePIN protocols by market capitalization: Helium (HNT) and Render (RNDR). The latter is directly affected by the rapid development of AI, as it falls under the computing category.
For a more detailed look at these projects and others in the ecosystem, check out our report, The DePIN Landscape, which is available only to our private members.
Helium
The Helium Network is a decentralized wireless network that enables devices around the world to wirelessly connect to the Internet and locate their location, without the need for satellite positioning hardware or cell phone plans. The Helium network is powered by a blockchain with native protocol tokens (HNT) that incentivize a two-sided market between coverage providers and coverage consumers. The Helium network uses a unique consensus algorithm called Proof of Coverage (PoC) to verify that hotspots accurately represent their location, configuration, and the wireless coverage they create.
Helium's mobile network is designed to enable individuals to set up and manage mobile networks (by providing 5G hotspots). Whenever a new Helium mobile subscriber signs up, a subscriber NFT is minted. The chart below shows the growth in the number of newly minted Helium Mobile Subscriber NFTs so far this year.
Render Network
Render Network (also known as Render) adopts a distributed GPU processing model to provide near real-time rendering to meet users' growing GPU computing needs, including current 3D rendering tasks and emerging 3D applications.
Render is designed to increase artist rendering speed while reducing costs and increasing scale. It also aims to improve capital efficiency by leveraging idle GPU computing power and reward GPU providers with RNDRToken for their services. Render has one of the largest distributed GPU networks in the world, with over 100,000 node operators on its waiting list.
An increasing number of 3D artists are introducing AI-generated content into their creative pipeline, combining hand-created digital artwork with generative AI processing. For example, Render’s AI toolset enables artists to create assets such as generative AI textures for rendering immersive, ultra-high-resolution 3D worlds on the web. Large-scale art collections that use generative AI to vary output can also be distributed on the nodes of the network, helping artists scale up and create AI art collections.
3. Challenges and risks
Although DePIN has great potential, it is still in its infancy, and there are still some challenges and risks on the road to potential large-scale use.
1) Price Fluctuation
Since the rewards of the DePIN network are usually paid in the platform’s own tokens, price fluctuations in these tokens may affect the actual earnings value of participants over the long term. If rewards are viewed as an unreliable source of income, significant fluctuations may reduce incentives for continued participation. Mechanisms to mitigate volatility risk, such as the integration of stablecoins, can improve retention of key players.
2) Lack of user awareness and complex user experience
In order to achieve the goals of participation and usage of the DePIN network, wider public awareness and user-friendly interfaces are crucial. The concept of decentralized coordination of real-world resources may be difficult for many to grasp. Web usability will benefit from clear communication of value propositions and more intuitive product designs that abstract technical complexity.
3) Infrastructure maintenance resource limitations
At larger scales, maintaining extensive operational infrastructure will require ongoing financial support. The ability to maintain physical assets over the long term depends on reserves to repair or replace damaged components. Low participation or the failure of financial resources to grow with network demand may undermine operational viability.
4 Conclusion
DePINs represent a paradigm shift in how we conceive, design and manage infrastructure. By distributing control and resources among multiple nodes, these networks build resilience, foster innovation, and promote inclusivity. They challenge the traditional centralized infrastructure model, providing a more flexible and adaptable alternative better suited for our rapidly changing world.
However, moving to a decentralized infrastructure network is not without challenges. This requires rethinking existing regulatory frameworks, developing new technical standards, and committing to ongoing maintenance and support. Despite these obstacles, the potential benefits of decentralized infrastructure networks—in terms of efficiency, sustainability, and social equity—make them a compelling option for the future.