In previous bull markets, we witnessed grand narratives and market enthusiasm ignited by concepts like “DeFi Summer,” “NFT & GameFi Summer,” and the “Metaverse.” As of 2024, this bull market may be halfway through, yet the central theme has yet to fully emerge. However, trends in AI and on-chain integration of real-world assets are becoming increasingly apparent, making Decentralized Physical Infrastructure Networks (DePIN) one of the potential breakout sectors. Messari estimates that the total addressable market size for the DePIN sector is around $9 billion, with potential growth to $3.5 trillion by 2028. Based on these figures, in the medium to long term, the construction of a full-platform DePIN solution faces an estimated 400-fold increase in potential market size.

In April 2024, IoTeX, a DePIN infrastructure network connecting the physical world, secured $50 million in funding. On July 18, the project released its 2.0 whitepaper, marking a strategic shift toward a modular future. Established in 2017, IoTeX is a long-standing public blockchain that found its niche in the competitive “thousand chains” landscape through its focus on secure hardware and computing. It integrates hardware with connectivity and a highly scalable technical architecture. In the new version, IoTeX 2.0 builds on its years of expertise and technical prowess to upgrade into a universal network architecture layer for the entire DePIN sector: a DePIN modular open platform. This upgrade enables lightweight development of DePIN applications while offering complete cross-ecosystem coordination and a broader DePIN Layer 2 ecosystem. These enhancements position IoTeX 2.0 to usher in a future “DePIN Summer.” This article explores the strategic upgrade of IoTeX 2.0 and its implications for the DePIN ecosystem.

The Necessity of Modularity for DePIN Networks

Although existing DePIN (Decentralized Physical Infrastructure Network) projects have demonstrated their unique advantages, achieving large-scale adoption and technological innovation to meet the future needs of the IoT ecosystem is still a long journey. Traditional single-chain architectures suffer from performance bottlenecks and scalability issues. Modularity addresses these by breaking down complex systems into multiple independent modules, with each module focusing on a specific function. These modules interact through standardized interfaces, overcoming the limitations of single-chain structures. For DePIN projects, modularity is particularly crucial, as they must handle large volumes of off-chain data and interact with the real world in complex ways. Serving as a bridge between the physical world and the blockchain, DePIN projects face much greater complexity compared to traditional, purely on-chain projects. This complexity is evident both in their technological demands and ecosystem development.

From a technical perspective, the core challenge of DePIN projects lies in effectively connecting Web 3.0 with the real world, which involves managing vast amounts of off-chain data, including collection, processing, analysis, recording, and verification. A single blockchain architecture cannot meet the complex needs of DePIN projects. Modularity addresses this by introducing middleware to handle off-chain data and interact with blockchains through standardized interfaces. For instance, a data processing module might use advanced data analytics and privacy-preserving techniques to ensure security and privacy during data transmission and storage. A verification module can use off-chain computational resources to validate data and then return the results to the blockchain, achieving efficient coordination between on-chain and off-chain processes.

From a structural standpoint, DePIN projects need to build complex physical infrastructure networks that include not only the blockchain itself but also a large number of off-chain devices and nodes. Modularity allows these infrastructure modules to be developed and optimized independently, enabling them to cooperate within the same system or be used by other blockchain platforms. For example, a storage module could be shared among multiple DePIN projects, creating a decentralized storage network, while a data analytics module could provide data mining and market insights to help different projects add value to their data. This open ecosystem aggregates big data from various DePIN projects, leveraging Web 3.0 technology to establish a decentralized, community-owned database. It facilitates data sharing and collaboration between projects, fostering technological innovation and the growth of the ecosystem.

IoTeX 2.0’s Strategic Shift Towards a Modular Future

Imagine a scenario where, through modular design, any developer with vision and a project idea can build their own DePIN project—not just those with large teams and significant funding. This is the future IoTeX 2.0 envisions: using modular design and an open platform to expand the IoTeX network into the world’s largest DePIN ecosystem. As officially described, the core philosophy of IoTeX 2.0 can be summarized as “DePIN for Everyone,” creating a “People’s DePIN.”

This modular future is not merely a dream. Compared to traditional single-chain architectures, modular design offers greater flexibility and scalability, providing developers with unprecedented freedom and space for innovation. IoTeX 2.0 has introduced the concept of a Modular Security Pool (MSP) to address the trust and security challenges posed by the complex technology stack in DePIN projects. DePIN projects require integration of both on-chain and off-chain components to establish a decentralized trust architecture, but this complexity can often lead to fragmentation in terms of security and decentralization.

With the MSP, IoTeX can integrate different DePIN Infrastructure Modules (DIMs), allowing these modules to collaborate with each other and form a unified trust layer. This approach allows new infrastructure modules to leverage the security of the underlying blockchain without needing to create their own security foundation from scratch. New DIMs can join the MSP through governance proposals, and once approved, these modules inherit the security and decentralization features of L1/L2 blockchains.

Overview of DePIN ecosystem technology stack, source: IoTeX

The DIM (Decentralized Infrastructure Module) layer primarily offers a complete solution ranging from data processing and validation to storage, enabling physical devices and real-world data to seamlessly integrate onto the blockchain. This design approach not only optimizes the system’s technical architecture but also enhances the overall value of the ecosystem. Additionally, the modular design of IoTeX 2.0 allows for better adaptation and integration of various decentralized applications (dApps), creating an open platform for developers and fostering innovation. The introduction of public products like DePINScan and the DePIN Liquidity Hub further provides DePIN projects with visibility, liquidity, and opportunities for user engagement.

Comparative Approach: IoTeX 2.0 vs. Other Modular Solutions

Compared to other modular solutions like Celestia, IoTeX 2.0 emphasizes practicality and operability. While Celestia, as a pioneer in modular blockchains, focuses on providing independent consensus and data availability layers, IoTeX 2.0 offers a more comprehensive technology solution tailored to the DePIN ecosystem through its modular security pool and the DIM layer. This enables developers to more easily create and manage DePIN projects.

By integrating modularity with middleware technology, IoTeX 2.0 achieves a seamless connection between physical devices and the blockchain, driving the coordinated development of the entire ecosystem. With the widespread adoption of modular designs, it is expected that the DePIN ecosystem will embrace more innovation and growth opportunities, laying a solid foundation for the Web 3.0 era. This shift is not just a technical upgrade of a single project but a significant strategic adjustment in the development of the DePIN ecosystem. Ultimately, whether led by IoTeX or not, the open ecosystem shaped by modular design is poised to become one of the great narratives that Web 3.0 brings to the world.

DIM: The Core Module for Building the DePIN Ecosystem

DIM is defined as a core component for building the DePIN ecosystem. Participants in the Modular Security Pool (MSP) include DIM builders, stakers, and validators. DIM builders are responsible for creating DePIN L2 and off-chain services for specific scenarios, such as data streams, storage, automation, and identity verification modules. They need to incentivize stakers to allocate their assets to their modules. Stakers delegate their assets to network participants in the MSP, contributing to network security and receiving a share of network fees and rewards. Validators run nodes for DIM builders, directly providing services to DePIN projects.

MSP Ecosystem Architecture (Source: IoTeX)

The design principles of MSP include open entry and exit, network effects, and decentralization, ensuring that stakers and DIM can freely enter and exit the market, reflecting the true value of services, and operating according to supply and demand. DIM provides a suite of modular functions covering the entire DePIN technology stack. These modules can be provided by the core IoTeX development team or contributed by partners and developers, ensuring their security and reliability. This open DIM layer offers DePIN projects the flexibility to create custom tech stacks, enabling them to address technical challenges at various stages and needs.

The IoTeX 2.0 whitepaper outlines several other core modules, including some that have already become tangible products, such as W3bstream, ioID, ioConnect, ioDDK, and DePINscan:

• W3bstream is the world’s first decentralized off-chain computing network using verifiable computing technology, designed to generate verifiable proofs for real-world activities and settle these proofs onto the blockchain. By offering multiple proof mechanisms, such as Zero-Knowledge Proofs (ZKP), Trusted Execution Environment (TEE), and Secure Multi-Party Computation (SMPC), W3bstream supports the off-chain computing needs of DePIN applications. This module significantly enhances the computational efficiency and data processing capabilities of DePIN projects.
• ioID is an on-chain and off-chain self-sovereign digital identity system, allowing people and machines to establish rich digital relationships and interact with each other without relying on centralized identity providers. By providing trustworthy identity verification and management services, this system offers secure and convenient identity recognition for all participants in the DePIN ecosystem.
• ioConnect is an SDK that enables various hardware to connect with W3bstream and different L1/L2 chains. Serving as a hardware abstraction layer, it can seamlessly operate on popular hardware platforms like Raspberry Pi, ESP32, and Arduino, simplifying the complexities of managing hardware. Essentially, devices powered by ioConnect can be easily integrated into various DePIN applications, functioning as multi-role miners. Similarly, ioDDK is an L2 SDK that allows DePIN builders to seamlessly launch their own sovereign blockchains while enjoying the security of IoTeX L1.
• DePINscan is an industry-specific explorer tool designed for the DePIN domain, part of the IoTeX’s suite of public product modules. It allows users, miners, and investors to monitor the growth of DePIN projects, discover early-stage initiatives, and access real-time data on device counts and project profiles. DePINscan brings transparency and visibility to the DePIN ecosystem, facilitating information flow and interaction between users and developers.

Economic Model Innovation Fuels Ecosystem Growth

The upgrade of the economic model is a key factor for IoTeX to unlock the unlimited potential of the DePIN ecosystem. Through IoTeX 2.0, the network expands and optimizes its economic model with a series of innovative mechanisms, such as inflation staking rewards, deflationary mechanisms, new utility programs, and growth incentives. This creates a dynamic and balanced economic system, providing sustained security and value accumulation for the IoTeX network.

IoTeX 2.0 introduces an inflation staking rewards mechanism, where newly issued IOTX tokens are distributed to nodes participating in consensus and to token holders who stake their IOTX. This mechanism aims to increase the staking rate and enhance network security. To counterbalance inflation within the network, IoTeX 2.0 also implements a deflationary burn mechanism based on network usage, similar to Ethereum’s EIP-1559. The new mechanism adjusts and reallocates the value for IOTX token holders as IoTeX L1 usage increases. When creating new on-chain identities via ioID, a certain amount of IOTX must be burned, with the burn rate dynamically adjusting according to the total number of registered devices. Additionally, direct interactions with DePIN Infrastructure Modules (DIM) also contribute to the deflationary burn of IOTX.

Moreover, on IoTeX L1, nodes must stake IOTX to earn the right to validate network transactions and participate in consensus, receiving IOTX rewards in return. When DApps deploy smart contracts or process transactions on IoTeX L1, IOTX is used as gas fees. Users can extend the security of IoTeX L1 to DIM by re-staking their IOTX through the MSP (Meta-Staking Program). DIM builders can incentivize IOTX stakers to provide security for their solutions, as DIMs are required to stake IOTX to join the MSP. This allows DIMs to draw security from the re-staked asset pool while offering services to DApps, L2 solutions, and users.

DePIN Flywheel and IOTX Token Utility (Source: IoTeX)

IoTeX’s economic flywheel design forms a strategy that is adaptable and scalable, helping to drive the IOTX token’s value upward in a stepwise spiral pattern. The core of this flywheel is to maintain dynamic balance and self-regulation of the economic system across different development stages.

For instance, during a phase of rapid ecosystem growth, the deployment of applications and projects significantly increases, bringing a surge in user numbers. With more users and projects joining the ecosystem, demand for IOTX rises, leading to a substantial increase in IOTX consumption. This increased consumption further drives the operation of the IOTX staking rewards and incentive mechanisms, attracting more developers and users into the ecosystem, forming a positive feedback loop. It functions like an accelerating spiral, driving the rapid expansion and prosperity of the entire ecosystem.

However, when the ecosystem reaches a more stable development phase, where application and project deployments stabilize and user growth slows down, the consumption of IOTX also steadies. During this time, the incentive mechanisms and inflation rate remain relatively stable, ensuring healthy ecosystem growth. In this mature phase, the slower pace of application deployments and a more gradual increase in user numbers lead to a stable IOTX consumption level. The staking rewards and incentive mechanisms adjust according to this stable consumption, maintaining a balanced level of incentives that supports the ecosystem’s health and sustainable development.

This mechanism allows IoTeX’s economic system to maintain flexibility and adaptability in different market environments. During rapid growth phases, the economic flywheel accelerates, driving swift ecosystem expansion; while in stable phases, the flywheel maintains steadiness, ensuring smooth ecosystem operation. Through this design, IoTeX achieves dynamic balance across varying market conditions, ensuring long-term sustainable growth. Additionally, IoTeX has introduced the Marshall DAO, which incentivizes users to vote in support of DePIN projects, further promoting the healthy development of the ecosystem. The introduction of the Marshall DAO enhances community engagement and provides robust support for the continued growth of DePIN projects.

The Future Drivers and Competitive Advantages of the IoTeX Ecosystem

Overall, while the development of DePIN (Decentralized Physical Infrastructure Networks) projects may be relatively slow and structurally complex, their unique characteristics grant them a competitive edge that is difficult to replicate. The independence and uniqueness of DePIN projects give them a distinct market appeal and lasting value. Unlike other applications, DePIN projects are not easily copied or forked due to their intricate application logic, economic models, and contract-layer designs. Even for similar applications, like smart wearables, their implementation can vary significantly across different platforms. Additionally, the user base within the DePIN ecosystem is of very high quality. Unlike some projects that boast high user engagement but have mismatched on-chain TVL (Total Value Locked) and capital, DePIN projects may have a smaller user base, but these users are more akin to traditional miners—high-quality and highly loyal. These users not only demonstrate high levels of engagement but also contribute real value to the ecosystem.

The growth of the IoTeX ecosystem will rely on the maturation and expansion of increasingly interesting and mainstream-reaching DePIN projects. Examples of currently active ecosystem projects include Wayru, Network3, WatchX, PowerPod, Inferix, and Starpower, along with DeFi infrastructure projects like Pinswap, Quenta, Loxodrome, Bedrock, and Magma. These projects are instrumental in driving early momentum for the IoTeX ecosystem. As these projects continue to progress, the IoTeX ecosystem will further showcase its strong appeal and growth potential. Simultaneously, the recently completed $50 million in funding will further accelerate DePIN’s growth and ecosystem adoption, with investments in IoTeX-based DePIN projects from the IoTeX Foundation and the DePINsurf Accelerator Fund. These investments will solidify IoTeX’s leadership position in the evolving DePIN ecosystem.

From an industry perspective, the rise of DePIN has undoubtedly brought revolutionary changes to the market. While DeFi has made waves in the financial sector, its limitations have gradually become evident. In contrast, DePIN extends the boundaries of decentralized technology by integrating blockchain with physical infrastructure, creating a broader and more diversified ecosystem. The uniqueness of the DePIN sector lies in its ability to blur the lines between the virtual and real worlds, achieving true integration of the physical and digital realms. This integration not only drives technological innovation but also fosters new business models and avenues for value creation. IoTeX 2.0’s strategic layout in this domain reflects a forward-thinking vision and strong execution capability. The platform aims to build a “Real-World Database,” redefining infrastructure development and resource allocation through a decentralized approach, thereby creating a more open and inclusive smart ecosystem.

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