In 2023, the DePIN ecosystem expanded to encompass over 650 projects, with its total market capitalization exceeding $13.6 billion. The DePIN sector began to develop just a few years ago, yet it has already become one of the main cryptocurrency trends of 2024.
DePIN combines decentralized systems where participants offer the resources of their physical devices for monetization. These solutions enable benefits from unused computing power and are more advantageous than their centralized counterparts.
Centralized systems monopolize computational power, increasing the cost of services in this sector. Moreover, such an approach is considered less scalable and secure.
Differences between DePIN and traditional systems:
DePIN operates on a "sharing economy" model, similar to Uber. Drivers offer their physical resources (cars) and transportation services, for which they are compensated. The Uber app acts as an intermediary, connecting both parties and taking a commission.
An example of PRN is the NATIX Network. Network users share data from their smartphones' cameras, dashcams, drones, and other devices. NATIX monetizes this data by supporting applications that operate in real-time, such as traffic trackers, hazardous road segments, street pollution, etc.
Centralized systems monopolize computational power, increasing the cost of services in this sector. Moreover, such an approach is considered less scalable and secure.
Differences between DePIN and traditional systems:
- Capital: Centralized systems require millions of dollars in initial investments, whereas DePIN utilizes crowdsourcing (users collectively provide resources).
- Operational Expenses: Bureaucracy, marketing, maintenance, and other costs reduce the profitability of centralized projects. In DePIN, administrative expenses are reduced through the use of blockchain technology.
- Security: Centralized systems have a single point of failure, unlike DePIN networks, where security is distributed among all infrastructure participants.
- Innovation: The rate of development in open, permissionless ecosystems is higher than in centralized companies.
DePIN operates on a "sharing economy" model, similar to Uber. Drivers offer their physical resources (cars) and transportation services, for which they are compensated. The Uber app acts as an intermediary, connecting both parties and taking a commission.
Principles of the Sharing Economy. Source: geospatialworld.net
The goal of DePIN is to eliminate intermediaries, offering a more profitable and secure platform for contractors and clients to interact. In the context of taxi services, the market has a DePIN alternative called Drife.
DePIN is divided into two categories based on the type of resources:
- Physical Resource Networks (PRN): Providers offer equipment tied to a location, used to offer real goods and services, such as mobile communication and location data.
- Digital Resource Networks (DRN): Providers deploy equipment whose power is used for interchangeable digital resources, like computing, cloud storage, and bandwidth.
An example of PRN is the NATIX Network. Network users share data from their smartphones' cameras, dashcams, drones, and other devices. NATIX monetizes this data by supporting applications that operate in real-time, such as traffic trackers, hazardous road segments, street pollution, etc.
DePIN Projects by Categories. Source: messari.io
An example of DRN is Filecoin, a decentralized data storage protocol. By the end of January 2024, the cost of one terabyte of cloud storage on Filecoin was only $0.19 per month, which is 20 times lower than centralized Google Drive.
The Origin of DePIN
In November 2021, IoTeX became the first company to propose a name for this direction, coining "MachineFi" by merging "machines" and "DeFi". Subsequently, Multicoin suggested PoPW (Proof of Physical Work), Lattice introduced TIPIN (Token-Incentivized Physical Infrastructure Networks), and Borderless Capital came up with EdgeFi.
It was only a year after the first proposal that DePIN was introduced. The community reached a consensus through a vote conducted on the X account (formerly Twitter) of the analytics platform Messari.
Disagreements concluded: today, the term “DePIN” is mentioned in various reports and used to describe a category of projects on CoinMarketCap and CoinGecko.
Four components of DePIN operation:
DePIN utilizes a flywheel model. This concept demonstrates how the growth of one aspect of the system can stimulate the growth of another. Under ideal conditions, such an approach promotes the system's expansion without external intervention from the creators.
Ultimately, this approach attracts not only new network participants but also investors. Additionally, high demand for the token increases its market value, further stimulating a flow of new supply.
Major DePIN projects:
While cloud storage and data processing are the most popular directions in DePIN, there are also more niche projects in the market. One such project is Silencio.
The report also mentions the scaling of DePIN in the Asian region. Messari expects that within the next year, projects in Asia will emerge that will rank among the top ten in the entire sector.
How Does DePIN Work?
The operation of a DePIN system is based on the interaction between supply and demand. Projects implementing such solutions provide the necessary tools for this purpose.
Four components of DePIN operation:
- Physical Infrastructure: The network components of DePIN used for resource generation. For example, access points for wireless networks, servers for cloud storage, and solar stations for electricity.
- Off-chain Computing Infrastructure: Intermediate software that connects the real world with the blockchain. It is used to interpret data collected by physical infrastructure.
- Blockchain: A decentralized ledger of data. Payment for services and receipt of rewards are conducted on the blockchain.
- Token: The internal currency used for monetization and development of the network.
DePIN utilizes a flywheel model. This concept demonstrates how the growth of one aspect of the system can stimulate the growth of another. Under ideal conditions, such an approach promotes the system's expansion without external intervention from the creators.
The DePIN Flywheel. Source: messari.io
The first stage of the DePIN flywheel involves the provision of physical infrastructure by contractors. Then, clients pay for these resources using tokens, stimulating an increase in supply and ecosystem development.
Ultimately, this approach attracts not only new network participants but also investors. Additionally, high demand for the token increases its market value, further stimulating a flow of new supply.
Examples of DePIN Applications
In 2023, the DePIN ecosystem grew to encompass more than 650 projects. These cover six sub-sectors, including computing, artificial intelligence, wireless communication, sensors, energy, and services.
Major DePIN projects:
- Arweave: A data storage platform.
- Render: A project offering media and other content rendering services.
- Helium: A decentralized network for Internet of Things (IoT) devices.
While cloud storage and data processing are the most popular directions in DePIN, there are also more niche projects in the market. One such project is Silencio.
Silencio Network provides data on noise pollution levels. It gathers information from the microphones of users connected to the network and then monetizes it for interested parties. Silencio aids developers in building homes, restaurateurs in opening establishments, and families in choosing living areas.
The Future of DePIN
The development of DePIN projects coincided with a bear market cycle that began in 2022. Therefore, it is likely that the true potential of this sector is yet to be unveiled, and we are currently at the stage of its inception.
According to a Messari report, DePIN could evolve in 2024 through the following directions:
- Meme Coins: The market capitalization of the top eight meme coins is twice that of the top eight projects in the DePIN sector. Meme coins could be used to draw attention to DePIN.
- ZK Solutions: Integrating DePIN with zk-SNARKS or other zk-technologies will reduce transaction costs and make certain parts of the network anonymous.
- Gaming: Gamification is one of the best ways to introduce users to technology. Moreover, integrating DePIN into the gaming industry will accelerate the development of the GameFi sector itself.
The report also mentions the scaling of DePIN in the Asian region. Messari expects that within the next year, projects in Asia will emerge that will rank among the top ten in the entire sector.
