The Basic Logic and Legal Risks of the DePIN Track

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

In this context, the decentralized physical infrastructure network ( DePIN ) has emerged, providing a new perspective for the interaction between the real world and the virtual world. According to data statistics, the current valuation of the entire sector is approximately $9 billion, and it is expected to grow to $3.5 trillion by 2028. From the early Arweave and Filecoin, to Helium which rose during the last bull market, as well as the recently notable Render Network, all belong to this field.

DePIN, as one of the most promising tracks in the Web3.0 field that is likely to create economic value in the short term, has gained significant attention in recent years. This article will explore the fundamental logic, development prospects, and potential legal risks of the DePIN track.

The Basic Logic of the DePIN Track

DePIN( Decentralized Physical Infrastructure Network) incentivizes individuals and businesses globally to build the infrastructure of the physical world(, such as WiFi, storage, batteries, etc., in a decentralized manner through blockchain technology and token rewards. The core idea is that users earn returns by providing services through renting out hardware, such as WiFi hotspots in wireless networks or home solar panels in energy networks. These networks are built in a decentralized manner by contributors from around the world. In return, participants receive economic compensation and network ownership through token incentives.

This concept was born in 2022 when a blockchain data research institution initiated an investigation to solicit a formal name for "Web3 Physical Infrastructure." Ultimately, DePIN won in the voting and began to attract attention.

The biggest difference from traditional networks is that DePIN uses tokens to initiate the deployment of physical infrastructure, building and operating real-world physical infrastructure and hardware networks in a permissionless, trustless, and programmable manner through blockchain technology, thereby creating large-scale network effects and unlocking various innovative applications 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 globally distributed individuals to collaboratively build, maintain, and operate a shared physical infrastructure network without a single centralized entity. The ecosystem includes cloud networks ) VPN, CDN, file storage, databases (, 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, thereby acquiring corresponding assets ) mainly in the form of crypto assets (. These crypto assets, as rewards, can then be used to access the infrastructure or conduct transactions.

From a working principle perspective, DePIN is based on decentralized and blockchain technology. Firstly, DePIN relies on individual hardware devices, known as nodes. These nodes can be personal computers, dedicated servers, or IoT devices. Together, these devices form a decentralized network with no central nodes or authoritative institutions. 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 that records all transactions and interactions on the network, ensuring that all nodes adhere to the network rules.

In addition, to encourage node participation and resource contribution, DePIN employs an incentive mechanism. This mechanism is typically based on cryptocurrency, and nodes can earn rewards by participating in the network and contributing resources. A sufficient supply of resources will create price competition; ample resources and good prices will stimulate demand, and with demand, tokens will have the ability to capture value, better driving price increases and attracting more resource providers.

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The Development Prospects of the DePIN Track

) Applications of DePIN

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

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

Reports predict that the total potential market size of the DePIN sector is approximately $2.2 trillion and may reach $3.5 trillion by 2028.

In addition to outstanding performance in the secondary market, DePIN is gradually gaining favor from the market and 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 financing. Moreover, several DePIN-related products received funding awards in the eighth Hackathon event announced by Solana.

The top 10 companies in the DePIN ranking include the "server network" category of digital asset network ###DRN( such as Filecoin, Arweave, Sia, and Storj, belonging to the "wireless network" category of physical resource network )PRN( like Helium and Pollen Mobile, the "sensor network" Hivemapper and DIMO, and the "energy network" React Protocol and Arkreen. Below is a brief introduction to the representative projects in the current DePIN track:

Filecoin & Arweave

In the traditional data storage field, the high pricing and low resource utilization of centralized cloud storage create dilemmas for users and enterprises, and there are also risks such as data leakage. Filecoin and Arweave break the deadlock by offering lower prices through decentralized storage methods, providing users with different services.

Filecoin is a decentralized distributed storage network that incentivizes users to provide storage space through tokens. Currently, the storage space has reached 24EiB. Filecoin is built on the IPFS protocol and supports smart contracts, allowing developers to build various storage-based applications.

Filecoin has established partnerships with multiple well-known blockchain projects and enterprises, such as NFT.Storage, which uses Filecoin to provide decentralized storage solutions for NFT content and metadata, and the Shoah Foundation and the Internet Archive, which utilize Filecoin for content backup. The world's largest NFT marketplace, OpenSea, also uses Filecoin for NFT metadata storage.

Arweave is a decentralized permanent storage network. Once data is uploaded to the Arweave network, it will be permanently stored on the blockchain. Arweave uses a "Proof of Access" consensus mechanism to prove the accessibility of data on the network.

Render Network

The business of Render Network is to match computing power with artistic rendering needs. The role of computing power suppliers is called node operators, and currently, there are 326 Render node operators providing computing power.

Render Network was originally deployed on the Polygon network. In March 2023, the community decided to migrate to Solana and build the BME) Burn and Mint Equilibrium( model through a proposal. The BME model describes an ideal process where a relative balance is maintained between the burned tokens and the minted tokens in a specific consumption market.

In this model, users purchase GPU rendering services using RNDR tokens, and the tokens used upon task completion will be destroyed, while the rewards for service providers will be issued in newly minted tokens. RNDR tokens have more consumption scenarios throughout the economy, and the supply and demand relationship of the tokens can be balanced and adjusted according to the algorithm between the destruction and minting of tokens. The business model has also evolved from a simple C2C to a more managed B2C model.

In November 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 well-known DePIN projects, serving as a decentralized wireless network protocol that incentivizes users to deploy gateways and promote a global network based on LoRaWan technology. Initially built on its own Layer 1 network, it faced adoption challenges and completed its migration to the Solana network in April 2023, hoping to reach a larger user base and liquidity while fully leveraging 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 data transmission fees on the network is by burning $HNT. Currently, its market capitalization is $1.29 billion, and it was delisted from spot trading pairs by Binance 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 5G hotspot business of Helium Mobile earns $Mobile; while $IOT is used to reward nodes that focus on running the Internet of Things. $HNT remains the primary 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 collect data by installing Hivemapper's dashcams, earning $HONEY tokens as rewards. The issuance and settlement of tokens occur on the Solana network. The dashcams in Hivemapper are similar to mining machines, connecting with the Hivemapper application to upload street view images as data.

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

Hivemapper's revenue comes from two parts: selling dashcams and selling map data APIs. Each dashcam is priced at $300 ) for the standard version and $649 ( for the advanced version, with a conservative estimate of over $2 million in annual revenue. The price of the $Honey token cannot be too low, otherwise the demand for dashcams will decrease, the maps cannot be effectively expanded, and the entire business will be stuck in a deadlock. The token has not yet been listed on mainstream exchanges and is primarily traded on Orca, with a high FDV currently at $2.4 billion, but the circulation is only 2.6%.

Tekkon

Tekkon is a Japanese project where users can take photos of local infrastructure, such as telephone poles and manhole covers, or report damaged infrastructure to earn token rewards while helping to improve their community.

Whole Earth Coin)WEC( is the reward token of Tekkon and can be exchanged for cash on Line Pay in Japan. Its initial issuance is 300 million pieces, with no maximum limit. When the initial tokens run out, if the number of users continues to increase, the system will issue new tokens to reward users. Of the initial 300 million tokens, 20% is allocated for ecosystem development, 20% for Fix and Earn within the app, 25% for public sales, 15% for private placement, and the final 20% belongs to the team.

Tekkon is committed to empowering the token with more functionalities, forming a complete ecological flywheel, such as public utility companies using WEC to purchase infrastructure photo data, burning Tekkon tokens or further rewarding infrastructure hunters, thereby attracting more public utility companies and others to participate. This indicates that Tekkon plans to establish a more complete and sustainable ecosystem.

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Advantages and Prospects of DePIN

The mechanisms of various DePIN projects are essentially about resource integration: incentivizing users to share resources through tokens, allowing resources to flow efficiently to the demand side. Compared to traditional centralized infrastructure, DePIN is akin to DeFi in relation to CeFi, in some respects weakening the role of intermediaries and facilitating smoother transactions between supply and demand.

) 1. Breaking the price monopoly

In the field of infrastructure construction, the issue of oligopolistic monopoly in centralized markets has been significantly present. Especially in traditional storage and computing sectors, this is a clearly capital-intensive industry, where giants like AWS, Azure, and Google Cloud dominate prices, and users often lack bargaining power, being forced to accept high prices and even lacking real choices.

However, the emergence of DePIN has brought new vitality to this situation. The mechanisms presented by the DePIN project essentially represent a revolutionary market change. Its decentralized nature means that the barriers to entry for businesses will be significantly lowered, no