DePIN is gradually realizing the large-scale interaction between the physical world and Web3, and gradually disrupting the operational mode of traditional infrastructure. By combining sensors, wireless networks, computing resources, AI, and blockchain technology, and using cryptographic economic incentives to promote crowdsourced development, DePIN’s business model includes an important feature: using hardware revenue as the first growth curve and overlaying data services to form the second growth curve. This is one of the key factors that allows DePIN to lead the current cycle of growth, and also demonstrates how DePIN-like projects create significant wealth effects and ultimately form a scalable decentralized value network in the process of building decentralized infrastructure networks.
1. Building a Decentralized Internet of Things World
Decentralized Physical Infrastructure Network (DePIN) is defined in Messari’s 2023 report as “the deployment of physical infrastructure and hardware networks in the real world using cryptographic economic protocols.” This concept implies an application scenario full of imagination: common infrastructures around us, including communication base stations, car charging stations, photovoltaic panels, billboards, and the data storage and computing devices behind the Internet, will no longer be controlled by centralized entities and institutions, but will be divided into equally sized units controlled by individuals or scaled miners. Moreover, the physical infrastructures of the same kind are highly standardized and scaled, forming a carpet-like coverage.
Through decentralization, the layout and utilization of infrastructure can achieve higher efficiency and lower costs, while enhancing the overall system’s security and resilience. Not only that, various types of facilities, from energy production to data processing, have the potential to transform into a decentralized mode. The combined market size of the industries involved in DePIN already exceeds $5 trillion. Therefore, Messari predicts that the potential market size of the DePIN field is estimated to be around $2.2 trillion, and is expected to reach $3.5 trillion by 2028.
1.1 DePIN Track Division
The DePIN track covers six sub-domains: computing, AI, wireless communication, sensors, energy, and services. From the perspective of the supply chain, DePIN can be divided into:
– Upstream: hardware manufacturers and supply-side users acting as “miners.”
– Middlestream: project platforms, blockchains responsible for data validation and token settlement, Layer 2 protocols serving DePIN, and modular service components for developing and managing DePIN networks (such as platform interfaces, data analysis, and standardized services), DePIN development SDK toolkits, API interfaces, etc.
– Downstream: dApp applications and interfaces that connect to the demand side.
Except for IoTeX and the former Helium (now migrated to Solana), most DePIN projects rarely cover every aspect of DePIN business. They usually choose Solana or IoTeX as the settlement layer for token economics. AI and cloud computing projects in the sub-domains focus more on on-chain settlement and the development and management of project platforms, while the underlying hardware devices are dispatched to idle electronic devices such as mobile phones or computers equipped with high-performance consumer-grade GPUs through middleware.
1.2 Overview of DePIN Industry Development
According to DePIN Ninja’s data, there are currently 1,215 DePIN projects that have been launched, with a total market value of approximately $43 billion. Among them, the total market value of projects that have been listed and launched on the DePIN sub-sector of Coingecko exceeds $25 billion.
In October last year, this number was only $5 billion, which has increased fivefold in less than a year, indicating the rapid growth of the DePIN industry. This indicates that the demand and recognition of the decentralized physical infrastructure network by the market are continuously increasing. With more projects going live and the expansion of application scenarios, the DePIN industry is expected to become an important field for the integration of blockchain technology and real-world applications.
2. Insights from DePIN Business Logic
The prototype of DePIN can be traced back to the concept of Internet of Things + Blockchain (IoT + Blockchain) in the previous cycle. Projects like Filecoin and Storj transformed centralized storage into decentralized operation modes through cryptographic economic models and have been practically applied in the Web3 ecosystem, such as on-chain NFT storage and storage of front-end and back-end resources for DApps.
Internet of Things + Blockchain only embodies the decentralized (“De”) characteristics, while DePIN emphasizes the construction of physical infrastructure and the scale of interconnected networks. In DePIN, “PI” represents physical infrastructure, and “N” represents the network, which is the value network formed by the hardware network reaching a certain coverage scale.
The most typical example is Helium, which was established in 2013 and only determined to use blockchain as an incentive for decentralized deployment of the Internet of Things in 2018. Until now, Helium has almost met all the elements of DePIN: node economy, mining mode, value network, crowdsourcing incentives, and has become a leading project in the field of decentralized wireless communication (DeWi). In addition, at the end of last year, the $20 communication package service launched by Helium Mobile in cooperation with T-Mobile targeted traditional users. When users use the Helium network for data transmission, they not only receive token rewards but also enjoy reliable communication services. At the same time, Helium helped T-Mobile solve the problem of signal coverage in remote areas of the United States, creating a win-win situation. The large number of traditional users served by the terminal is expected to accelerate the adoption of blockchain technology and Web3 networks on a large scale.
Helium and Filecoin both belong to the DePIN category, but the difference between the two lies in Helium’s emphasis on hardware, which enables it to support the growth of data services on the second curve through hardware revenue and build an independent ecosystem, while also gaining alpha and beta returns. Although Helium was involved in false advertising last year and faced issues such as the difficulty of development due to obscure programming languages, a series of actions at the end of the year reopened Helium’s growth on the second curve. As the first and most scalable DePIN project, it undoubtedly brings some inspiration to the DePIN ecosystem.
3. The Explosive Growth of DePIN is Based on the Dual Curve Theory
“The second curve” is a concept in management and innovation theory originally proposed by management scholar Charles Handy. It refers to the introduction of new innovations or changes when an organization, product, or business reaches the peak of its traditional growth curve to initiate a new growth curve, thereby avoiding stagnation or decline.
From the successful experience of previous DePIN projects, it can be seen that the business logic of DePIN naturally points to using hardware sales as the first curve of project development and overlaying the monetization of data value networks as the second curve of development guidance. Product development and operational capability are the key to ensuring the growth of the first curve, while the ability to initiate the growth of the second curve requires two capabilities: organizational capability of the decentralized system and service capability for the demand side.
In the context of the DePIN ecosystem, project parties need to first ensure the smooth operation of the data value network while having the capability to organize a hardware network capable of accommodating scalable data transmission. Only then can the demand side be smoothly connected and provide high-quality, standardized data services. This ultimately completes the dual-curve business growth and forms a positive cycle within the project ecosystem.
3.1 Hardware Value is the First Curve of Value Creation
On the first growth curve, the business undergoes rapid initial growth and then gradually reaches its peak. The growth driver of the first curve of DePIN projects comes from the revenue and profits generated by selling hardware.
Traditional infrastructure, especially in areas such as data storage and communication services, has a linear business logic for centralized service providers or entities: in the early stages of the business, investments are needed to build infrastructure, and after the facilities are completed, services are provided to end users (C-end). Therefore, developing such businesses often requires the participation of giant companies to bear high costs in the early stages of operation, including hardware purchases, land leases, deployment, and hiring maintenance personnel. Referring to BCG’s deconstruction of the data value network, the traditional IoT operating model creates the data value chain shown in the left figure below, where data as a production factor is transmitted independently and linearly, and each ecosystem is completely independent.
DePIN projects split and crowdsource the centralized supply side of infrastructure to establish a hardware network.
Therefore, the first step in achieving the first curve growth of DePIN projects is the decentralization of centralized infrastructure. DePIN project parties need to make efforts to promote themselves, disseminate their narrative, and attract supply-side users’ participation through a series of operational means, including pre-selling “mining machines” and buying them to receive airdrops, transferring the huge infrastructure costs to the supply side to achieve low-cost lightweight startup. Supply-side users also become “shareholders” of the project by holding hardware and help deploy the hardware network with the expectation of mining and making money in the future.
Furthermore, unlike traditional centralized device providers, the update and maintenance of DePIN devices are jointly completed by the project party and miners, where the device provider is only responsible for the development and sale of devices, while the update and maintenance are completed by supply-side users. The interaction between miners (supply-side users) and the project party and middleware in the process of jointly maintaining and building the hardware network strengthens the miners’ community identity and recognition of the DePIN project.
If a DePIN project party can smoothly run the narrative marketing, mining machine sales, and community operations, then all the elements of the first growth curve belonging to the project party will be in place, eventually leading to an increase in network coverage, token incentives, and attracting more miners to join the first curve.
The following data shows the number of active nodes so far, with Hivemapper, Helium, and Natix ranking top three, all of which have deployed over 10,000+ nodes worldwide.
Among them, Hivemapper, Helium, Natix, and Nodle have all deployed over 100,000 nodes, and Helium and Hivemapper have performed remarkably well:
Helium
– Helium is a decentralized wireless network, and its main businesses include Helium Hotspot, which provides low-power wide-area network (LoRaWAN) coverage; and Helium Mobile, a mobile communication service launched in cooperation with T-Mobile and TEF.
– The $20 communication package service launched in cooperation with T-Mobile on January 25th has increased its worldwide subscriptions from 0 to 93,000 in five months.
– It has partnered with Telefónica (TEF), one of the largest telecommunications service providers in Mexico, to enter the Mexican market with a population of 126.7 million, further enhancing Helium’s sources of income and market influence.
Hivemapper
– Hivemapper is a decentralized map creation platform that aims to create a global, real-time updated map ecosystem through blockchain technology and cryptographic economic incentives. Hivemapper’s main businesses include HiveMapper Dashcam, a dashcam that allows users to collect geographic data during driving.
– The price of this device is estimated to be $549, and based on the number of deployed nodes, Hivemapper’s revenue from hardware sales alone has exceeded $60 million.
– Currently, Hivemapper’s map data collection network has covered most areas of Europe and the United States. Hivemapper’s data service revenue has also grown significantly.
– In terms of hardware revenue, other projects have also found alternative ways to achieve growth.
