LianGuaintera Capital Partner How DePIN is Introducing Decentralized Hardware to the New Data Economy

How DePIN by LianGuaintera Capital Partner Introduces Decentralized Hardware to Revolutionize the New Data Economy

Author: LianGuainter Capital Managing Partner LianGuaiul Veradittakit, Source: Author’s Blog; Translation: Songxue, LianGuai

Introduction

Last year, the decentralized Physical Infrastructure Networks (DePIN) emerged as one of the emerging trends. The core promise of DePIN is to bring the principles of blockchain applications (community-owned, publicly verifiable, and incentive-aligned) into the world of physical “things” and infrastructure, whether it is WiFi sites, security cameras, or computing servers. In this article, we will explore some of the core principles of DePIN, then discuss some of the most representative DePIN projects, and finally discuss the broader impact of DePIN on the blockchain field.

Conceptualizing DePIN

DePIN encompasses a wide range of projects. From decentralized storage networks like Arweave and Filecoin, to decentralized WiFi connectivity like Helium, to community software applications like Hivemapper, all of these are referred to as “DePIN.” Messari in its groundbreaking DePIN report in January 2023 categorizes DePIN into four main areas: decentralized servers, wireless, sensors, and energy networks.

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Source: Messari. Retrieval Date: November 11, 2023.

From the projects and areas outlined by Messari, we can see that the initial definition of DePIN largely leans towards the “physical” nature of the projects – the physical use of sensors, servers, and routers to create a decentralized internet stack from the hardware layer upwards. However, since then, the common concept of DePIN has gradually expanded to include more consumer-facing applications, such as TRIP, which aims to build a “decentralized Uber.” This raises the question: how do we conceptualize what “DePIN” refers to?

Therefore, our first task is to note the conceptual similarities between these projects in the original Messari report and the evolving use of this term. Many of these projects share some similarities, including collective ownership, distributed infrastructure costs, and economies of scale that gradually expand as more users enter the ecosystem. In fact, this can be summarized as Messari’s DePIN flywheel, which explains how it is facilitated through token incentives.

Source: Messari. Retrieval Date: November 11, 2023.

The initial concept of the DePIN flywheel mentioned above only covered “physical infrastructure” networks, such as Filecoin and Helium, where users provide resources to the network (disk space or WiFi connectivity) and receive token rewards in return, thereby increasing the network’s capacity and attracting more users.

However, this flywheel is not limited to hardware infrastructure; there are similar arguments for data infrastructure as well. This will cover projects whose core focus is collecting and coordinating consumer data, using blockchain and tokens as the common interface for coordinating the new data-driven economy. Examples in this regard include consumer-facing applications such as “sensor network projects” and “decentralized Uber” as highlighted by Messari, as well as potential enterprise use cases for blockchain in supply chain or logistics management (although here, there is less emphasis on token financialization).

Therefore, conceptualizing DePIN as a trend is a way to integrate the decentralized hardware layer with the community-owned new data economy.

DePIN Case Studies

Given the general characteristics of DePIN, we can now explore some of the most distinctive projects in this field.

Helium

Helium is one of the oldest and most significant DePIN projects, founded in 2013 with the aim of expanding broadband infrastructure by allowing users to deploy LoRa gateways in a decentralized manner. In 2017, the network decided to capitalize on the momentum around cryptocurrencies and began offering cryptocurrency payments through its own L1 blockchain network.

Over the years, this approach has made Helium not only one of the representative projects of DePIN but also a representative of the entire crypto industry. Many refer to it as the “people’s network” because it is a significant project where one can clearly see how tokens are used to incentivize socially beneficial behavior. However, over time, the Helium network and protocol have faced liquidity and adoption issues, with the network’s weekly revenue steadily declining. Critics have also pointed out that the network’s use cases were exaggerated and the incentives are unsustainable.

Data retrieved from Coinmarketcap for the period of February 2022 to March 2023, accessed in November 2023.

In April 2023, Helium completed the transition from its own L1 blockchain to Solana for its applications, hoping to enhance user coverage and liquidity and leverage Solana’s high transaction throughput for scalability.

Therefore, this example of Helium highlights some key opportunities and risks in the DePIN space. Tokens are highly effective in driving real-world use cases, but maintaining sufficient reasons and interest levels over a longer period of time is rather difficult. Furthermore, as L1 and L2 gradually integrate, it becomes challenging to argue for the scalability, infrastructure, and liquidity of running an independent chain as opposed to leveraging another more widely adopted chain.

Hivemapper

Hivemapper is another famous DePIN project on the Solana network, aiming to create a decentralized “Google Maps”. Essentially, users of this project install dashcams in their cars and share real-time footage with Hivemapper in exchange for HONEY tokens. The company then uses all this distributed data to build a decentralized map with an application API interface.

Data Source: Hivemapper Dashboard, as of November 11, 2023: https://hivemapper.com/explorer

The key advantage of Hivemapper over Google Maps is that as a decentralized, token-incentivized network, it can perform token mapping processes in a cheaper and faster way. In turn, Hivemapper can provide cheaper APIs as a way to “break” the monopoly of Google Maps.

Hivemapper highlights the core “flywheel” principle of DePIN, which is to execute distributed and decentralized tasks efficiently using tokens. Interestingly, in the original Messari report (January 2023), Hivemapper was described as a typical example of a “sensor network”. However, one might argue that this does not fully capture the true innovation of Hivemapper.

Indeed, the core competitive advantage of Hivemapper lies in the data infrastructure it collects – decentralized data from its user network – and then monetizes that data infrastructure by providing API access. Granted, the project collects data using sensors and dashcams; but this is merely incidental. We can imagine that even if this data was not generated by a “sensor network” but through other activities (such as browsing, similar to Brave browser) or even generated through user interaction with artificial intelligence, the same overall model could still hold. DePIN leverages token incentives to generate large-scale data in a decentralized manner (e.g., through a decentralized hardware network), creating a new data economy.

Teleport

In the case of Teleport, a Solana-based decentralized Uber competitor, the importance of the new data economy becomes even more apparent. With its recent application launch (October 2023) and participation in the Solana Breakpoint conference, Teleport is a key part of “The Rideshare Protocol” (TRIP), which aims to create a fair and independent marketplace without intermediaries or centralized front-ends taking a significant portion (often up to 40%) of ride income.

While the adoption and longevity of Teleport and TRIP are yet to be observed, Teleport serves as an important case study showcasing the importance of open and decentralized “data markets” as a core part of DePIN project value proposition.

IoTeX

IoTeX is another key player in the DePIN space, highlighting how blockchain technology and decentralized hardware devices can bring benefits in different dimensions of society, namely security and privacy. IoTeX’s flagship product is Ucam, a home security camera that only the users themselves can access, and its data is protected through blockchain encryption and immutability.

As the overall trend of DePIN continues to grow in the past year, IoTeX’s goal is not just to build specific smart devices, but to build an “open network” for IoT devices and popularize the concept of “MachineFi”. However, as the story of Helium has shown, in the context of integrating L1 scenarios, it becomes increasingly difficult for DePIN to establish an independent and professional network and guide liquidity even with strong consumer demand in such an ecosystem. The use cases and application layer of blockchain.

Broader ecosystem impact

The development of DePIN in the past year has had a significant impact on the entire blockchain ecosystem. One of the most important reasons is that DePIN is a consumer-facing application layer, much like DeFi, gaming, and social media, with the potential for mass adoption and the ability to drive consumer demand for underlying chains or ecosystems.

As shown in the example above, Solana seems to be a significant blockchain in the DePIN space, and there are other participants like IoTeX dedicated to building novel alternative solutions tailored for DePIN. As an application layer that interacts with a large number of users and IoT devices, there may be a demand for high-performance and composable blockchains that can handle the load requirements of mass consumers and can be composed in general-purpose languages like Rust and WebAssembly for easy operation on IoT devices.

In addition, the growing trend of DePIN also has downstream implications for decentralized governance. Typically, after launching tokens, it is customary to start decentralized autonomous organizations (DAOs) coordinated by token-based voting, and many well-known DePIN projects seem to have DAO governance on their roadmaps.

Currently, most prominent DAOs like Uniswap, Compound, and MakerDAO primarily deal with digital or tokenized assets. But as DePIN projects mature and gradually hand over their governance to DAOs, the demand for DAO coordination of purchasing, using, and maintaining physical devices such as servers, sensors, or hard drives will increase. Therefore, DePIN may become a trend that expands the governance responsibilities of DAOs from digital assets to physical assets, ultimately creating tasks that may require DAO operations and behaviors more similar to traditional companies. In the long run, this could be a turning point for the adoption of “web3” in the “real world”.

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