DePIN: Web3's fourth type of contact with the real world

Original | Odaily

Author | 0xSekiro

In the novel “The Wandering Earth”, there is a debate between the spaceship faction and the earth faction about human beings escaping the solar system. The spaceship faction believes that putting human beings in the small ecology of spaceships can still continue, and there is no need to move away from the entire earth. But the end result, like the water in a fish tank, no matter how clean it is, will always deteriorate again in a relatively short period of time.

Perhaps the comparison between the current Web3 ecosystem and the real world is like the comparison between a spaceship and the earth, a fish tank and the sea. In a small ecosystem, things always develop very quickly, born quickly, die quickly, and a small problem can trigger a series of disasters, just like the 3-month life cycle of an early GameFi project. In order for an ecosystem to have a longer life cycle, it needs to continuously expand its ecological scope.

Currently, the total global wealth is about $454 trillion, while the market capitalization of the entire cryptocurrency market is only $1.62 trillion, a difference of 280 times. Web3 still has a lot of room for imagination, and the emergence of the concept of DePIN may accelerate this process in the foreseeable future.

There are currently four ways to engage the Web3 world with the real world: 1. If the BTC spot ETF passes, it means that fiat currency funds will enter Web3 with a lower threshold; 2. NFT takes the lead and completes the initial integration of the real world and the crypto world through the linkage with luxury goods and trendy brands in the real world; 3. RWA, the way of asset tokenization is also gaining more people’s favor; **The fourth type of contact, represented by DePIN, means that the two worlds are further interconnected, and finally become one. **

DePIN Sector Fundamentals

DePIN (Decentralised Physical Infrastructure Networks) refers to the concept of real-world networks and information transmission that operate in a decentralized manner and have tokenomics.

DePIN stands for Decentralized Physical Infrastructure Network. It’s a new way to build and maintain infrastructure in the physical world. This infrastructure is made up of hardware that provides services to the outside world in physical scenarios, from WiFi hotspot gateways in wireless networks to solar photovoltaics in energy networks. DePIN is built in a decentralized manner by individuals and companies around the world and can be used by anyone without permission. In return, these builders receive financial incentives as well as a shared ownership of the value of the network’s right to use this infrastructure.

DePIN covers a wide range of projects. From decentralized storage networks such as Arweave and FIL, to decentralized WiFi-connected devices such as Helium, and community software applications such as Hivemapper, they can all be summed up in the category of “DePIN”.

**According to Coingecko data, the DePIN sector currently includes a total of 45 issued coin projects, ranking 25th among all sectors, with a total value of $9.7 billion, surpassing AMMs, AI and other sectors, and second only to oracles and P2E. **

In a report by Messari, the total addressable market size of the DePIN sector is forecast to be around $2.2 trillion and could reach $3.5 trillion by 2028.

If we extrapolate from this data, then in the short to medium term, the potential profit expectation of entering DePIN is around 243 times, and the profit expectation is more than 400 times in the medium to long term.

According to Depinscan’s data, among the 161 DePIN projects listed, there are 27 products with a market capitalization of hundreds of millions, of which there are 5 projects with a market value of more than 1 billion, namely FIL, BitTenseo, TheGrap, Render, and Theta.

At present, among the 45 projects counted by Coingecko, 42 projects have been on the rise in the past 7 days, of which 20 projects have achieved general growth this year, of which 6 projects have risen by more than 100%, and the highest increase is Render, with an increase of 822%, and the token has risen from 0.22 USDT at the beginning of the year to 1.68 USDT at present, an increase of nearly 800%; In addition, the streaming rendering platform Render token RNDR has risen from 0.5 USDT at the beginning of the year to 3.86 USDT currently, an increase of 774%.

In addition to the excellent performance in the secondary market, DePIN is gradually being favored by the market and institutions, such as the decentralized camera network Natix Network received a $3.5 million funding round led by Blockchange Ventures on April 14 this year, and the $7.9 million funding round completed by DePIN provider Grove on November 30, plus Solana, which is very popular with DePIN, on November 4 this year At the 8th Hackathon, five related products, including Shaga and Dain, were also funded, and the IoTeX Foundation has previously provided nearly $1 million in development grants to 15 DePIN-related projects.

In addition, Hashkey Group even launched the DePIN Hong Kong initiative as early as April this year, aiming to use blockchain technology and hardware devices to promote the development of the DePIN ecosystem in Hong Kong. Arthur Hayes even said in his blog that he is strongly bullish on the FIL in the decentralized storage sector. **

DePIN Summer may be coming

Perhaps for ordinary investors, the concept of DePIN is not as “sexy” as concepts such as BTC ecology and MEME, and it has rarely become the investment target of Web3 players. But the above data shows that institutional investors are increasingly embracing DePIN, and DePIN’s influence is rapidly expanding.

Macro level: the market needs to reduce costs and increase efficiency and break the monopoly

DePIN offers significant advantages over traditional infrastructure. First of all, it reduces costs, which is very obvious. Secondly, improving the efficiency of use is also a strong point of DePIN. In addition, decentralization is an important feature of DePIN, and the result is an open, competitive, and innovative environment. At present, centralized products such as large computer rooms are basically monopolized by companies such as AWS and Alibaba Cloud. This is because in the traditional Web 2 era, they laid the infrastructure and built the entire ecosystem. Once they’ve done that, it’s hard for other companies to re-enter the market.

In fact, the idea of DePIN has actually been put forward before the emergence of blockchain (for example, there are people in the communication industry who do decentralized Wi-Fi networks, such as CDN), but now with blockchain, financing is relatively easy and financial attributes are strong, so it is naturally combined with blockchain, which is today’s DePIN. In the blockchain world, the threshold for starting is lower, and many things will encounter great resistance in the traditional world, so entrepreneurs will choose to devote themselves to the blockchain.

Starting from 0 to 1 based on the product itself, and then using blockchain concepts and tokenomics to complete a flywheel of 1-100, this will greatly reduce the team’s financing difficulty and shorten the payback period.

From the perspective of application landing:

At present, the main ecosystems deployed by DePIN projects are ETH, Solana, and Polkadot, and the following is an inventory of some of the more popular DePIN projects:

On April 20 this year, Helium, a decentralized IoT project, migrated to the Solana network, with a market capitalization of nearly $800 million, making it the largest DePIN project in the Solana ecosystem.

Render Network, a distributed GPU rendering network platform, has also expanded its services from Polygon to the Solana blockchain. It is worth noting that OTOY, the parent company of Render network, also has in-depth cooperation with Apple, and the logo of Render network has also been revealed several times in Apple’s official promotional video, and it is not ruled out that Render will become a built-in rendering component of Apple’s software.

In the Solana ecosystem, there are also decentralized permissionless ride-sharing application Teleport, distributed map network HiveMapper, and blockchain-based photo collection project Tekkonon.

The Polkadot-based DePIN project includes the off-chain computer Phala Network, which launched LensAPI Oracle for the decentralized social protocol Lens Protocol, which helps various applications on the Lens Protocol protocol provide real-world data while protecting the privacy and security of user data.

In addition, there are some DePIN projects that are independent of various mainstream public chains, such as the decentralized bandwidth Meson Network. BNB Chain has partnered with the project to leverage its global node distribution to help BNB chain’s own huge transaction data (2.5 terabytes) to reduce snapshot synchronization time. According to its official website, Meson has deployed more than 100,000 nodes around the world to provide services.

As well as the decentralized Internet of Things network IoTeX, the old distributed storage FIL, Arweave, and so on, which are currently attracting much attention.

The road to DeFi LEGO

The above are some examples of projects based on the DePIN sector to empower blockchains and traditional market entities.

In addition, the DePIN sector is also expanding on-chain. **

One of the most intuitive examples: Helium chose to give up its native public chain and turned to Solana, and developed three cryptocurrencies based on its own product attributes: IOT, MOBILE and DCs, plus HNT and issued NFTs, the number of crypto assets in the Helium ecosystem has reached as many as 5.

IOT and MOBILE can be exchanged for HNT, while DCs can be obtained by destroying HNT. In fact, the Helium ecosystem is already in the initial state of DeFi’s complex logic.

**The investment side of DePIN is still mainly guided by the trend of blockchain and cryptocurrency. However, DePIN in different segments needs to refer to the trend of its real-world counterpart, such as decentralized bandwidth and decentralized computing power. **

Previously, the concept of middleware, cross-chain bridges, and DeFi had not yet flourished. At that time, blockchain projects, especially DePIN products, were like silos, developing separately and difficult to integrate with each other.

However, with the rise of high-performance public chains, Layer 2 and other ecosystems, while reducing the entry threshold and operating costs of DePIN, it also brings composability, providing the possibility of on-chain circulation and combination of DePIN-related crypto assets.

Coupled with the empowerment of AI technology and the identity verification brought by zk technology, it also improves the efficiency of communication and flow between users of different products and different communities under the chain.

When the on-chain and off-chain paths are opened, we will not only usher in the DePIN Summer on the product side, but also usher in the decentralized finance boom of the opportunity DePIN.

DePIN Sector Development Forecast

IN THE CURRENT MARKET ENVIRONMENT, THERE IS A GENERAL CONSENSUS: TO FURTHER IMPROVE THE DEVELOPMENT LEVEL OF WEB3, IT IS NECESSARY TO ESTABLISH A CONNECTION WITH THE REAL ECONOMY. DePIN meets this need because it connects incentives from traditional entities and IoT devices to the new Web3 and enables mutual needs.

Mass adoption and the popularity of jobs

At present, DePIN is a bit like the early development trend of DeFi, DeFi has the infrastructure, especially after the three-piece set (stablecoin, trading, lending) has fully emerged, and everyone has begun to make Lego based on these three-piece sets, which is the current prosperity.

**The current state of DePIN is relatively similar, and after the underlying infrastructure architecture is more mature, infrastructure applications begin to emerge slowly. After that, the boom in surface applications symbolized the true prosperity of the track. **

After all, rather than competing with leading projects in subdivided fields, the probability of success is much lower than winning the first place in a new field. Due to the relatively large known scenarios, such as decentralized servers, wireless communications, sensor technology, and energy networks, there are already leading projects such as FIL, Helium, HiveMapper, etc., most of which have been issued, and their user stickiness and brand energy have been verified by the market. Developers don’t have a tenfold ability to innovate, and it’s very difficult to beat a protocol that is already successful in a particular track.

Therefore, the next focus of DePIN development is likely to shift to the application layer that focuses on user acquisition and traffic. It’s just like the explosion of SocialFi and GameFi concepts that simplified DeFi logic and visualized it after the DeFi boom. After DePIN, it should also be in the relevant concepts that can reach the users themselves to the greatest extent, can be used by users on a daily basis, and do not bring high entry costs to users.

Take HiveMapper as an example, its dash cam with mining function costs $550, which is much cheaper than the current mainstream mining machines and NFTs, and it is almost used by car owners, plus its mining attributes. If you make a bold guess, then according to the data released by the National Machinery Automobile Association, 15.9 trillion cars in the world are likely to become potential users of HiveMapper.

In fact, the development of the DePIN application layer can directly nest the concept of the metaverse, as well as the social networking, games, office, and clothing related to the metaverse.

People in the DePIN ecosystem have value attributes in every behavior in real life, and these people become DePIN users at the same time, they also become workers, maintain the development of the ecology through their own behaviors, and obtain benefits from it, which may be the ultimate interpretation of X to Earn.