Decoding DePIN, Part 1: What really IS DePIN? 🤔

Ah, the wild world of DePIN — where the lines between physical infrastructure and digital tokens cross into knots more confusing than your first modem setup. 🤦🔌

If you've been feeling lost at DePIN sea recently, you're not alone. Projects are popping up like mushrooms after rain, and it's definitely been getting trickier to tell what's what. 🍄

But fear not. This exact dilemma’s the reason why we're kicking off a series to demystify the DePIN landscape. If you’ve found yourself asking questions like Is that new project really a DePIN, or just riding the hype train? or How do you spot a genuine DePIN in a room of look-alikes? Team DePIN Hub’s gonna answer all your questions.

And the best part is, at the end of this series, we'll be unveiling a project we’ve been working on that's sure to verify your enthusiasm for all things DePIN. 😉

Why it's getting harder to spot a true DePIN

Remember when blockchain was just about cryptocurrencies? Those were simpler times…

Now, we're in an era where blockchain technology is being applied to everything, from energy grids to WiFi networks. It's exciting, but it's also creating a bit of an identity crisis in the DePIN world.

Why are DePINs becoming more difficult to identify? Well, for starters, success breeds imitation.

As pioneering DePIN projects gain traction, we're seeing a flood of new projects claiming the DePIN label. Some are innovative and genuine, while others are... let's just say… riding the hype train. 🚂💨

According to Messari's 2023 DePIN Sector Map, there were over 650 active DePIN projects with a combined market cap exceeding $20 billion. Fast forward to 2024, and FMG's report (which we covered in full on our blog) suggests the sector has potential for a 20x increase, indicating significant growth and diversification in the space.

Moreover, the lines between DePIN and other crypto sectors are blurring. Is a project that uses tokens to incentivize renewable energy production a DePIN, or is it just tokenized green energy? What about decentralized AI platforms — are they DePIN or something else entirely?

But why does all this matter?

Why should we care about separating the DePIN wheat from the pseudo-DePIN chaff? Well, folks, it's not about keeping our crypto vocabulary straight. Identifying true DePINs is crucial for several reasons:

• Investment clarity. As the space grows, investors need to understand what they're putting their money into. True DePINs offer unique value propositions and risk profiles compared to other crypto projects.
• Technological progress. Genuine DePINs are pushing the boundaries of what's possible with decentralized technology. By distinguishing them, we can better track and support real innovation.
• Regulatory preparedness. As governments start paying attention to this space, understanding what truly constitutes a DePIN project could be vital for navigating future regulations.
• Community building. True DePINs often rely on active, engaged communities. Identifying them helps enthusiasts and contributors find projects that align with DePIN principles.
• Market integrity. By calling out pseudo-DePINs, we help maintain the integrity of the DePIN ecosystem, preventing dilution of the concept and potential market confusion.

In short, being able to spot a true DePIN isn't just a party trick for your next crypto meetup — it's essential for the healthy growth and development of this exciting new sector.

Industry experts share their take on DePIN

We've got friends in high — we mean... decentralized — places. ✈️

We reached out to some of our pals at leading DePIN projects to get their take on what makes a true DePIN, and its distinction from other crypto projects. We also scoured the interwebs for research pieces by thought leaders…

Grab your favorite beverage and settle in, because these folks are about to drop some serious knowledge bombs. 💣💥

Neuratic's definition emphasizes two key aspects: distribution and diversity. This suggests that true DePINs not only decentralize infrastructure but also leverage the unique strengths of varied contributors. He further elaborates that this advantage can stem from utilizing idle resources with lower marginal costs, indicating an efficiency aspect to DePINs.

Crucially, Neuratic posits that the "best DePINs create a new class of product that cannot feasibly exist in a monolithic form." This implies that true DePINs aren't just decentralized versions of existing infrastructure, but rather enable entirely new possibilities through their decentralized nature.

Ben's definition places emphasis on the practical, problem-solving nature of DePINs. He frames DePINs as a solution to the "inherent imbalance in how nature and human systems work," suggesting that DePINs are a response to systemic inefficiencies in resource allocation.

He also distinguishes DePINs from other crypto projects by highlighting their tangible impact: "optimizing resource allocation by leveraging decentralized networks, micro-incentives, and crowdsourcing." He then provides specific examples like Hivemapper, Helium, and Render Network to illustrate how DePINs "redistribute expensive or scarce resources more efficiently."

Importantly, Ben stresses that DePINs create "more equitable systems that offset the costs traditionally borne by centralized entities," positioning DePINs as not just technological innovations, but as tools for economic and social equity.

Alvaro's definition centers on incentives and geographical distribution as key differentiators for DePINs. He argues that physical decentralization is crucial, stating, "if physical decentralization is not needed, then why use DePIN?" This implies that true DePINs address challenges that are inherently tied to physical dispersion.

Alvaro also emphasizes the competitive advantage of DePINs in industries requiring geographical diversification, suggesting that DePINs aren't just an alternative to centralized systems, but potentially superior in certain contexts. He highlights the importance of individual ownership in DePIN hardware, distinguishing it from centralized infrastructure projects. This focus on distributed ownership suggests that true DePINs democratize not just the operation of infrastructure, but also its ownership and governance.

Alvaro's perspective implies that DePINs represent a fundamental shift in how we conceptualize and implement infrastructure, moving from centralized control to distributed, incentive-driven systems.

And of course, there's more.

Remember that 100+ page deep-dive from Compound VC we covered in our last blog?

According to them, DePIN really shines when at least one of these is true:

• Scaling infrastructure for a single provider is costly or cumbersome (looking at you, traditional telecom companies 👀)
• There's an opportunity to create greater efficiency matching supply & demand (hello, decentralized energy grids! ⚡)
• You can accelerate a cheaper end-state as previously underutilized assets are brought closer to full capacity (we're talking to you, idle computing power 💻)

These insights add another layer to our DePIN definition debate. It's not just about what DePIN is; it’s also about where it can make the biggest splash. 🌊

Despite some differences between ANyOne Protocol’s, Hivemapper’s, and Borderless Capital’s takes, there seem to be some common threads among them:

1. DePIN projects involve physical infrastructure that is geographically distributed. This distribution is not just a feature, but a core necessity that gives DePINs their unique advantage.
2. They leverage blockchain technology to decentralize control and incentivize participation across this distributed network.
3. They aim to solve real-world problems more efficiently than centralized alternatives, often by tapping into resources that are widely dispersed.
4. The geographical spread of the infrastructure is crucial, enabling DePINs to address challenges that centralized systems struggle with due to physical limitations.

Our perspective on what makes a real DePIN tick

We’re tossing a coin into the opinion pile, too. 👀

At DePIN Hub, we've been knee-deep in this space since its inception. Through our research, late night talks with project leaders, and countless hours of analysis, we've developed our own perspective on what makes a true DePIN project.

Here are the core characteristics we look for:

1. Demand-side focus. A genuine DePIN project doesn't just create supply; it addresses a real-world demand for infrastructure or services.
2. Healthy tokenomics. This goes beyond just having a token. We're talking about a well-designed economic model that incentivizes network growth and usage while ensuring long-term sustainability.
3. Distributed operating expenses (op-ex). This is where the "decentralized" in DePIN really shines. True DePIN projects distribute the costs of building and maintaining infrastructure across a network of participants, rather than centralizing these expenses.

FMG's 2024 report emphasizes two key criteria for assessing DePIN applications: a sufficiently large demand market and the ease of standardizing supply products. This aligns with our perspective but adds an important dimension to consider.

But hey, we're not claiming to be the be-all and end-all of DePIN wisdom here.

What we do want is to challenge the discourse and get all you folks and KOLs talking. These are our takes based on what we've seen and researched, but we could totally be missing something — or maybe you've got a perspective that'll flip our understanding on its head. After all, the DePIN space is evolving faster than a chameleon changing colors at a rave. 🦎💃

We’ll get more into that in a moment, but first we’ve got to address the elephant in the room: DePIN’s crypto cousins that put the Weasley’s family genetics to shame.

Spot the difference between DePIN vs its crypto cousins

Like you, we feel like we’ve been seeing double in the DePIN space recently. 👭

As the blockchain space evolves, it's crucial to understand how DePIN differs from other decentralized concepts, particularly RWA (Real World Assets).

DePIN vs. RWA

Don't be fooled by their shared love for tokenizing real-world stuff. At first glance, they might seem similar, but they serve very different purposes.

It's like comparing apples and, well… tokenized apples. 🍎

Tokenized real apples (representing RWAs) tokenized twins of tangible assets you can hold, eat, and directly use. They have inherent value and utility.

Decentralized tokenized apple networks (representing DePIN projects) on the other hand, aren't about the apples themselves. Instead, they're about creating a new system for growing, distributing, and accessing apples. You're not just owning a piece of an apple orchard; you're participating in revolutionizing the entire apple industry.

In a DePIN 'apple' project, you might be incentivized to plant apple trees in underserved areas, or to create more efficient distribution networks. The tokens you receive aren't just representing ownership of apples, but are driving the creation and optimization of an entirely new apple ecosystem.

So while both deal with 'apples', one is about owning the asset, while the other is about building and improving the infrastructure around that asset.

Here are the key differences:

• Focus: RWA tokenizes existing assets; DePIN creates new infrastructure.
• Decentralization: RWA may have centralized management; DePIN aims for distributed control and operation.
• Network effects: DePIN often benefits from network growth; RWA value is typically independent of network size.

Let's play a little game, shall we?

We'll give you some project examples, and you try to guess whether they're DePIN, RWA, or DeFi. It's trickier than you might think!

Project 1: Plural Energy ⚡

Plural Energy is building a decentralized renewable energy investment platform. It allows individuals to invest in renewable energy projects and earn returns from the energy produced.

Our analysis to help you out: While Plural Energy involves real-world assets (energy infrastructure), it uses blockchain to decentralize investment and ownership. The energy production itself isn't decentralized, but the financing and profit distribution are.

What do you think — DePIN or RWA?

Project 2: Andrena 📶

Andrena is creating a decentralized internet service provider network. They're using blockchain technology to incentivize individuals and businesses to become micro-ISPs, providing internet connectivity to their local communities.

Our analysis to help you out: Andrena is building new, decentralized physical infrastructure for internet connectivity. It uses token incentives to encourage network growth and has a clear demand-side focus (internet access).

What's your call… DePIN or RWA?

Project 3: Bitcoin 💰

You already know this.

Bitcoin, the original cryptocurrency, created a decentralized digital currency and payment network. While not typically considered in the DePIN conversation, it does involve a network of miners providing computational power to secure the network.

Our analysis to help you out: Bitcoin doesn't involve traditional physical infrastructure, but it does require a network of computers (miners) to function. It has elements of decentralized infrastructure but wasn't designed with the specific goals of DePIN in mind.

So, what's your verdict: DePIN or RWA?

Join our Twitter challenge for you all so we can hear YOUR thoughts.

Remember, the lines can be blurry, and there's often overlap between these categories. That's what makes this space so exciting – and sometimes confusing!

Case Studies

Let's look at some real-world examples to illustrate the differences between DePIN and its look-a-likes. The following projects are 100,000,000%, without-a-doubt, definitely DePIN.

1. Project 1: Helium
   • As of 2024, Helium has grown its network to more than 1,013,836 hotspots, providing coverage for countless IoT and mobile devices.
   • Helium Mobile added over 20,000 subscribers in December 2023 alone, demonstrating strong demand-side growth.
2. Project 2: Akash Network
   • Akash offers decentralized cloud computing at competitive prices. For instance, an A100 GPU costs $0.8/Hr on Akash compared to $5.12/Hr on Amazon AWS.
   • As of January 2024, Akash offers more than 8,900 CPUs, 171 GPUs, 45 terabytes of memory, and over 583 terabytes of storage.
3. Project 3: Hivemapper
   • By the end of 2023, Hivemapper had mapped over 112 million road kilometers, including more than 7.2 million unique road kilometers.
   • The network boasts 38,500 contributors across different countries, showing strong supply-side participation.

These examples demonstrate how true DePIN projects are creating new infrastructure, leveraging decentralized networks, and showing strong growth in both supply and demand sides.

DRNs vs PRNs

When we talk about DePIN, it's important to understand that the term encompasses a wide range of projects. 

These can be broadly categorized into two main types: Physical Resource Networks (PRNs) and Digital Resource Networks (DRNs). Both are crucial components of the DePIN ecosystem, each with its own unique characteristics and challenges.

PRNs focus on decentralizing tangible, real-world infrastructure. Good examples of these include…

• Helium: Providing decentralized wireless network coverage
• Hivemapper: Creating decentralized mapping infrastructure
• PowerLedger: Facilitating decentralized energy trading

PRNs have 3 distinct characteristics:

• Involve physical hardware distributed across various locations
• Often require geographical diversity for optimal functionality
• Address real-world infrastructure challenges

DRNs, on the other hand, decentralize digital resources and services. Here are three examples:

• Filecoin: Offering decentralized file storage
• Akash Network: Providing decentralized cloud computing
• Render Network: Enabling decentralized GPU rendering

Key characteristics of DRNs:

• Focus on digital resources like storage, computation, or bandwidth
• May not require the same level of geographical diversity as PRNs
• Address challenges in the digital realm, often related to data and computation

Despite their differences, both PRNs and DRNs share core DePIN principles:

1. Utilization of blockchain technology for decentralized control
2. Token-based incentives to drive participation and network growth
3. Aim to solve real-world or digital problems more efficiently than centralized alternatives

As noted in the Compound VC article, what truly aligns these diverse business models is "the usage of crypto incentives to drive real-world behaviors." 

Whether physical or digital, DePIN projects leverage the power of decentralization and tokenomics to create more efficient, resilient, and accessible infrastructure networks.

By understanding both PRNs and DRNs, we get a comprehensive view of the DePIN landscape. These two categories, working in tandem, are reshaping how we think about and interact with both physical and digital infrastructure in our increasingly connected world.

The Convergence of DePIN, RWAs, and Decentralized AI

The lines between DePIN, Real World Assets (RWAs), and Decentralized AI are increasingly blurring, creating new opportunities and challenges.

For RWA and DePIN Convergence in particular, FMG's 2024 report highlights that "DePIN introduces a novel method for issuing Real World Asset (RWA) assets. Its interaction with DeFi on the blockchain will pave the way for more diverse and innovative engagement models between DePIN and RWA assets."

For instance, projects like DIMO are tokenizing vehicle data, which can be used as collateral in DeFi platforms, bridging the gap between physical assets, data, and financial applications.

In the world of Decentralized AI and DePIN convergence, the report also emphasizes the growing importance of AI in the DePIN space. Projects like Bittensor are leading the charge in decentralized AI, creating a marketplace for AI models and computations.

Interesting, isn’t it? 💡

We want to know YOUR thoughts on a few of these riddles:

1. How do we define the boundaries between DePIN, RWA, and Decentralized AI projects?
2. What unique value propositions emerge at the intersection of these categories?
3. How might regulatory approaches differ for projects that span multiple categories?

We invite you to join the discussion on our Twitter. Share your thoughts on how these convergences might shape the future of decentralized technologies!

Knock knock! It’s YOUR turn to define DePIN

Sorry to pass the mic like this, but it's your turn. 🎤

We want to hear what YOU think DePIN is all about.

Join us now on Hotspotty's Twitter! 🐤

Don't be shy – jump into the replies and share your thoughts. Are we missing something crucial in our definition? Do you have a unique perspective on what makes a true DePIN project? 

Your input could shape the future of how we understand and evaluate DePIN projects, so make those keyboards clack!

Wrapping up our DePIN decoding adventure

Phew! We've covered a lot of ground, haven't we?

From expert opinions to community insights, we've attempted to decode the DePIN dilemma. 🕵️‍♀️

As we look to the future, FMG's 2024 report highlights some exciting trends:

• The rise of Edge AI and Web3 phones as significant opportunities in the DePIN space
• The integration of DePIN with Real World Assets (RWA) as a new frontier
• The potential for breakthroughs in DePIN middleware
• The evolution of miner services towards borderless hardware miner guilds

At DePIN Hub, we're committed to bringing some standardization to this wild west of decentralized infrastructure. But we can't do it alone. Your insights, critiques, and perspectives are crucial in shaping this evolving landscape.

Stay tuned for our next installment, where we'll dive into spotting a healthy DePIN project. Trust us, you won't want to miss it – it might just save you from a facepalm moment. 🤦‍♂️

Remember, in the world of DePIN, today's definition might be tomorrow's old news. So keep questioning, keep learning, and most importantly, keep joining the conversation.

Who knows? The next big DePIN innovation might just come from you. 😉