VeradiVerdict - Issue #276
DePIN: Decentralized Hardware Meets the New Data Economy
TLDR: DePIN is the gradual merging of a decentralized hardware layer with a community-owned new data economy.
Cover Image Source.
DePIN, or Decentralized Physical Infrastructure Networks, has been one of the rising trends over this past year . The core promise of DePIN is to bring the principles of blockchain applications – as community owned, publicly verifiable, and incentive-aligned – to the world of physical “things” and infrastructure, whether that is WiFi stations, security cameras, or computation servers. Within this article, we will look at some of the core principles of DePIN, before exploring some of the most representative DePIN projects, and finally discussing some of DePIN’s wider implications on the blockchain space.
DePIN encompasses a broad variety of projects. From decentralized storage networks such as Arweave and Filecoin to decentralized WiFi connectivity such as Helium, to community-sourced software applications such as Hivemapper, all of these have been characterized as “DePIN”. Messari makes this observation in their seminal DePIN report in January 2023, which categorizes DePIN into 4 primary sectors: decentralized server, wireless, sensor, and energy networks .
Source: Messari . Retrieved Nov 11, 2023.
From the projects and sectors that Messari delineates, we can see that the original definition of DePIN leans heavily into the “physical” nature of projects – the physical use of sensors, servers, and routers to create a decentralized Internet stack from the hardware layer upwards. Since then, however, this common notion of DePIN has gradually broadened to include more consumer-facing applications, such as TRIP which aims to build a “decentralized Uber” . This therefore raises the question: how do we begin to conceptualize what “DePIN” refers to?
Our first task, therefore, is to notice the conceptual similarities between these broad range of projects, in both the original Messari report as well as how this term has gradually evolved. Many of these projects share several similarities, including collective ownership, distributed infrastructure cost, gradually expanding economies of scale as more users enter the ecosystem . Indeed, this can be summarized in Messari’s DePIN flywheel, explaining how this is facilitated through token incentives.
Source: Messari . Retrieved Nov 11, 2023.
The DePIN flywheel above was originally conceived only to encompass “physical infrastructure” networks, such as Filecoin and Helium, where users provide resources for the network (disk space, or WiFi connectivity), in return receive token rewards, and in turn allowing the network to have more capacity and attract more users  .
However, this flywheel is not limited to hardware infrastructure; there is also an analogous argument for data infrastructure. This would encompass projects’ whose central focus is on the collection and coordination of consumer data, using the blockchain and tokens as a common interface to coordinate a new data-based economy. Examples of this would include both consumer-facing applications, such as the “sensor network projects” that Messari notes and projects like a “decentralized Uber,” as well as potentially enterprise-facing use-cases of blockchain in supply chain or logistics management (although here, there would be much less focus on the financialization of the token).
Thus, one possible way to conceptualize DePIN as a trend may be the merging of a decentralized hardware layer with a community-owned new data economy.
Case Studies in DePIN
Given this general characterization of DePIN, we can now explore some of the most characteristic projects within this sector .
Helium is one of the oldest and most prominent DePIN projects, starting in 2013 as a company aiming to expand broadband infrastructure through having users deploy LoRa gateways in a decentralized fashion . In 2017, the network decided to capture the momentum around cryptocurrency and begin offering cryptocurrency payments through its own L1 blockchain network .
Over the years, this approach has made Helium not only one of the poster childs of DePIN, but more broadly of the crypto industry . Many dubbed it the “People’s Network,” as it was a major project where one could clearly see how a token could be used to incentivize socially beneficial behavior . However, as time went on, both the Helium network and the protocol suffered from liquidity and adoption issues, and weekly revenues for the network have been facing a steady decline . Critics have also pointed out the use-case for the network has been overblown, and that the incentives are not sustainable .
Data retrieved from Coinmarketcap for Feb 2022-March 2023, Accessed Nov 2023. 
In April 2023, the Helium completed its transition from its own L1 blockchain to become an application on Solana , a move that it hopes would enhance coverage and liquidity of its users, as well as leverage Solana’s high transaction throughput to scale .
This example of Helium thus highlights both some of the key opportunities and risks within the DePIN space. Tokens can be extremely effective in kickstarting behavior for real-world use cases, yet it is quite difficult to maintain sufficient justification and levels of interest over extended periods of time. Moreover, as L1s and L2s gradually consolidate, it is harder to justify an argument to run an independent chain rather than tap into the scalability, infrastructure, and liquidity of another more broadly adopted chain.
Hivemapper is another prominent DePIN project on the Solana network that seeks to create a decentralized “Google Maps” . Essentially, the project’s users install dashcams in their cars and share live footage with Hivemapper to receive HONEY tokens in return . The company then uses all of this distributed data to build up a decentralized map with an API interface for applications .
Source: Hivemapper Dashboard, as of Nov 11 2023: https://hivemapper.com/explorer
The key advantage that Hivemapper holds over Google Maps is that as a decentralized, token-incentivized network, it is able to complete the token mapping process in a far cheaper and faster way. In turn, Hivemapper is able to offer cheaper APIs as a way to “break” Google Maps’ monopoly .
Hivemapper highlights the core “flywheel” principle of DePIN, where we use a token to carry out a distributed, decentralized task in an efficient way. Interestingly, within the original Messari report (Jan 2023), Messari characterizes Hivemapper as a prime example of a “sensor network” . However, one could argue that this does not adequately capture Hivemapper’s true innovation.
Indeed, Hivemapper’s core competitiveness is in the data infrastructure that it gathers – decentralized data from its network of users – then monetizing that data infrastructure through providing an API access. Granted, the project uses sensors and dashcams to gather that data; but this is just a contingency. We can imagine that the same overall model might hold true even if this data was not generated by a “sensor network,” but through other activities, such as browsing (like the Brave Browser), or even generated by users interacting with artificial intelligence. DePIN uses token incentives to generate mass data through a decentralized way (such as through a decentralized hardware network), thus creating a new data economy.
This importance of a new data economy is more evident in the case of Teleport, a decentralized Uber rival on Solana . With its recent app launch (Oct 2023) and participation at Solana’s Breakpoint conference , Teleport is a crucial part of “The Rideshare Protocol” (TRIP) which seeks to create a fair and independent marketplace without an intermediary or centralized frontend taking a significant (often upwards of 40%) portion of a ride’s revenue .
Although the adoption and staying power of Teleport and TRIP remains to be seen, Teleport is an important case study in showing the importance of an open and decentralized “data marketplace” being a core part of DePIN projects’ value propositions.
IoTeX is another key player within the DePIN space that highlights a different dimension of how blockchain technologies coupled with decentralized hardware devices can have social benefits, namely, the dimension of security and privacy . IoTeX’s flagship offering has been the Ucam, which is a home security camera that only the user themselves can access, with data secured through the cryptographic and immutable properties of the blockchain .
As the overall trend of DePIN has grown within the past year, IoTeX aims to move beyond building particular smart-devices to building an “open network” of IoT devices and popularize the concept of “MachineFi” . However, as the tale of Helium has shown, under the overall backdrop of a consolidating L1 scene, it is increasingly difficult to make the case for an independent and specialized network and bootstrap the liquidity in such an ecosystem, even if DePIN presents a strong consumer use case and application layer for the blockchain.
Broader Ecosystem Impact
The growth of DePIN over the past year has considerable impact and implications on the overall blockchain ecosystem. One of the most important reasons for this is that DePIN is a consumer-facing application layer, much like DeFi, gaming, and social, that has the potential for mass adoption and the potential to drive consumer demand for an underlying chain or ecosystem.
As shown through the examples above, Solana seems to be a chain with significant activity in the DePIN space, and there are other actors such as IoTeX that seek to build novel, alternate solutions customized for DePIN. As an application layer that interacts with mass users and IoT devices, there will likely be a demand for highly performant and composable chains – ones that can carry the load demand of mass consumers, as well as ones that are composable in general-purpose languages such as Rust and WebAssembly that can be easily run on IoT devices.
Moreover, the growth of the DePIN trend also has a downstream effect on decentralized governance. As it is fairly customary to launch a decentralized autonomous organization (DAO) coordinated by token-based voting after launching a token, many prominent DePIN projects seem to have DAO governance on their roadmaps .
Most of the most notable DAOs right now, such as Uniswap, Compound, and MakerDAO, however, deal almost exclusively with digital or financialized assets. But as DePIN projects mature and transition their gradually handoff their governance to DAOs, there will be an increasing demand for DAOs to coordinate the purchase, use, and maintenance of physical devices, whether that be servers, sensors, or hard drives. Thus, DePIN could potentially be a trend that expand DAOs’ governance mandates from digital to physical assets, ultimately creating tasks that may require DAOs to operate and behave much more like traditional corporations. And in the long run, this could be a turning point marking “web3’s” adoption in “the real world” .
- Paul Veradittakit
 Filecoin: https://medium.com/@sharomiumar/a-simplified-economic-analysis-on-filecoin-tokenomics-9ac528610fcb
 Helium’s tokenomics: https://tokenomicshub.xyz/helium
 See an overview of various DePIN projects here: https://coinmarketcap.com/academy/article/a-deep-dive-into-depin-decentralized-physical-infrastructure
 See mention of Helium in Matt Levine’s “The Crypto Story”: https://www.bloomberg.com/features/2022-the-crypto-story/
 See Liron Shapira on Helium:
 Helium’s Migration to Solana: https://decrypt.co/137257/helium-completes-solana-migration-minting-nearly-1m-nfts-in-the-process
 See launch announcement:
 TRIP whitepaper:
 See MachineFi whitepaper: https://cdn.iotex.io/machinefi/IoTeX%202.0.pdf
 For example, see Helium governance documentation: https://docs.helium.com/governance/phase-3/
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Hi, I’m Paul Veradittakit, a Managing Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing in blockchain companies and cryptocurrencies. I’ve been in the industry since 2014, and the firm invests in equity, early stage token projects, and liquid cryptocurrencies on exchanges. I focus on early-stage investments and share my thoughts on what’s going on in the industry in this weekly newsletter.
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