DePIN: A New Industrial Revolution

Author: Erik Lowe, Head of Content at Pantera; Cosmo Jiang, Portfolio Manager at Pantera; Eric Wallach, Investment Analyst at Pantera; Translated by: Jinse Finance Xiaozou

The Industrial Revolution was a transformative era that increased productivity through groundbreaking large-scale machine manufacturing, reshaping economic forms. During the Industrial Revolution, there was a shift from primarily localized agricultural economies to urban industrial centers, with social centralization being an inevitable outcome.

However, while centralized production has improved efficiency, it has also brought challenges. Factories are easily susceptible to catastrophic events such as fires or other single points of failure (like mechanical breakdowns).

Although we have undergone a series of "industrial revolutions" driven by advancements in new technologies over the past few centuries, modern companies still face numerous core issues related to the concentration of resources and human capital. Moreover, as management becomes increasingly large, regulatory processes are also becoming more burdensome, leading to higher costs and friction in establishing large-scale businesses.

However, we now believe that a new phase is emerging, which is: reimagining the composition and management of businesses, services, and networks. Decentralized Physical Infrastructure Networks (DePIN) are expected to usher in a new era of productivity, but it is not centralized forces that drive this era, but decentralized forces.

1、What is DePIN?

*"Decentralized Physical Infrastructure Networks (DePIN) use token rewards to incentivize hardware-based network deployments and the completion of real-world tasks." — *Messari classification system

The core of DePIN is a decentralized market that connects resource providers with buyers. Unlike the typical traditional model (where one company is responsible for resource production), the providers are a network made up of many independent operators. These operators are incentivized through economic rewards such as tokens or fees, and are willing to contribute their resources (usually in the form of physical hardware), aligning their interests with the success and development of the DePIN ecosystem.

DePIN is highly regarded for its potential to revolutionize physical infrastructure networks across a range of industries, including cloud computing, wireless networks, and cloud storage. For example, the Helium Network is a decentralized wireless infrastructure network for IoT (Internet of Things) devices that allows operators to deploy wireless hardware to earn Helium tokens, which are a reward for expanding network coverage.

A key distinction between DePIN and its centralized counterparts lies in who the stakeholders are. The value of DePIN does not flow to rent-seeking intermediaries or companies, but is instead allocated to the operators who jointly own and operate the network.

Many DePIN projects are not short of innovative practices, which are very interesting, but the question also arises: "If my existing service is running well, then what additional value will DePIN provide me?"

2、What are the advantages of DePIN?

The benefits of DePIN can be summarized into the following key advantages:

• Reliable, resilient, and secure - a sufficient number of node operators are decentralizedly distributed, ensuring more consistent network uptime and resistance to the inherent single points of failure in centralized physical systems. Security or fraud risks associated with closed systems can be mitigated through a transparent, immutable, and auditable blockchain network.
• User affordability - Since DePIN projects are operated by a network of operators, the impact of operational costs from centralized operating companies, such as physical maintenance and legal fees, on pricing is minimal, allowing the saved costs to be passed on to users.
• Community-driven decision-making - The decisions made by a few corporate executives may not always align with the best interests of users and/or operators; in some cases, their decisions are primarily based on self-interest. In DePIN, decisions are made by the token holder community, which may promote healthier ecosystem development and allow network participants to benefit in a fairer manner.
• Gig economy growth - The nature of work has changed in recent years, with more and more people wanting the freedom of independent work or seeking sources of passive income. The DePIN network often leverages the potential labor supply, as well as someone's ability to do more without affecting their established daily job - for example, someone might deliver a few takeout orders on their way home from work.
• Better products and services - a powerful DePIN flywheel has the potential to create better products than centralized competitors. As user demand increases, growth is captured by tokens with strong value accumulation mechanisms. These tokens, in turn, incentivize more operators to contribute, further improving products and attracting more users. This is the DePIN flywheel.

We believe that DePIN has a bright future, but we also know that it is not without challenges. Issues such as regulatory hurdles, potential security concerns, and reliance on widespread adoption are all potential obstacles. However, its potential benefits make it a concept worth exploring.

3、DePIN Project Case Study

Below we will share two case studies on cutting-edge projects in the DePIN revolution.

(1)GEODNET

GEODNET is building the world's largest decentralized Real Time Kinematics (RTK) network, supported by a community of satellite miners, to enable large-scale IoT. It is disrupting existing businesses by establishing an affordable global decentralized real-time data marketplace.

The following is our overall investment theory:

• Product Differentiation: GEODNET's RTK network can provide better GPS data (with an accuracy of 1 centimeter, compared to the standard GPS accuracy of 2 meters), and it is significantly cheaper (over 10 times cheaper). Its global community network allows for faster expansion.
• Huge Market: The global satellite navigation system (GNSS) is a market with a scale exceeding $200 billion. Public companies like Trimble (market value of $15 billion) and Hexagon (market value of $30 billion) have revenues of $10 billion and an EBITDA of $3 billion.
• Growth Flywheel: By purchasing and installing GNSS base stations to contribute to the network, miners can earn GEOD tokens. These incentives have led to the addition of 5,500 devices to the GEODNET network, more than any of its large publicly listed competitors.
• Development momentum: In less than three years, GEODNET's recurring revenue has reached approximately one million dollars, and the number of network miners has exceeded 7,600, catching up with or surpassing the network scale of publicly listed companies.
• Value Accumulation: 80% of GEODNET revenue is used to purchase and burn GEOD tokens.

(2) Hivemapper

Hivemapper is a decentralized mapping network that uses cryptocurrency incentives to crowdsource high-quality, up-to-date global map data. Hivemapper aims to disrupt the digital mapping market dominated by centralized tech giants by leveraging community contributions to provide more current, comprehensive, and cost-effective map data.

The following is our overall investment theory:

• Long-term trend: The digital map market is rapidly growing due to the increasing demand from enterprises, logistics, and emerging advanced driver assistance systems (ADAS) or autonomous driving, and is expected to reach $37 billion by 2026.
• Competitive Advantage: Hivemapper's crowdsourced model enables map data updates to be 20-100 times faster, providing a significant cost advantage compared to traditional surveying methods of competitors (for example, the cost per contributor is about $300-550, while the cost for each Google Maps tool is $500,000).
• Key achievements: Hivemapper has nearly 150,000 contributors who have mapped over 14.38 million kilometers of non-overlapping roads, accounting for 24% of the world's non-overlapping roads, and is 5-6 times faster than Google Maps. The network has also secured multiple enterprise clients, which is reflected in its on-chain revenue.
• Catalyst: This year, the Hivemapper Bee dashcam has significantly improved data quality and user experience. The adoption of ADAS is increasing, the number of autonomous vehicles is growing, and the new EU regulations requiring vehicles to be equipped with intelligent speed assistance systems are all long-term drivers of the demand for updated and more detailed map data.
• Main risks: competition from large established enterprises, regulatory challenges in cross-jurisdictional data collection, high initial costs for contributors in emerging markets, and execution risks in managing complex token reward systems.