DePIN Track: Basic Logic and Legal Risk Analysis

With the advancement of technology, the development of digital and decentralized technologies is accelerating the interaction and integration between the real world and the virtual world, while also bringing about a redistribution of power, control, and data ownership.

Against this backdrop, the decentralized physical infrastructure network ( DePIN ) has emerged, providing us with a new perspective on the interaction between the real world and the virtual world. Reports indicate that the entire sector is currently valued at approximately $9 billion, and it is expected to grow to a scale of $3.5 trillion by 2028. From the earliest Arweave and Filecoin, to Helium which rose during the last bull market, and the recently highly regarded Render Network, all belong to this field.

DePIN is one of the most promising fields in the Web3.0 domain, which has garnered significant attention in recent years and is most likely to create economic value in the short term. This article will explore the fundamental logic, development prospects, and legal risks faced by the DePIN sector.

The Basic Logic of the DePIN Track

DePIN is the abbreviation for Decentralized Physical Infrastructure Network, which incentivizes individuals and businesses around the world to build physical world infrastructure such as WiFi, hard disk storage, batteries, etc. in a decentralized manner through blockchain technology and token rewards, providing services for anyone. The core idea is that users earn rewards by renting out the services provided by their hardware, such as WiFi hotspots in wireless networks or solar home batteries in energy networks. These networks are built in a decentralized manner by contributors from all over the world. In return, these individuals and entities receive financial compensation and network ownership through token incentives.

This concept was born in 2022 when a blockchain data research organization conducted a survey to solicit formal titles for "Web3 physical infrastructure." Ultimately, DePIN emerged victorious in the voting and began to gain attention.

The biggest difference from traditional networks is that DePIN uses tokens to initiate the deployment of physical infrastructure, leveraging blockchain technology to build and operate real-world physical infrastructure and hardware networks in a permissionless, trustless, and programmable manner, thereby creating large-scale network effects and unlocking various innovative DApps based on real-world data.

In short, DePIN is a physical infrastructure network ecosystem owned and monetized by users, device users, and enterprises. It enables individuals distributed globally to collaboratively build, maintain, and operate a shared physical infrastructure network without a single, centralized entity. The ecosystem includes various components such as cloud network ( VPN, CDN, file storage, database ), wireless ( 5G, Internet of Things ), sensor networks, energy networks, and more.

In such a system, individuals or organizations can also contribute labor or other resources by maintaining and improving the infrastructure, obtaining corresponding assets (, mainly cryptocurrency assets ), which can be used as rewards to access the infrastructure or for trading.

From a working principle perspective, DePIN is based on decentralization and blockchain technology. First, DePIN relies on individual hardware devices, which are also known as nodes, and can be personal computers, dedicated servers, or IoT devices. These devices together form a decentralized network with no central node or authority. This decentralized characteristic makes DePIN more secure and transparent.

Secondly, DePIN uses blockchain technology to manage and protect the network. Blockchain is a public, transparent, and immutable digital ledger. It records all transactions and interactions on the network, ensuring that all nodes adhere to the network's rules.

In addition, to encourage node participation and the contribution of their resources, DePIN uses an incentive mechanism. This mechanism is typically based on cryptocurrency, and nodes can earn rewards by participating in the network and contributing their resources. Adequate resource supply creates price competition, and sufficient resources along with good prices foster demand. With demand, tokens capture value, which can better drive price increases and attract more resource providers.

The Development Prospects of the DePIN Track

( Applications of DePIN

DePIN is divided into two main areas: digital resource networks and physical resource networks. Digital resource networks include storage, computing, and bandwidth, while physical resource networks focus on hardware-related areas such as wireless networks, geospatial networks, mobile networks, and energy networks.

According to the data, the DePIN sector currently includes 45 issued token projects, ranking 25th among various sectors, with a total value of 9.7 billion USD, surpassing sectors like AMM and AI, and only behind oracles and P2E sectors.

A report predicts that the total potential market size of the DePIN sector is approximately $2.2 trillion and could reach $3.5 trillion by 2028.

In addition to its outstanding performance in the secondary market, DePIN is gradually gaining favor in the market and among institutions. For example, in April 2023, the decentralized camera network Natix Network secured $3.5 million in funding; in November 2023, the DePIN provider Grove completed $7.9 million in funding. Furthermore, Solana, which is paying close attention to DePIN, announced that five related products received prize funding in its eighth hackathon event held in November 2023, while the IoTeX Foundation had previously provided nearly one million dollars in development funding to 15 DePIN-related projects.

The top 10 companies in the DePIN ranking are "Server Networks" Filecoin, Arweave, Sia, and Storj, which belong to the digital resource network )DRN### category, as well as "Wireless Networks" Helium and Pollen Mobile, which fall under the physical resource network (PRN) category, "Sensor Networks" Hivemapper and DIMO, and "Energy Networks" React Protocol and Arkreen. Below is a brief introduction to the new and old representative projects in the current DePIN track:

Filecoin & Arweave

In the traditional data storage field, the high pricing of centralized cloud storage on the supply side and the low resource utilization on the consumption side have created difficulties for users and enterprises. Additionally, there are risks such as data leaks. In response to this phenomenon, Filecoin and Arweave offer a solution through decentralized storage, providing lower prices and different services for users.

Filecoin is a decentralized distributed storage network that incentivizes users to provide storage space through token rewards. Providing more storage space is directly related to earning more block rewards. In about a month since the testnet went live, its storage space reached 4PB, and currently, the storage space has reached 24EiB.

It is worth noting that Filecoin is built on top of the IPFS protocol, which is already a widely recognized distributed file system. Filecoin achieves decentralization and security of data storage by storing users' data on nodes within the network. Additionally, Filecoin leverages the advantages of IPFS, giving it strong technical capabilities in the field of decentralized storage, while also supporting smart contracts, allowing developers to build various storage-based applications.

Currently, Filecoin has established partnerships with many well-known blockchain projects and enterprises. For example, NFT.Storage uses Filecoin to provide a simple decentralized storage solution for NFT content and metadata, while a certain foundation and the Internet Archive use Filecoin to back up their content. It is noteworthy that the world's largest NFT marketplace also utilizes Filecoin for NFT metadata storage, which further promotes the development of its ecosystem.

Arweave has some similarities with Filecoin in terms of incentivizing the supply side, using token incentives to encourage users to provide storage space, with the amount of rewards depending on the amount of data stored and the frequency of data access. The difference is that Arweave is a decentralized permanent storage network; once data is uploaded to the Arweave network, it will be permanently stored on the blockchain.

How does Arweave incentivize users to provide storage space? Its core mechanism is a proof of work system known as "Proof of Access", which aims to prove the accessibility of data within the network. In simple terms, it requires miners to provide a randomly selected previously stored data block during the block creation process, as "proof of access".

Render Network

The business of Render Network can be simply described as matching computing power with artistic rendering needs. The role of computing power suppliers is called node operators, and this number has remained stable, with currently 326 Render node operators providing computing power.

Render Network was originally deployed on a certain network. In March 2023, the community decided through a proposal to migrate from that network to Solana and build the BME( Burn and Mint Equilibrium) model on Solana. The BME model describes a state of relative balance between burned tokens and minted tokens in an ideal process and specific consumption market. It is already a mature token model that has been applied in projects like Helium.

In this model, users use RNDR tokens when purchasing GPU rendering services. The tokens used upon task completion will be destroyed, while the rewards for service providers are issued in newly minted tokens. The basis for these rewards is not only based on task completion metrics but also includes other comprehensive factors such as customer satisfaction. As a result, RNDR tokens have more consumption scenarios within the entire economy, and the supply and demand of tokens can be balanced and adjusted according to the algorithm between the destruction and minting of tokens. The entire business model has also evolved from a simple C2C to a more manageable B2C model.

On November 2, 2023, the Render Foundation announced that the Render Network has successfully upgraded its core infrastructure from Ethereum to Solana and launched an incentive program to encourage users to upgrade their $RNDR on Ethereum to the new token $RENDER on Solana.

Helium

Helium is one of the oldest and most famous DePIN projects, a decentralized wireless network protocol that incentivizes users to deploy gateways, promoting a global network based on LoRaWan technology. Initially, it built its own Layer 1 network, but adoption was hindered. In April 2023, it completed the migration to the Solana network, hoping to reach a larger user base and liquidity through this opportunity, and to fully leverage the efficiency of the Solana network for further expansion.

$HNT is the main economic asset in the Helium ecosystem, and the only way to pay for network data transmission fees is by burning $HNT. Its current market value is 1.29 billion USD, and it was delisted from spot trading pairs by a certain exchange in October 2022.

In 2023, Helium issued two new tokens, $Mobile and $IOT, which are governance tokens for the Helium Mobile and Helium IOT subDAOs, respectively, aimed at achieving governance separation. The $Mobile is earned from the 5G hotspot business of Helium Mobile; while $IOT is used to reward nodes focused on running the Internet of Things. $HNT remains the main asset in the Helium ecosystem, serving as the only token that can pay for network data transmission.

Hivemapper

Hivemapper is a blockchain-based mapping network where contributors can collect data by installing Hivemapper's dashcam and earn $HONEY tokens as rewards. The issuance and settlement of the tokens take place on the Solana network. In Hivemapper, the dashcam is similar to a mining machine, linking with the Hivemapper application to upload street view images as data.

In just one year since its establishment, Hivemapper has mapped approximately 91 million kilometers of road, covering 10% of the total road mileage worldwide, with over 6 million kilometers being unique. With the delivery of more than 8,000 dashcams globally, drivers are helping to map the freshest maps of the world every day.

Hivemapper's revenue comes from two sources: selling dashcams and selling map data APIs. Each dashcam is priced at $300( for the standard model and $649) for the premium model, and the annual revenue is conservatively estimated to exceed two million dollars. The price of the $Honey token cannot be too low, otherwise the demand for dashcams will diminish, the maps cannot be effectively expanded, and the entire business will become stagnant. The token has not yet listed on mainstream exchanges and is mainly traded on a specific trading platform, with a high FDV currently at $2.4B, but the circulation is only 2.6%. Projects with high FDV and low circulation have been a major characteristic of certain tokens, and their prices can easily experience drastic fluctuations.