Written by: 1Z, Founder of KetchupDAO
New stuff: What is DePIN?
De ： De centralized De ： Decentralized
P ：Physical
I: Infrastructure
N：Networks
Literal translation: decentralized physical infrastructure network. In simple terms, it is a system that uses tokens to motivate and drive the public to work together to build a physical infrastructure network in the real world. A bottom-up approach is used to build a set of basic information services from the perspectives of personal value, incentives, privacy, and cost-effectiveness.
Bottom-up construction
The bottom-up approach to infrastructure construction is not new in history:
At the edge of the oasis, simple post stations initially only provided supplies for caravans (similar to the basic nodes in DePIN). Merchants and craftsmen gathered here, and the post stations gradually prospered, eventually evolving into transportation and cultural centers such as Chang'an and Dunhuang. These spontaneous post stations, due to their unique value and services, gradually connected and eventually built the magnificent Silk Road. The formation of the entire Silk Road is the construction of decentralized infrastructure, which reflects the decentralized synergy of the real world based on their respective needs and values. This bottom-up decentralized digital world construction will also bring robustness, stability and network effects. However, the bottom-up drive, lack of credit and incentives, has the biggest disadvantage of being "slow". Web3's decentralized credit and the various incentive methods of Token just complement it, which can well solve the problem of "fast and slow" efficiency.
Dissolving the boundary between man and machine
Hashkey designed a concise formula for DePIN: Web3 + AIoT = DePIN. It captures a concept: the value created by AGI in the Internet of Things is carried by Web3.
DePIN can be seen as the next stage of evolution of AIOT. In this new stage, artificial general intelligence (AGI) gives devices brains and consciousness, while Web3 provides basic credit, value, incentives, rights, supply and demand matching, etc. for the bottom-up construction of the IOT network. IoT devices are mapped to on-chain assets and given an unalterable device identity (DID) and value container (Wallet). Furthermore, the data collected and executed by the device can be tokenized and exchanged with humans or other devices through decentralized exchanges (DEX). Let "machines" become "us". (Let machines and people, machines and machines communicate with each other, which is also the original intention of creating QQ-IOT 9 years ago to assign QQ numbers to each device.
Boundary: Relieve the burden on DePIN
From imagination to the present. According to the definition of "decentralized physical infrastructure", almost all distributed networks can be classified as DePIN:
Filecoin, Arweave: Decentralized Hard Drives
Ethereum: The decentralized computer
Bitcoin: A decentralized ledger
But obviously, a definition that is too broad can easily lose focus.
The concept of Depin in a narrow sense
Mason Nystrom describes specific types of networks more precisely, distinguishing "decentralized resource-based networks" (DeREN) from "decentralized infrastructure networks" (DePIN), which makes DePIN no longer a general term for all distributed networks, but a type of network with specific characteristics and functions. Both DePINs and DeREN are network concepts that optimize the distribution and use of hardware resources through incentive mechanisms, but they differ in their applications and functions in dealing with resource substitutability and geographical location dependence.
DePIN: A network model with geographic location as the key element, which generates non-homogeneous resources by deploying geographically specific hardware devices through incentive mechanisms. How to understand non-interchangeability? Mobile phone base stations (China Tower) can be seen deployed in various places in the city. But the same base station, base station A is in Tsim Sha Tsui and base station B is in Shatin, but due to different geographical locations, they cannot be replaced with each other. In this sense, each base station is a unique non-homogeneous resource.
DeREN: A resource-based network with weak geographic dependence, which establishes markets through incentive mechanisms and increases the supply of existing or idle alternative resources. These resources are generated by hardware that is independent of geographic location. In the field of cloud services, DeRENs are similar to cloud facilities as a service (IaaS). For example, with Avware storage, the user experience is usually weakly related to the user's geographic location, and the service is highly homogeneous.
Imperfect Pioneer: Helium
Although Helium has been criticized a lot, whether in terms of market cap or popularity, Helium is undoubtedly the leader and pioneer of "narrow DePIN".
About Helium
Helium is a DePIN based on the long-distance, low-rate wireless communication protocol LoRaWAN. The goal is to create an open, decentralized network where anyone can build and maintain the network by purchasing and deploying Helium's hotspot devices to provide coverage for devices that need wireless data transmission. In other words, everyone is doing what China Tower (a company that builds base stations for China Telecom, China Mobile, and China Unicom) does, and the slogan is particularly loud: People's Network.
What is the status of Helium?
A few simple indicators:
HNT (Helium Token): As of August 2023, the price of NHT is approximately 2USDT, which is -95% of its peak price (Bitcoin -60% during the same period), performing poorly among all tokens.
Technical route: Currently, Helium has migrated from its own L1 to Solana, sharing the richer ecosystem on Solana (which is also convenient). After LoRaWAN, Helium's new narrative is about the construction of 5G micro base stations as a supplement to the operator's traditional 5G operator network.
Coverage: Helium hotspots: 986,743 Covered countries: 190 Cities: 77,263.
Pros and cons
Let’s start with the pros: Helium has successfully demonstrated DePIN-type market matching (PMF), proving that it is accepted by the market as a novel concept. Its network coverage also proves that it has practical application value. However, there are also many criticisms:
Business model twist: Helium is based on LoRaWAN, a transmission protocol for industrial, agricultural and smart cities. Consumers build and maintain the network, and commercial organizations are users. This forms a consumer (C) to business (B) model. However, in reality, the network built by ordinary people is difficult to meet business needs, such as network quality, reputation, scale and price, which affects the operational efficiency and benefits of the network.
Consensus design flaws: DePIN is an important factor for geographic location. Helium's proof of coverage (PoC) consensus mechanism can theoretically ensure effective coverage of the LoRa network, but in practical applications, it does not achieve effective matching of supply and demand (there is really no valuable "demand"). In other words, if you buy a few Helium machines in the Sahara Desert, you can also mine HNT, but what is the value?
The roughness of TokenEconomy: In the initial stage of the Helium project, the founding team and early investors accumulated a large amount of HNT, resulting in community members receiving less than 30% of HNT. This unfair distribution model, together with the gradually decreasing HNT rewards over time, resulted in lower-than-expected returns for new participants, which had a negative impact on the long-term sustainability of the project. Unlike Internet software products, IoT products have obvious marginal costs. Before the device terminal reaches consumers, it needs to go through various levels of sales networks, including agents at all levels. When the price of Helium's HNT fell to a level that was enough to shake market confidence, agents were unsalable (several companies in Shenzhen actually bet on tens of millions of Helium devices), and a large number of devices caused difficulties for agents in their operations.
Marketing stain: Helium probably sensed the challenges of the C2 B model and misled people by claiming that Lime (a skateboard company) was its user. This false publicity and internal misconduct were exposed by Forbes, resulting in reputation damage and delisting from Binance, which reflects Helium's problems in business model and credibility.
Weak ecosystem: Helium L1 was developed and written in Erlang, and the non-EVM missed the Defi Summer explosion, making it an isolated island. Fortunately, it has been moved to Solana as a whole.
Although Helium has some problems, we should still keep an open mind and believe that it is just the difficult first step in exploring the decentralized network. For the early adjustments of Helium, there is no need to pursue the ideal state of "complete decentralization" and "immutability". At least, in the survey of more than ten LoRa equipment manufacturers in Shenzhen, they basically have a certain understanding of Helium, which has surpassed the "out-of-circle" level of many Web3 / Blockchain projects.
Future value: Possibilities brought by DePIN links
Some people question whether DePIN is just hyping up an existing concept. Indeed, Helium has a history of 10 years. However, the essence of progress often lies in constantly exploring and optimizing old concepts to achieve new breakthroughs.
Trust layer: trusted data from the real physical world
The classic IoT model includes three core layers: sensors, networks, and applications. However, DePIN introduces a key "trust layer" for this purpose. This layer focuses on ensuring the authenticity of data, the reliability of rights and interests, and the fairness of incentives.
How to understand this trust relationship? We can use an idealized legacy trust scenario to illustrate:
The old man at the end of his life uses smart contracts to lock in his digital legacy. He has sensors in various parts of his body to monitor his vital signs in real time.
(1) When the doctor determines that the elderly person has passed away, he presses the Trig button to call the inheritance master contract.
(2) The legacy master contract calls the oracle contract to let the oracle node verify the data of these sensors. (3) The oracle contract uses the Byzantine algorithm to verify the consistency of the data sent back by each sensor through the distributed network.
(4) When enough nodes confirm that the elderly person has passed away, the inheritance master contract will be triggered.
(5) Unlock the elderly’s digital legacy and transfer the assets to the accounts of the spouse and children designated in advance. (6) The core transactions are recorded on the chain, and the sensor data is stored on IPFS to ensure that the data can be audited by the legal team.
In this scenario, only when sensors, networks, and applications can be trusted can the justice of the final result be guaranteed.
Network layer + trust layer
The combination of the network layer and the trust layer will be more mature than before. The technology at the IoT communication network level is also constantly iterating. With the increasing maturity of technologies such as WiFi7, Bluetooth 5, and UWB, the data transmission speed has been improved, the number of access devices has also increased, and the latency problem has been effectively alleviated. At the same time, ad hoc network technology is also constantly improving. Compared with 2013 when Helium was launched, there are already a large number of solutions that support Mesh networks (decentralized ad hoc networks), such as Zigbee, Z-Wave, and Thread, as well as newly emerging protocols such as WIFI7 and Bluetooth 5.4, which have further promoted the increase in Mesh network solutions.
The decentralization, dynamic expansion, self-organization, self-management, active error correction and self-balancing characteristics of Mesh networks coincide with the concept of DePIN. These chips and modules that natively support Mesh combined with DePIN may no longer need to be built from scratch like Helium, and can rely on simple OTA for DePIN compatibility.
Trust layer + application layer
High-performance public chain:
At the application layer, the relative infrastructure has also been fully optimized, and the throughput capacity of the public chain has been significantly improved. This allows key data of the Internet of Things to be uploaded to the chain at a lower cost through roll-up or some new public chains. The value of Web3 is no longer limited to fee settlement.
Digital Asset Modeling:
Digital Asset Modeling:
The combination of IoT devices and Web3 has opened up a new situation for device assetization. Thanks to the emergence of new tokens in Web3. By using standards such as ERC-721, ERC-1155, and ERC-3525, we can achieve multi-dimensional asset modeling of devices. Not only can the ownership of devices be NFT-ized, but other digital rights (such as income rights, decision-making rights) can also be carefully defined to make them tradable digital assets. The data generated during the operation of the device can also trigger changes in these rights through the oracle. In the end, the device was given liquidity and was fully "assetized". It can be said that the rich token types have promoted the assetization of devices and transformed the Internet of Things into the value Internet. It has opened up a new space for the economic model of IoT devices, which is worth further exploration.
Here we propose the concept of Digital Asset Modeling, which is different from tokenization and traditional securitization. It abstractly expresses and programmatically describes assets in the real world through a variety of digital asset types and financial programming, rather than simply generating Erc-20 tokens or securities. Asset modeling focuses on disassembling and reconstructing assets in multiple dimensions, designing new digital asset relationships and interaction logic. This allows the digital world to be closer to the complexity of the real world. Overall, asset modeling represents a new paradigm of digital asset expression and financial programming, which creatively expands the scope of the digital world.
NFT (ERC-721, etc.) allows the generation of unique digital assets, defining the absolute ownership of the asset.
SFT (ERC-3525, etc.) can split an asset and generate tradable asset shards, which retains the uniqueness of the asset to a certain extent while enhancing liquidity.
Complex token relationship standards (ERC-6551, etc.) attempt to model the multi-dimensional attributes of assets, such as income rights, usage rights, etc. This expresses the separation and reorganization of different rights of assets.
In short, the rich token types make it possible for IoT devices to be assetized. This opens up new space for the economic model of IoT devices. The entire IoT will also evolve into a brand new value network with liquidity.
An example of digital asset modeling
Model this shared power bank as a way of using a collection of assets.
Ownership/dividend rights A: Described by Erc3525's SFT, any income generated by the vault can be used to obtain dividends.
Function mount B: Mounted on SFT through Erc 6551's TBA.
Function C (power bank rental): Each power bank is mapped to an NFT of 1155, which is combined with 4907 to realize NFT lending and mortgage functions.
Function D (Large screen advertising): The effective display time of the large screen every day is divided into 3525 SFTs by minute, and a free bidding auction is conducted. The highest bidder wins.
Function E: Pay for machines that provide "return" services through the shared power bank network and make payments automatically.
Function F: The mall sends an NFT bill for consumption fees and automatically makes the payment.
Other G: The camera above senses the customer flow in the mall through customer flow monitoring and adjusts the price of the power bank rental contract through the oracle.
We see that an originally simple shared power bank machine has been broken down into multiple types of assets and rights based on the DePIN trust layer, making it completely transparent and decentralized.
New Possibilities for Supply Chain Finance
When we talk about the splitting of device digital rights on the chain, we are actually exploring a new type of asset certification and circulation method. Using DePIN as an intermediary is not just a pure technical connection, but a bridge between finance and supply chain. In traditional supply chain finance, small and medium-sized startups who want to produce hardware products often face huge financial pressure. This is because the production of consumer-grade hardware requires a lot of upfront investment, and the payback cycle of these upfront investments may be long. In order to support production, companies must seek external financing or borrowing, but this is not something that every company can do easily. Therefore, many potential hardware prototypes are ultimately difficult to commercialize due to funding issues. But if we use Web3 to chain the future benefits of the device after activation (such as sales, leasing, etc.) and convert it into a digital asset, then this asset will have liquidity. This means that startups can use these expected future benefits as collateral in advance, reach cooperation with upstream hardware suppliers, and provide the necessary funds for production activities.
Suppliers have a new type of risk protection - they not only cooperate based on the reputation of the startup, but also make decisions based on the authenticity and verifiability of the assets on the chain. This model creates a win-win cooperation scenario for small and medium-sized startups and suppliers. Startups get financial support and reduce production risks; while suppliers obtain a more stable and reliable source of income by holding digital assets.
In general, by splitting the rights and interests of devices and representing them on the chain, and combining them with supply chain finance, we can create a more flexible, efficient and secure financial environment, providing stronger support for hardware innovation.
Native RWA
The definition of RWA (Real World Asset) is undergoing a transformation. Traditionally, we view it as the mapping of off-chain financial products (such as bonds and real estate) on the blockchain. However, most people have a more open view and believe that the scope of RWA should be broader. Just like Irving Fisher's definition of assets: everything that can generate continuous income.
The concept of "native RWA" refers to the splitting of digital rights and interests on the chain from things in the real world realized through Web3 technology. This assetization process can create value that exceeds the sum of its individual parts. Among them, DePIN becomes the core component of RWA. It connects machines with the real world through the sensing layer and the network layer, greatly reducing the friction of credit and transactions, thus revealing the true potential of Web3. This not only provides us with a refreshing perspective to view and utilize real-world assets, but also brings new opportunities for blockchain technology in practical applications.
Change often comes from some small sprouts. DeFi was originally just a plaything for a small number of people on the edge of Web3, but now it has opened up a new situation. Similarly, attempts like DePIN are still in their infancy, trying to connect the digital world and the real world and build new infrastructure. We don't need to demand it to be perfect immediately, but give it encouragement and tolerance, and participate in the birth of future changes.