The Power of DePIN

By Bram Bosch and Yunus Sezer ??

Introduction??

We believe part of doing responsible business is to educate. The better our potential clients understand web3, the more meaningful our collaboration can be.??

Just like any other emerging and innovative technology, there’s still a lot of unclarity in the world of Web3. In this article series, we will deep dive into technical topics in an attempt to improve the understanding of Web3. Today, in our second technical series, we will be examining DePIN, or Decentralized Physical Infrastructure Network.?

DePIN might just seem like another addition to the broad lexicon of Web3, but it is far more than a trendy term. At its core, DePIN seeks to leverage blockchain technology to enhance how people build, manage and interact with physical infrastructures. Generally, traditional infrastructure systems are operated by centralized entities with significant control and capital, such as utility companies or telecommunication giants. DePIN aims to revolutionize the traditional centralized methodology of infrastructure systems by introducing more distributed and participatory infrastructure models.??

In this new model, the responsibilities and benefits of said infrastructure are shared among a broader base of contributors, rather than being confined to a select group of corporate entities. This approach not only democratizes the control and benefits of large-scale infrastructures but also provides the system with higher degrees of security, transparency, and resilience. By leveraging blockchain's innate capabilities for secure transactions and immutable records, DePIN ensures that every contribution (transaction) across the network is verifiable, fostering trust among participants and end-users alike.?

One example of DePIN would be a project in which car users can purchase dashcams to participate in data collection. The providers of this data will be rewarded with a token, while the collected data can help map routes and be used for AI training.

DePIN flywheel?

But how would this work? To better understand the self-reinforcing growth mechanism of this system, we should take a look at the DePIN flywheel ( Salvador Gala and Sami Kassab ):??

As contributors join the (DePIN) network and provide their services, they will be rewarded with tokens, whose monetary value could appreciate with the growth of the network. Increased coverage is expected to boost the infrastructure and provide better user experiences. In turn, this increased value should attract more contributors, leading to even greater network adoption effects. This in turn raises demand for services, which enhances the token’s value, creating a positive feedback loop.??

This model contrasts with the traditional infrastructure development approach, which quite often requires significant upfront capital investment and fewer (direct) incentives for community involvement and contribution.??

DePIN Taxonomy?

Before moving on, we would like to position DePIN accordingly, as it intersects with various industries with varying demands and technologies. A taxonomy of DePIN systems from the academic article written by Mark Ballandies et al. helps us to understand the various DePIN components and how they relate to one another.???

The taxonomy is organized in three key dimensions:?

• Distributed Ledger Technology: This dimension focuses on the underlying technology that powers the DePIN, such as the consensus mechanism, ledger structures and smart contracts.?
• Cryptoeconomic Design: This aspect examines the economic incentives and tokenomics that motivate participation in the network, as well as the governance models that dictate how decisions are to be made and conflicts to be resolved.?
• Physical Infrastructure Network: Here, the taxonomy looks at the actual physical components that make up the network itself, how they are deployed and the services that they provide.??

One of the key takeaways of this is the interconnectedness of these dimensions. The success of DePIN will rely on the harmonious integration of the DLT’s capabilities, the economic model’s sustainability, and the physical infrastructure’s reliability.??

DePIN Challenges?

Despite the promising prospects of DePINs, there are still some challenges that must be addressed to facilitate its large-scale adoption. Technical challenges include ensuring robust network security, but most importantly, scalability to accommodate growing user bases and interoperability with existing infrastructure systems. Economic considerations involve the development of sustainable tokenomics models that balance incentivization with network stability without over or undervaluing the system in monetary terms. Additionally, regulatory compliance poses a complex challenge, requiring careful navigation of the legal frameworks that govern infrastructural services.?

DePIN Ecosystem??

Traditional infrastructure systems, often characterized by centralized entities managing and maintaining critical services, face numerous challenges, including inefficiencies, vulnerability to systemic failures, and a concentration of authority.??

Imagine energy grids, which are historically controlled by centralized utility companies, can be reimagined as decentralized networks where individual households can generate and trade energy. Or imagine data storage and management operations, which are traditionally the domain of large data center operators, can be transitioned to a distributed model where individuals can rent out their unused storage space in exchange for tokens.?

A recent report by Messari , titled “State of DePIN” analyzed the DePIN space throughout 2023 and found that the DePIN ecosystem has grown to over 650 projects with a combined market cap of DePINs with liquid tokens exceeding $20 billion. It has already generated over $15 million in annualized on-chain revenue and has proven to be the most resilient in the last market cycle.??

Conclusion?

The development and realization of DePIN's full potential is a journey that necessitates the collective expertise and active engagement of many different communities. Stakeholders from various backgrounds—including blockchain enthusiasts, infrastructure experts, policymakers, and the general public—are encouraged to participate in the discourse surrounding DePIN. By contributing insights and resources to the growth of DePIN networks, we can collaboratively shape the infrastructure of the future—a future that is distributed, accessible, and sustainable for all.?

By integrating the principles of blockchain technology into the fabric of physical networks, DePIN has the potential to revolutionize the way we conceive, develop, and maintain the infrastructural backbones of our society. As this concept continues to mature, it invites us to envision a future where infrastructure is not only technologically advanced but also aligned with the values of inclusivity and collective empowerment.??

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