A complete DePIN (Decentralized Network Hardware Infrastructure) project is a more complex and comprehensive Web3 project.

Written by: Jason, Puzzle Ventures

Introduction

DePIN is the abbreviation of Decentralized Physical Infrastructure Networks, as the name implies, it is "decentralized network hardware infrastructure". In fact, this kind of decentralized hardware facility had the practical application of vague concepts a long time ago. For example, the Bitcoin mining machine is actually a decentralized hardware network, and the power grid management system in the web2 world also covers A certain concept of decentralized hardware facilities.

In order to accurately define the concept of DePIN in this article, we use Messari (Explanation for DePIN: **A method that uses blockchain technology, through token incentives, to coordinate in a permissionless, trustless and programmable form The physical hardware facilities of multiple individual units. **DePIN can also be described as Proof of Physical Network (PoPW) or Token Incentivized Physical Infrastructure Networks (TIPIN). In simple words, it is managed by token incentives. A network of individual pieces of hardware that can be used to serve specific projects.

In broad terms, DePIN is actually quite broad. The PoW mining machine is the hardware facility for maintaining the operation of the blockchain network. However, as the traditional PoW model is gradually eliminated, the mining machine is not within the scope of this article. This article will focus more on providing specific information on the blockchain network. The hardware network of the service, not the blockchain network itself. From another point of view, the entire web3 world is built on the DePIN network, because the operation of each node is realized based on individual units renting their own servers. After clarifying these two logics, we can focus more on the research direction of this paper: those that are not covered by the blockchain network itself, provide additional toB or toC services, but use the blockchain network to manage and coordinate , a network formed by hardware facilities. **

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As shown in Figure 1, the entire vertical ecological chain of DePIN is more complicated than the general web3 project. In the upstream**, the project party needs to consider the choice of hardware equipment manufacturers, especially for projects involving high-precision sensing equipment and chips, and needs to choose suitable partners in terms of cost, quality, and large-scale production. In the middle reaches, the project party needs to consider the usage scenarios of the hardware equipment and the integration with the corresponding third-party service provider/carrier, which creates a threshold for the user's own conditions, such as network speed, power, drone driving The necessity of such resources makes the user's use cost overall high. In the downstream, the project party needs to establish a corresponding integration platform and design an economic model that conforms to the flywheel effect, which poses a high test for the project party's cognition and experience. In general, a complete DePIN project is a more complex and comprehensive web3 project.

The core mechanism of DePIN

**The basic mechanism of a DePIN network construction is that individual hardware units earn rewards by renting out the services provided by the hardware. **And forming this mechanism into a global network-like decentralized network requires the token economy to play a role in it. Therefore, the pattern of the entire economic flow can be summarized in Figure 2. This mechanism itself is different from the traditional hardware industry. Traditional centralized hardware service providers often need a large amount of upfront funds to purchase or build hardware facilities, and the income depends on future orders. This model can only be borne by large companies with deep pockets or projects led by government finances to bear its potential risks and competition, while small and medium-sized enterprises can hardly participate. **DePIN is a spiral dynamic mechanism during the early boot-strap period. Users, providers, and platforms can all participate and grow gradually under the premise of taking relatively small risks. **The most critical of these is the coordinating role played by the highly dynamic nature of token incentives. The platform can design one-time rewards, Staking APR and other parameters based on the data of both suppliers to achieve dynamic balance.

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For example, Render Network is a decentralized GPU rendering service matching platform, linking users performing rendering jobs with users with idle GPUs. In terms of token incentive mechanism, Render Network first designed a rendering unit standard based on OctaneBench (OB) based on its experience in the rendering industry, and based on this standard, the participating idle GPU users were divided into 3 levels, and the 3 levels were based on The differences in GPU rendering speed are distinguished. 100RNDR token can pay 2,500 OBh-20,000 OBh (depending on the GPU level used), concretely, 100RNDR token uses 1 RTX 2070 graphics card for 50-100 hours or uses 10 RTX 2070 graphics cards for 5-10 hours, this is a The simplest initial token incentive model. After accumulating early users, Render Network gradually began to enter the fourth step, which is to further optimize the platform and maintain the balance point of token income. In terms of optimization, Render Network mainly starts from the perspective of scalability, such as optimizing algorithms to reduce queuing time and establishing local APIs to improve upload and work efficiency. In terms of token income balance, the RNDR network voted for the Burn-and Mint Equilibrium (BME) model in February 2023.

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The essence of this model is that users purchase GPU rendering services through RNDR tokens, and then the used tokens are destroyed after the task is completed, and the rewards of service providers are issued using newly produced tokens. The newly issued token will not only be based on the completion of a task, but also include customer satisfaction and other comprehensive issues. In this way, **RNDR token has consumption scenarios in the entire economy. At the same time, the balance between supply and demand can be adjusted according to the algorithm between the destroyed tokens and the newly minted tokens, and the entire business model is also simple. C2C gradually evolved into a more managed B2C. **

The meaning and value of DePIN

The concept of DePIN was proposed because of its profound significance and value, which is meaningful for the future web3 industry form, technological revolution, and economic revolution.

Unit cost and scale effect

This crowdsourcing model of DePIN can reduce the overall cost (or diversify the cost), and can quickly scale up in a short period of time. As mentioned in the previous article (link), decentralized storage platforms such as Filecoin and Arweave can be dozens to hundreds of times cheaper than Amazon S3, and the hotspot signals provided by helium and the GPU provided by Render Network Rendering services have a price advantage over traditional centralized service providers. Helium's LongFi protocol has 200 times the range of Wifi, and the total cost of a year for a device that needs to receive packets is $0.09 if it is updated every hour. In comparison, the total cost of using a large signal provider such as AT&T is about $36. On the other hand, the cost of DePIN in other aspects has also been reduced, including labor costs, plant costs, operation and maintenance costs, etc. due to its decentralized nature, almost no longer exist. In essence, **DePIN's asset-light model is a disruptive innovation to the asset-heavy model of the traditional ICT industry. **

However, the other side of the coin is instability and security risks. A hardware network that is completely permissionless and relies on token incentives to manage nodes is, at least so far, only an idealized concept. In practical application, various problems may be encountered: the imbalance of revenue and expenditure caused by the floating of tokens and finally reaching the "shutdown price", triggering a death spiral; misoperation caused by the unprofessionality of a single node, causing failures; nodes doing evil Behavior, hacking issues, and more. Therefore, to solve these problems, there are high requirements for the business capabilities of the project team, and the further improvement of the overall blockchain infrastructure is also required. It is foreseeable that different levels of requirements correspond to different levels of service providers, businesses with high security and stability requirements use centralized large service providers, while data service requirements with high frequency and low requirements can use DePIN. In other words, DePIN is as meaningful as DEX is to traditional finance.

Reuse of idle resources

DePIN can gather scattered idle resources and provide them to the most needed and valuable businesses. This topic is actually very interesting, because the reuse of idle resources can be said to create additional markets and value, and at the same time can drive individuals to generate additional income. Judging from the current mainstream DePIN project, the idle resources collected by ** are mainly four: hard disk storage space, communication traffic, GPU computing power, and energy. **But in theory, we can imagine that more similar idle resources can be reused in the future, such as cameras, screens, brainpower, etc. This is actually an attempt at a global sharing economy in the field of digital information, and its essence is similar to idle fund management in the financial field and idle vehicle leasing in the transportation field.

But is this mode of reuse of idle resources a necessary factor for future economic development? Idle GPUs, hard disk space, or WiFi are indeed idle during non-normal usage or working hours, but is full workload that completely covers all hardware a state we hope to have in the future? These are actually deeper ethical issues. On the one hand, this large-scale sharing economy model is based on credit, so any mistakes in the design of token incentives will cause a small number of people to take advantage of the loopholes to benefit, and the majority of participants will suffer losses and users. On the other hand, large-scale access to hardware interfaces will bring about a reduction in privacy and data leakage in all aspects. Therefore, **Under the existing infrastructure environment, DePIN is not suitable for everyone to participate, and the upper limit of its market size is lower than that of the sharing economy in the non-digital information field. **

Regional Performance

Regional performance means that distributed hardware can provide higher short-term performance than centralized hardware service providers. The main scenarios are game rendering and computing. This feature has not yet been proven and applied on a large scale, but it is still worth thinking about its significance. In the current multi-player chain game scenario, when a large number of users are online at the same time, it is necessary to call the public RPC node to perform smart contract reading and other execution-level tasks, and when the node enters an overloaded state, it will cause delays or even downtime. This problem itself is a technical barrier to the large-scale application of blockchain, and there are currently some targeted measures, such as the execution environment lease adopted by Altlayer, L2s, gamefi dedicated server, etc. And some DePIN projects are also trying to solve such problems through higher-density hardware networks. Taking exaBITS as an example, when the density of its cloud computing hardware layout is wide enough, it can instantly call the nearest server according to the geographical location of the game player, so that the calculation or rendering needs of thousands of players can be released and distributed in a more even way. solve. Similarly, when large-scale computing needs such as GPU rendering or AI computing arise, a corresponding batch of hardware in the DePIN network can also meet the needs in a short time. From a theoretical point of view, the high-density and decentralized hardware deployed by DePIN can instantly meet the needs of short-term high-computing tasks, thereby forming a regional performance improvement. Of course, this is only an assumption in an ideal state. The distribution of professional game servers may reach a certain extent to meet the needs of players around the world, and the game experience brought by comprehensive computing hardware such as DePIN is not necessarily guaranteed. better than expected. In any case, the imagination space that DePIN brings to us is huge, and bigger icebergs will gradually surface in the future.

Track overview

The DePIN track is a special track, partly because the scope of this track is very wide, and partly because many similar or similar projects can be roughly classified as DePIN. This article is based on Messari's DePIN Sector Map, and uses a more detailed and three-dimensional split logic to try to describe this track more clearly.

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Niche Dimensions

**First of all, the most important classification dimension in the DePIN track is: the two dimensions of a part of the blockchain network itself and the use of blockchain technology to realize new services, and this dimension is not mentioned in the Messari report. **There are two parts in the blockchain network ecology that can be adopted and optimized by DePIN, one part is data storage, calling, and archiving, and the other part is the possibility of L3 expansion. In the data storage part, the independent storage layer represented by Filecoin and Arweave has become the mainstream paradigm, and the decentralized storage nodes built by such projects are a form of DePIN. The other part is some L3 layers that try to improve performance by renting external communication networks or GPU networks. These L3 layers are more inclined to customize to solve a specific problem, but in the process of solving the problem, they do call the external blockchain network. hardware facilities, so it can also be classified as DePIN. These two DePIN projects are designed to solve the needs of one or more blockchain ecosystems, and can also be said to be part of the underlying network of the blockchain. The other dimension is based on the underlying blockchain network, using Blockchain as a Service to build new businesses, such as the Internet of Things, cloud computing, energy storage, traffic data, geographic and weather data, image and video processing etc. This type of project uses the blockchain as a coordination and management network to connect the hardware facility provider and the demand side, which is the second type of dimension.

Device Dimensions

Second, the DePIN track can split out the dimensions of the device. On the whole, the current hardware devices involved in DePIN are mainly hard disks, databases, servers, communication signals, and GPUs that come with PCs or mobile phones, while different types of sensors and project-customized hardware are another market. The Helium-based customized hardware model was once popular all over the world, but now it has fallen into a vortex of doubts. According to the data revealed by @Liron, Helium's data server revenue in June 2022 is only US$6,500, but there are as many as 900,000 hotspots in the global layout. This huge imbalance between provider and user demand has also led to HNT token (Since there is no additional source of income, the balance can only be maintained through the reduction of token incentives). There is no problem with Helium's hardware products and concepts. The core of the problem lies in: the customized hardware model involves upstream manufacturers. The profit goal of upstream manufacturers is to sell more devices, and the profit goal of the Helium platform is also to some extent Earning fees by selling devices and registering, in the absence of external income, can only be transfused by existing device buyers or new device buyers, which completely violates the original intention of the DePIN network. Currently, Helium is trying to build a "network of networks" compatible with third-party wireless networks (5G, WiFI, CDN, VPN), but the current effect is unknown.

**From the case of Helium, it can be seen that once the customized hardware model is not well grasped in terms of layout and development rhythm, it will cause a death spiral. **Other more innovative devices include Spexigon's drone shooting, Geodnet's space weather station, etc., which are full of imagination. However, when considering the probability of success of these projects, we should focus on several indicators: 1. The cost of purchasing hardware and the payback cycle. Is the project party mainly selling hardware or providing services? 2. Are there confirmed service buyers who are already cooperating with the network? 3. Does the hardware itself match the home environment without consuming excessive resources?

Domain Dimensions

Finally, the DePIN track can also be split from the domain dimension, that is, what types of services are provided. The Internet of Things and wireless communication based on Helium are one part, the GPU field based on GPU rendering and video transcoding is one part, and the real-life data and image collection based on various sensors is one part. Hivemapper uses a driving recorder as a hardware device to establish a map data update mechanism, Spexigon uses a drone camera as a hardware device to establish a high-definition, three-dimensional image library, and DIMO uses a car as a hardware device to establish a car networking information system. These projects all have one thing in common: the demand is unknown. In the current relatively complete web2 ecology, some such as maps, photo shooting, car information, etc. can be partially or completely replaced by many web2 products, and the only advantage of these projects is that users can get token incentives. Token incentives are not all about web3. **The significance of the DePIN era is to connect real life with web3 through hardware facilities so that web3 can be better integrated with people's lives, and the real demand for DePIN may still have to wait for better timing. **

Recent developments and potential issues

In order to fully understand the development status of the DePIN project, we analyzed the latest progress and community responses of the two top projects—Helium and Render Network, and tried to find potential development bottlenecks.

Helium

Helium has completed more than $300 million in financing in 2021-2022, and its early equipment sales once reached FOMO sentiment. As of now (May 2023), Helium has deployed 460,000 hotspots around the world, covering 192 countries and 77,000 cities, and adding hotspots every day. However, after such a perfect start, Helium's community reputation has gone up and down, completing the plot reversal from "one machine is hard to find" to "low price and cheap sale". The main issues that arise include:

**1. The income of miners. **The current HNT income of a mining machine with an average price of around US$500 is around US$20/month, and the income and cost are extremely unbalanced. Of course, after Helium migrated to Solana and converted the new IOT token income, the situation of some miners has improved slightly, but there is still a big gap from expectations (as shown in Figure 5). According to the latest statistics from Heliumtracker.io, the recent average daily income of each hotspot is about US$0.2, while the average daily income of $MOBILE on the 5G network is around US$3.6, but the hotspot coverage of the 5G network requires higher requirements.

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**2. Professional miners do not have an advantage in admission. ** To operate a mature miner network requires not only ordinary enthusiasts, but also professional miner teams to participate. However, Helium's Proof of Coverage mechanism needs to ensure a distance of 500-1000 meters between hotspots, which is not friendly to intensive deployment, which also makes the traditional intensive deployment of mining machines by professional miners teams unable to take advantage of the helium project .

3. Helium migrated to the Solana network on April 20 this year, and has since transformed into a project that is biased towards the application layer network. However, Solana's own reputation and the FTX thunderstorm incident have negatively affected Helium in disguise, and Helium's abandonment of the development direction of the L1 layer network construction has also caused some community backbones to lose their fans. Judging from Helium’s official push, the benefits of migration are reduced transaction costs, stronger market integration capabilities, and the change of development language to attract more developers (it turned out to be the unpopular Erlang), but the biggest problem is that it reduces The unique attraction of the Helium network has transformed from an L1-level project into a Solana ecological project. **

Judging from the current latest community feedback, this migration has brought many technical problems to ordinary participants, such as the conversion of IOT to HNT, failure to receive rewards, etc., which is not conducive to the participation of new users and the retention of old users the elements of. **In general, Helium is the forerunner of the DePIN track, and it once triggered a high degree of enthusiasm and a potential paradigm revolution, but the future value of DePIN cannot be verified based on the current operating conditions of Helium. **

Render Network

OTOY, the parent company of Render Network, is the head project of rendering software, and its web2 product Octane has been adopted by projects in the film and music fields including Disney and music producers. The project concept of Render Network is to provide a higher order of magnitude of decentralized rendering support for the future Metaverse. From the perspective of demand, Render Network provides just-needed items for all rendering projects (dynamic NFT, metaverse gaming) in the metaverse in the future, while Helium is more like actively creating demand. As shown in Figure 6, Render Network completed 6 million and 9.4 million Frames in 2021 and 2022, and $RNDR is also constantly circulating in it.

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Judging from the recent project dynamics, the adjustments made by the project party are all conducive to the long-term development of the project:

1. The RNP-001 proposal passed the BME token model mentioned above, which has greatly improved the circulation and supply-demand balance of tokens. Although it is only a theoretical economic model optimization, the price of $RNDR Judging from the trend, it still has a great influence on boosting community confidence.

2. The RNP-002 proposal approved the decision to migrate to Solana, and explained the main considerations: developer community, TPS, liquidity, transaction fees, programming language, smart contract integration, etc. This proposal is also from the future of the project Considering the expansion capacity, it finally won 99.26% of the votes. After the RNP-002 proposal was passed, community satisfaction and token prices both increased positively (the token price rose by 43% within two days), which also proved the good relationship between Render Network and the community.

3. The RNP-003 proposal approved the Render Network Foundation's team expansion and Grants' right to use tokens for future development. This proposal also received a voting rate of 99.9%. While ensuring that participants receive sufficient rewards, Render Network requisitions a part of the newly generated tokens to develop the project ecology, which is in the interests of the community for the long-term ecological construction of the project.

**In general, Render Network not only has the support of an experienced parent company such as OTOY, but also has a foundation and token mechanism in line with the spirit of web3, and can also balance the relationship between project development and community interests and the relationship with the community Well maintained, it can be considered a benchmark project for the current DePIN circuit. **

Summarize

**The DePIN track is a track that can be "old wine in new bottles", or an imaginative track that completely breaks through the boundaries of the industry. **The hardware network based on decentralized storage and computing is still an important underlying infrastructure of the entire web3 ecosystem, and it can also provide a lower-cost back-end design for the application layer. The hardware facility network based on GPU and sensors is trying to establish a new service rental and matching market.

In the future, key directions worthy of our attention include:

1. Pan-entertainment DePIN

The pan-entertainment DePIN network composed of wearable hardware such as Gopro and AR glasses is an imaginative track. The essence of entertainment upgrade is experience upgrade, and the DePIN-based pan-entertainment network can not only improve the immersive participation of entertainment (supply layer), but also bring more three-dimensional and dynamic entertainment methods (demand layer). The industries that will be involved include sports, live broadcast, games, media, etc. How to combine DePIN with these fields and create a positive flywheel model is worth looking forward to.

2. Real-world data

The value that DePIN brings to society is inseparable from the use of data elements. Judging from the current development trend, sensors, as real-world data input and output ports, have formed an interaction mechanism with meteorological data, sports data, and image data, and more types of data can be captured in more ways in the future . In addition, some real-world data are difficult to capture through a centralized system. The decentralized nature of DePIN can more effectively capture those scattered but important data, and the subsequent processes such as storage, use, and transformation of these data will gradually A complete industrial chain has been derived, so the imagination of its market size is relatively large.