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Rethinking the DePIN track: Disruptive innovation or just talk on paper?

23-05-19 11:25

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Original Title: "DePIN Track Overview: Disruptive Innovation or Pie in the Sky?"

Original Source: Puzzle Ventures

Introduction

DePIN is short for Decentralized Physical Infrastructure Networks, which means "decentralized network hardware infrastructure". In fact, this kind of decentralized hardware infrastructure has had a vague concept of practical application very early on, such as Bitcoin mining machines, which are actually a kind of decentralized hardware network, and the power grid management system in the web2 world also includes certain decentralized hardware infrastructure concepts.

In order to accurately define the concept of DePIN in this article, we adopt Messari's (https://messari.io/report/the-depin-sector-map) explanation of DePIN: a blockchain-based, programmable coordination of multiple individual units of physical hardware in a permissionless, trustless, and token-incentivized manner. DePIN can also be described as Proof of Physical Network (PoPW) or Token Incentivized Physical Infrastructure Networks (TIPIN). In simple terms, it is a network composed of numerous individual hardware units managed by token incentives, which can be used to serve specific projects.

From a broad perspective, the scope covered by DePIN is actually very wide. PoW mining machines are hardware facilities that maintain the operation of the blockchain network, but as the traditional PoW model is gradually being phased out, mining machines are not within the scope of this article's discussion. This article will focus more on the hardware network that provides specific services on top of the blockchain network, rather than the blockchain network itself. From another perspective, the entire web3 world is built on top of the DePIN network, because the operation of each node is based on individual units renting their own servers. With these two logics clarified, we can focus more on the research direction of this article: the hardware infrastructure formed by non-blockchain networks that provide additional toB or toC services, but are managed and coordinated using blockchain networks.

图 1

translates to

Figure 1

in English.

As shown in Figure 1, the entire DePIN vertical ecosystem is more complex compared to typical web3 projects. In the upstream, the project team needs to consider the selection of hardware manufacturers, especially for projects involving high-precision sensing devices and chips, and choose suitable partners from the perspectives of cost, quality, and large-scale production. In the middle stream, the project team needs to consider the usage scenarios of hardware devices and their integration with corresponding third-party service providers/carriers, which creates a barrier to entry for users due to the necessity of resources such as network speed, power supply, and drone operation, resulting in higher overall usage costs for users. In the downstream, the project team needs to establish a corresponding integration platform and design an economic model that conforms to the flywheel effect, which poses a high test to the project team's cognition and experience. Overall, a complete DePIN project is a more complex and comprehensive web3 project.

DePIN's Core Mechanism

The basic mechanism of a DePIN network is that individual hardware units obtain returns by renting out the services provided by the hardware. To form a decentralized global network based on this mechanism, token economics needs to play a role. Therefore, the entire economic circulation model can be summarized in Figure 2. This mechanism itself has already differed from the traditional hardware industry. Traditional centralized hardware service providers often require a large amount of upfront capital to purchase or build hardware facilities, and revenue depends on future orders. This model can only be undertaken by large enterprises or government-financed projects that can afford the potential risks and competition, while small and medium-sized enterprises are almost unable to participate. However, DePIN is a spiral-up dynamic mechanism during the early boot-strap period, and all three parties, users, providers, and platforms, can participate and gradually grow under relatively small risks. The most critical factor in this is the highly dynamic nature of token incentives, which can achieve dynamic balance based on data from both supply sides. The platform can design one-time rewards, Staking APR, and other parameters to achieve dynamic balance.

Figure 2

For example, Render Network is a decentralized GPU rendering service matching platform that connects users who execute rendering jobs with users who have idle GPUs. In terms of token incentive mechanism, Render Network first designed a rendering power unit standard based on OctaneBench (OB) according to its experience in the rendering industry, and divided the participating idle GPU users into three levels based on this standard, which are distinguished by the different GPU rendering speeds. 100RNDR tokens can pay for 2,500 OBh-20,000 OBh (depending on the GPU level used). Specifically, 100RNDR tokens can be used for 50-100 hours with one RTX 2070 graphics card or for 5-10 hours with 10 RTX 2070 graphics cards. This is the simplest initial token incentive model. After accumulating early users, Render Network gradually enters the fourth step, which is to further optimize and maintain the token revenue balance point of the platform. In terms of optimization, Render Network mainly starts from a scalable perspective, such as optimizing algorithms to reduce queue time and establishing local APIs to improve upload and work efficiency. In terms of token revenue balance, RNDR network voted for the Burn-and Mint Equilibrium (BME) model in February 2023.

图 3

translates to

Figure 3

in English.

The essence of this model is that users purchase GPU rendering services through RNDR tokens, which are then destroyed after the task is completed. The service provider's reward is distributed using newly generated tokens. The newly distributed tokens will not only be based on the completion of tasks, but also on customer satisfaction and other factors, and will be distributed comprehensively. As a result, RNDR tokens have a consumption scenario in the entire economy, and the supply-demand relationship can be adjusted based on the algorithm between the destroyed and newly minted tokens, gradually evolving the business model from simple C2C to more manageable B2C.

DePIN's Meaning and Value

The concept of DePIN was proposed because of its profound significance and value, which is meaningful for the future development of the web3 industry, as well as the theoretical development of technological and economic revolutions.

Unit Cost and Economies of Scale

DePIN's crowdsourcing model can reduce overall costs (or decentralize costs) and enable rapid scaling in a short period of time. In previous articles, we mentioned (link) that decentralized storage platforms such as Filecoin and Arweave can be dozens to hundreds of times cheaper than Amazon S3's storage prices, while Helium's hotspot signals and Render Network's GPU rendering services have price advantages over traditional centralized service providers. Helium's LongFi protocol has a range 200 times that of Wi-Fi, and the total cost for a device that needs to receive packets once every hour for a year is $0.09. In contrast, the total cost of using a large signal service provider such as AT&T is about $36. On the other hand, DePIN has also reduced costs in other areas, including labor costs, factory costs, and operation and maintenance costs, which are almost non-existent due to its decentralized nature. Essentially, DePIN's light asset model is a disruptive innovation to the traditional heavy asset model in the ICT industry.

However, the other side of the coin is instability and security risks. A completely permissionless hardware network that relies on token incentives to manage nodes is, at least for now, just an idealized concept. In practical applications, there may be various problems: imbalances in income and expenses caused by token fluctuations that eventually lead to a "shutdown price" and trigger a death spiral; operational errors caused by the unprofessionalism of individual nodes that lead to malfunctions; malicious behavior by nodes, hacker problems, and so on. Therefore, solving these problems requires a high level of business ability from the project team, as well as further improvement of the overall blockchain infrastructure. It can be foreseen that different levels of demand correspond to different levels of service providers, with businesses that have high security and stability requirements using centralized large service providers, while data service requirements with high frequency and low demands can use DePIN. In other words, the significance of DePIN is similar to that of DEX for traditional finance.

闲置资源再利用

translates to

Idle Resource Reuse

in English.

DePIN can centralize scattered idle resources and provide them to the most needed and valuable businesses. This topic is actually very interesting because reusing idle resources can be said to create additional markets and value, while also driving individuals to generate additional income. From the current mainstream DePIN projects, the collected idle resources are mainly four categories: hard disk storage space, communication traffic, GPU computing power, and energy. However, theoretically speaking, we can imagine that more similar idle resources can be centralized and reused in the future, such as cameras, screens, and brainpower. This is actually a globalization attempt of sharing economy in the digital information field, which is essentially the same as idle fund management in the financial field and idle vehicle leasing in the transportation field.

But is this model of reusing idle resources a necessary factor for future economic development? Idle GPUs, hard drive space, or WiFi are indeed idle during non-normal usage or working hours, but is completely covering all hardware with full load work a state that we hope to achieve in the future? These are actually deeper ethical issues. On the one hand, the foundation of this large-scale sharing economy model is trust, so any mistakes in the design of token incentives will lead to a small number of people taking advantage of loopholes, while the majority of participants and users will suffer losses. On the other hand, large-scale access to hardware interfaces will bring about a reduction in privacy and data leakage issues in various aspects. Therefore, in the existing infrastructure environment, DePIN is not suitable for everyone to participate, and its market size is also lower than that of the sharing economy in non-digital information fields.

Regional Performance

Regional performance refers to the higher short-term performance that can be provided by distributed hardware compared to centralized hardware service providers, mainly in the scenarios of game rendering and computing. This feature has not yet been proven and widely applied, but it is still worth considering its significance. In the current multiplayer chain game scenario, when a large number of users are online at the same time, public RPC nodes need to be called for tasks such as smart contract reading and execution. When the node enters an overloaded state, it will cause delays or even crashes. This problem itself is a technical barrier to the large-scale application of blockchain, and there are currently some targeted measures, such as the execution environment rental used by Altlayer, L2s, gamefi dedicated servers, etc. Some DePIN projects are also trying to solve such problems through a higher density hardware network. For example, in the case of exaBITS, when the density of its cloud computing hardware layout is wide enough, it can call nearby servers in real time for game players' geographical locations, thereby releasing and solving the computing or rendering needs of tens of thousands of players in a more average way. Similarly, when large-scale computing needs such as GPU rendering or AI computing arise, a corresponding batch of hardware in the DePIN network can also meet the needs in a short time. From a theoretical point of view, the high-density and decentralized hardware laid by DePIN can meet the short-term high computing tasks in a timely manner, thereby forming a regional performance improvement. Of course, this is only a hypothetical ideal state. The distribution of professional game servers may reach a certain breadth to meet the needs of global players, and the gaming experience brought by DePIN's comprehensive computing hardware may not necessarily be better than imagined. In any case, DePIN brings us huge imagination space, and larger icebergs will gradually emerge in the future.

Race Overview

DePIN Track is a special track, partly because the scope of this track is very broad, and partly because many similar or similar projects can be roughly classified as DePIN. Based on Messari's DePIN Sector Map, this article attempts to describe this track more clearly with a more detailed and three-dimensional splitting logic.

图 4

translates to

Figure 4

in English.

Ecological Niche Dimension

First of all, the most important classification dimension in the DePIN track is: being a part of the blockchain network itself and using blockchain technology to implement new businesses, which is not mentioned in the Messari report. There are two parts in the blockchain network ecosystem that can be adopted and optimized by DePIN. One part is data storage, retrieval, and archiving, and the other part is the possibility of L3 expansion. In terms of data storage, independent storage layers represented by Filecoin and Arweave have become the mainstream paradigm, and the decentralized storage nodes built by such projects are a form of DePIN. The other part is some L3 layers that try to improve efficiency by renting external communication networks or GPU networks. These L3 layers are more inclined to customized solutions for specific problems, but they do call external hardware facilities outside the blockchain network in the process of solving problems, so they can also be classified as DePIN. These two types of DePIN projects are to meet one or more needs of the blockchain ecosystem itself, and can also be regarded as part of the underlying network of the blockchain. The other dimension is built on top of the underlying blockchain network, using Blockchain as a Service to build new businesses, such as IoT, cloud computing, energy storage, transportation data, geographic and weather data, image and video processing, etc. This type of project connects hardware providers and demanders through blockchain as a coordinating and managing network, which is the second dimension.

Device Dimension

Secondly, the DePIN track can be split into the dimension of devices. Overall, the hardware devices involved in DePIN mainly include PC or mobile phone built-in hard drives, databases, servers, communication signals, and GPUs, while different categories of sensors and project-customized hardware are another market. The customized hardware model dominated by Helium was once popular all over the world, but now it has fallen into a vortex of questioning. According to data leaked by @Liron, Helium's data service revenue in June 2022 was only $6,500, but the hotspots deployed globally reached as high as 900,000. This huge imbalance between providers and user demand has also led to the continuous decline in the value of the HNT token (since there is no additional source of income, it can only be maintained by reducing incentives through tokens). There is no problem with Helium's hardware products and concepts. The core problem lies in the customized hardware model involving upstream manufacturers. The profit goal of upstream manufacturers is to sell more devices, while the profit goal of the Helium platform is to some extent to earn fees through the sale of devices and registration. In the absence of external income, it can only be sustained by existing device buyers or new device buyers, which completely violates the original intention of the DePIN network. Currently, Helium is trying to establish a "network of networks" that can be compatible with third-party wireless networks (5G, WiFI, CDN, VPN), but the current effect is unknown.

From the case of Helium, it can be seen that once the heavy emphasis on customized hardware is not well grasped in terms of layout and development pace, it will lead to a death spiral. Other innovative devices such as Spexigon's drone photography and Geodnet's space weather station are full of imagination. However, when considering the probability of success of these projects, we should focus on several indicators: 1. The cost of purchasing hardware and the payback period. Is the project mainly selling hardware or providing services? 2. Are there definite service buyers who are already using the network? 3. Does the hardware itself match the home environment and not consume too many resources?

Domain Dimension

Finally, the DePIN track can also be divided from the perspective of specific services provided. The IoT and infinite communication field, mainly led by Helium, is one area. The GPU field, mainly focused on rendering and video transcoding, is another area. The real-life data and image collection, mainly based on various sensors, is another area. Hivemapper establishes a map data update mechanism based on hardware devices such as driving recorders, Spexigon establishes a high-definition and stereoscopic image library based on drone cameras, and DIMO establishes a vehicle networking information system based on cars as hardware devices. These projects all have a common characteristic: unknown demand. In the relatively complete web2 ecosystem, some things such as maps, photo shooting, and car information can be partially or completely replaced by many web2 products. The only advantage of these projects is that users can receive token incentives. Token incentives are not everything in web3. The significance of the DePIN era is to connect real life with web3 through hardware facilities, so that web3 can better integrate with people's lives. However, the real explosion of DePIN demand may still require a better timing.

Latest Developments and Potential Issues

In order to fully understand the current development status of the DePIN project, we analyze the latest progress and community feedback of the top two projects - Helium and Render Network, and try to identify potential development bottlenecks.

Helium

Helium completed over $300 million in financing in 2021-2022 and early device sales once reached FOMO. As of May 2023, Helium has deployed 460,000 hotspots globally, covering 192 countries and 77,000 cities, with new hotspots being added every day. However, despite such a perfect start, Helium's community reputation has gone from "hard to find" to "cheaply sold". The main issues include:

1. Miner income problem. The current HNT income for miners with machines averaging around $500 is about $20/month, with extreme imbalance between revenue and cost. Of course, some miners' situations have improved slightly after Helium migrated to Solana and converted to the new IOT token income, but there is still a large gap from expectations (as shown in Figure 5). According to the latest data from Heliumtracker.io, the average daily income per hotspot in the recent period is about $0.2, while the average daily income per $MOBILE in the 5G network is about $3.6, but the hotspot coverage of the 5G network requires higher requirements.

图 5

translates to

Figure 5

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2. Professional miners do not have an advantage in entering the field. Operating a mature miner network requires not only ordinary enthusiasts, but also professional miner teams to participate. However, Helium's Proof of Coverage mechanism requires that hotspots maintain a distance of 500-1000 meters between each other, which is not friendly to dense deployment. This also means that the traditional mode of deploying mining machines in a dense manner by professional miner teams cannot play an advantage in the Helium project.

3. Helium migrated to the Solana network on April 20th this year, transforming into a project that is more focused on the application layer network. However, the reputation of Solana itself and the FTX scandal have indirectly brought negative impacts to Helium, and the decision to abandon the development direction of the L1 layer network has caused some community members to lose interest. According to Helium's official Twitter account, the benefits of the migration include lower transaction fees, stronger market integration capabilities, and a change in programming language that attracts more developers (previously using the obscure language Erlang). However, the biggest problem is that it reduces the unique appeal of the Helium network, transforming it from an L1-level project to an ecosystem project of Solana.

From the latest community feedback, it appears that this migration has brought many technical issues for ordinary participants, such as the conversion from IOT to HNT and not receiving rewards, which is unfavorable for both new user participation and old user retention. Overall, Helium is a pioneer in the DePIN track and has once sparked high enthusiasm and potential paradigm revolution, but based on Helium's current operational status, it is still unable to verify the future value of DePIN.

Render Network

Render Network's parent company OTOY is a leading project in rendering software, and its web2 product Octane has been adopted by projects in the film and music industries, including Disney and music producers. The project concept of Render Network is to provide higher levels of decentralized rendering support for the future metaverse. From a demand perspective, Render Network provides a strong demand for all projects that require rendering in the future metaverse (dynamic NFT, metaverse gaming), while Helium is more like actively creating demand. As shown in Figure 6, Render Network completed 6 million and 9.4 million Frames in 2021 and 2022, respectively, and $RNDR also continued to circulate in them.

图 6

translates to

Figure 6

in English.

From the recent project updates, it can be seen that the adjustments made by the project team are all beneficial for the long-term development of the project:

1. The RNP-001 proposal adopts the BME token model mentioned earlier, which greatly improves the liquidity and supply-demand balance of the token. Although it is only a theoretical economic model optimization, it still has a significant impact on community confidence, as seen from the price trend of $RNDR.

2. The RNP-002 proposal has passed the decision to migrate to Solana, and explained the main considerations: developer community, TPS, liquidity, transaction fees, programming languages, and smart contract integration. This proposal also considers the project's future scalability, and ultimately received 99.26% of the vote. After the RNP-002 proposal was passed, community satisfaction and token prices both increased positively (the token price rose by 43% within two days), which also proves the good relationship between Render Network and the community.

3. The RNP-003 proposal has been approved by the Render Network Foundation for the team expansion and token usage rights for Grants needed for future development. This proposal also received a voting approval rate of up to 99.9%. While ensuring that participants receive sufficient rewards, Render Network uses a portion of the newly generated tokens to develop the project ecosystem, which is in line with the interests of the community for long-term ecological construction.

Overall, Render Network can be considered a benchmark project in the current DePIN track. It is supported by OTOY, an experienced parent company in the industry, as well as a foundation and token mechanism that aligns with the spirit of web3. It also balances project development with community interests and maintains good relationships with the community.

Summary

DePIN Track is a track that can be both a "new wine in old bottles" and an imagination track that completely breaks through industry boundaries. The hardware network based on decentralized storage and computing is still an important underlying infrastructure of the entire web3 ecosystem, and can also provide lower-cost backend design for the application layer. The hardware infrastructure network mainly composed of GPUs and sensors is trying to establish a brand new service rental and matching market.

In the future, the key areas worth our attention include:

1. Entertainment DePIN

The DePIN network, composed of wearable hardware such as Gopro and AR glasses, is an imaginative track in the field of entertainment. The essence of entertainment upgrade is experience upgrade, and the DePIN-based entertainment network can not only enhance the immersive participation of entertainment (supply side), but also bring more three-dimensional and dynamic entertainment methods (demand side). The industries involved here include sports, live broadcasting, games, media, etc. It is worth looking forward to how to combine DePIN with these fields and create a positive flywheel model.

2. Real-world Data

DePIN's value to society depends on the use of data elements. From the current development trend, sensors have formed an interaction mechanism with meteorological data, motion data, and image data as real-world data inputs and outputs. In the future, more types of data can be captured in more ways. In addition, some real-world data is difficult to capture through centralized systems. DePIN's decentralized nature can more effectively capture those dispersed but important data, and the subsequent processes of storage, use, and transformation of these data will gradually derive a complete industrial chain, so the imagination space of its market size is relatively large.