DePIN: Constructing a Decentralized Value Network through the Superposition of Dual Curves

DePIN is gradually realizing large-scale interaction between the physical world and Web3, and is gradually disrupting the operational model of traditional infrastructure. Through the combination of sensors, wireless networks, computing resources, AI, and blockchain technology, and leveraging crypto-economic incentives to promote crowdsourced development. Analyzing most DePIN projects reveals an important characteristic in DePIN's business model: hardware revenue serves as the primary growth curve, and on this basis, monetization of data services creates a secondary growth curve. This is one of the key factors that allows DePIN to lead the current cycle of growth, while also demonstrating how DePIN-like projects can create significant wealth effects in the process of building decentralized infrastructure networks, ultimately forming a scaled decentralized value network.

1. Build a Decentralized Internet of Everything

The Decentralized Physical Infrastructure Network (DePIN) is defined in Messari's 2023 report as "utilizing crypto-economic protocols to deploy real-world physical infrastructure and hardware networks." This concept heralds an application scenario full of imaginative possibilities: common infrastructures around us, including communication base stations, electric vehicle charging stations, photovoltaic panels, billboards, and the data storage and computing devices behind the operation of the internet, will no longer be controlled by centralized entities and institutions, but will instead be divided into equally sized units, held by individuals or large-scale miners. Moreover, physical infrastructures of the same kind are highly standardized and scalable, forming a kind of 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. Moreover, from energy production to data processing, various facilities have the potential to transition to a decentralized model. The total current market size of the industries related to DePIN has already surpassed 5 trillion dollars. Therefore, Messari predicts that the potential market size in the DePIN field is estimated to be around 2.2 trillion dollars, expected to reach 3.5 trillion dollars by 2028.

1.1 DePIN Track Division

The DePIN track covers six subfields: computing, AI, wireless communication, sensors, energy, and services. From the perspective of the supply chain, DePIN can be broken down into:

• Upstream: Hardware manufacturers and supply-side users who act as "miners".

• Middle Layer: Project platform, blockchain responsible for data validation and token settlement, and on-chain layer two protocols serving DePIN; as well as modular service components for developing and managing the DePIN network (such as platform interface, data analysis, and standardization services), SDK toolkit developed for DePIN, API interfaces, etc.

• Downstream: Interfaces and dApp applications that connect to the demand side.

Besides IoTeX and the formerly known Helium (which has now migrated its mainnet to Solana), most DePIN projects rarely encompass every aspect of DePIN operations. They typically choose Solana or IoTeX as the settlement layer for their token economics. Projects in the subfields of AI and cloud computing focus more on on-chain settlements and the development and management of project platforms, while the underlying hardware devices utilize middleware to schedule idle electronic devices, such as smartphones or computers equipped with high-performance consumer-grade GPUs.

1.2 Overview of DePIN Industry Development

According to data from a certain data platform, the number of DePIN projects that have been launched has reached 1215, with a total market value of approximately 43 billion USD. Among them, the total market value of projects that have issued tokens and are listed in the DePIN sub-section of a certain cryptocurrency data platform exceeds 25 billion USD.

In October last year, this figure was only 5 billion dollars, and in less than a year, it has increased fivefold, demonstrating the rapid growth of the DePIN industry. This indicates that the market's demand and recognition for Decentralization physical infrastructure networks are continuously rising. 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 with real-world applications.

2. Insights from the DePIN Business Logic

The prototype of DePIN can be traced back to the IoT+Blockchain concept from the last cycle. Certain decentralized storage projects have transformed centralized storage into a decentralized operating model through cryptoeconomic models, and have found practical applications in the Web3 ecosystem, such as on-chain NFT storage and front-end and back-end resource storage for DApps.

The Internet of Things + Blockchain only reflects the characteristics of Decentralization ("De"), while DePIN emphasizes the construction of physical infrastructure and the scaled interconnection of networks. "PI" in DePIN stands for Physical Infrastructure, and "N" represents Network, which refers to the value network formed after the DePIN hardware reaches a certain coverage scale.

The most typical example is a certain decentralized wireless communication project established in 2013, which only confirmed the use of blockchain as an incentive for decentralized deployment of the Internet of Things in 2018. So far, this project has almost met all the elements of DePIN: node economy, mining model, value network, and crowdsourced incentives, making it a leading project in the DeWi (Decentralized Wireless Communication) field. Additionally, at the end of last year, the project launched a $20 communication package service in collaboration with a certain telecommunications giant, aimed at traditional users. When users transmit data using the project’s network, they not only receive token rewards but also enjoy reliable communication services. Meanwhile, the project has also helped its partner solve signal coverage issues in remote areas of a certain country, creating a win-win situation for all three parties. The large number of traditional users that the terminal accommodates has the potential to drive DePIN's breakthrough and accelerate the large-scale adoption of blockchain technology and the Web3 network.

The project and a certain decentralized storage project both belong to the DePIN category, but the difference between the two is that the former emphasizes hardware more, enabling it to support the growth of data services on the second curve through hardware revenue, constructing an independent ecosystem while harvesting Alpha and Beta returns. Although the project was involved in false advertising last year and faced issues such as the rarity of the programming language leading to development difficulties, a series of actions at the end of the year reopened the growth of the project's second curve; and as the most substantial DePIN project that emerged first, it undoubtedly provided us with some insights into 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 need for an organization, product, or business to introduce new innovations or changes when it reaches the peak of its traditional growth curve, in order to initiate a new growth curve and avoid stagnation or decline.

From the previous successful experiences of DePIN projects, it is already evident that the business logic of DePIN naturally points to hardware sales as the first curve of project development, with the monetization of data value networks stacked on top of the first curve, serving as the guiding principle for the second curve of development.

Product research and development, as well as operational capability, are key to ensuring the growth of the first curve; to initiate the growth of the second curve, two capabilities are required: first, the organizational capability of a decentralized system, and second, the service capability for the demand side.

In the context of the DePIN ecosystem, it is necessary for project parties to first ensure the smooth operation of the data value network, under the premise of having the capability to organize hardware networks that can handle large-scale data transmission. Only then can the demand side successfully connect and ultimately provide high-quality, standardized data services. This will ultimately complete the double curve of business dual growth and form a positive cycle within the project ecosystem.

3.1 The value of hardware is the first curve of value creation.

In the first growth curve, the business experiences rapid growth in the early stages, and then gradually reaches a peak. The growth momentum of the first curve of the DePIN project comes from the revenue and profit generated by hardware sales.

Traditional infrastructure, especially in areas such as data storage and communication services, has a linear business logic of centralized service providers or entities: in the early stages of the business, investment is needed to build infrastructure, and only after the facilities are complete can services be provided to end users (C-end). Therefore, the development of such businesses often requires the participation of giant enterprises to bear the high costs in the initial stages of business operation, including hardware purchases, land leasing, deployment, and hiring maintenance personnel at various stages.

The DePIN project splits the centralized supply side and adopts a crowdsourcing model to establish a hardware network.

Therefore, the first step in dismantling centralized infrastructure is the key to achieving the first curve growth of the DePIN project.

The DePIN project parties must first strive to promote themselves, spread their narrative, and attract participation from supply-side users through a series of operational methods, including pre-sale "mining machines", and offering airdrops for purchases; shifting the enormous infrastructure costs to be borne by supply-side users to achieve a low-cost and lightweight launch. Supply-side users also become "shareholders" of the project party by holding hardware, while helping the project party deploy the hardware network with expectations of making money from mining in the future.

Moreover, unlike traditional centralized device providers, the updates and maintenance of DePIN devices are carried out jointly by the project party and miners, meaning that the device provider is only responsible for the research and development and sale of the device, while the updates and maintenance are completed by the supply-side users. In the process of collaboratively maintaining and building the hardware network, the interaction with the project party and middleware strengthens the community identity of the miners (supply-side users) and their recognition of the DePIN project.

If a DePIN project can smoothly run through narrative marketing, mining machine sales, and community operations; then, the project's own first growth curve elements will have been gathered, ultimately forming the first curve of increasing network coverage scale - increasing token incentives - attracting more miners to join.

The following is the data on the number of active nodes as of now. A certain Decentralization map project, a certain Decentralization wireless project, and a certain Decentralization video surveillance project rank in the top three, each having deployed over 100,000 nodes worldwide.

Among them, the node deployments of a certain decentralized map project, a certain decentralized wireless project, a certain decentralized video surveillance project, and a certain decentralized AI network have all exceeded 100,000. The business performance of a certain decentralized wireless project and a certain decentralized map project is particularly impressive:

A certain Decentralization wireless project:

• It is a decentralized wireless network, whose main business includes low-power wide area network (LoRaWAN) coverage; as well as mobile communication services launched in cooperation with a certain telecommunications giant.

• The $20 communication package service launched in collaboration with a certain telecom giant on January 25 has grown from 0 to 93,000 subscribers in just 5 months.

• Collaborating with one of the telecom service giants in a certain country to enter the market of 126.7 million people has further enhanced the project's revenue sources and market influence.

A decentralized map project:

• is a Decentralization mapping platform that aims to create a global, real-time updated mapping ecosystem through blockchain technology and crypto-economic incentives. The main business of the project includes a dashcam, which allows users to collect geographic data while driving by installing this device.

• This device is priced at 549 dollars. Based on the current number of node deployments, it can be roughly estimated that the project's revenue from hardware sales alone has already exceeded 60 million dollars.

• As of now, the mapping data collection network established by the project has covered most of Europe and the United States. The project's data service revenue